India rice ban places strain on already vulnerable global food supply chain

"Retail prices have increased by 11.5% over a year and 3% over the past month," the Ministry of Consumer Affairs said at that time, explaining the export ban.

Non-basmati white rice constitutes about 25% of total Indian rice exports.

The Indian decision, made for drastic domestic reasons of price and supply stability, was viewed with extra alarm as it came on the heels of Russia pulling out of the Black Sea grain initiative — a deal originally brokered by Turkiye and the United Nations in July last year and extended for short periods of time.

Read more: World leaders race to get Black Sea grain deal back on track

Mounting concern

With India accounting for 40% of global rice trade in 2022, the worries over more missing grain in the food supply chain are valid.

"In the current environment, these types of restrictions are likely to exacerbate volatility in food prices in the rest of the world. And they can also lead to retaliatory measures," International Monetary Fund (IMF) chief economist Pierre-Olivier Gourinchas said in a briefing on 25 July.

"We encourage removing these export restrictions because they can be harmful globally," he said.

For rice importers, there are two major implications: price and the reliable availability of the grades preferred in their local cooking.

India exported 22.3 million tonnes of rice in its financial year 2022-23 (April-March).

The annual value of Indian rice exports was $6.3bn for non-basmati and $4.7bn for basmati.

About 63% of its total 4.55 million tonnes of basmati exports went to five top Middle East buyers: Saudi Arabia, Iran, Iraq, the United Arab Emirates and Yemen.

In terms of value, Saudi Arabia bought $1bn worth of basmati rice from India in 2022-23, followed by Iran ($980mn), Iraq ($375mn), the UAE ($334mn) and Yemen ($307mn).

Top non-basmati buyers by value were Benin ($529mn), China ($494mn), Senegal ($432mn), Ivory Coast ($420mn) and Togo ($331mn).

These five countries accounted for about 34% of India's non-basmati export volumes of 17.78 million tonnes in 2022-23.

Taxes and restrictions

The Indian government hardly has any room for manoeuvre when it comes to commodity inflation at home as the political cost can be huge in an election season. Five assembly elections are due to take place this year and Prime Minister Narendra Modi will be looking for a third term in next year's national elections.

India's rice situation started becoming tight last year, when the government banned the export of broken rice and imposed an export duty of 20% on some grades in September 2022.

That India's current rice supply situation is serious is undeniable.

"To check the domestic prices and to ensure domestic food security, the government has been taking measures to restrict the export of rice from India," the Commerce Ministry said in August, noting that despite restrictions on certain varieties, rice exports have been high during the current year.

Therefore, the situation warranted further measures.

The government followed the July export ban on non-basmati white rice with a 20% tax on exports of parboiled rice, a variety that accounts for 30% of Indian rice exports.

When it found out that exporters had begun illegally using loopholes to ship non-basmati rice abroad, further safeguards were announced on 27 August.

For example, one trade malpractice was to label non-basmati shipments as "basmati", but the price mismatch was too glaring to go unnoticed.

The contract price of the rice labelled as "basmati" was found to be as low as $359 per tonne compared with the average export price of $1,214 per tonne of real basmati in August.

The authorities then ordered that no basmati exports below $1,200 per tonne would be permitted.

"The government has received credible field reports regarding misclassification and illegal export of non-basmati white rice, which has been prohibited since 20 July 2023. It has been reported that non-basmati white rice is being exported under the HS codes (the Harmonized System of tariff nomenclature) of parboiled rice and basmati rice," the Commerce Ministry said.

However, some exporters are still selling non-basmati rice as "basmati" with the connivance of their foreign buyers.

In this trickery, importers pay the rate of $1,200 and above per tonne for cheaper non-basmati with the undisclosed arrangement that the price difference would be adjusted in future transactions.

"Basmati rice exporters are choosing the overbilling route so that they do not lose their export markets to Pakistan, a major competitor," one newspaper reported.

Price spike

At stake is India's share in the global rice market, which has grown to 40% from 22% in 2008.

Global rice prices have shot up about 20% since India's ban amid heightened supply worries as the grain is a staple for three billion people worldwide.

The UAE, a key regional trading hub, on 28 July banned rice exports and re-exports for four months.

At least one country can enjoy unimpeded rice purchases from India, as New Delhi has made an exception for Singapore in deference to "a very close strategic partnership".

While the government may worry about domestic political sensitivities and the ban's external fallout, exporters fear losing out to other top rice exporters: Thailand, Vietnam and Pakistan.

If the Indian rice curbs continue for a long period, a rearrangement of the rice market and culinary tastes becomes a real prospect.

India rice exports for the financial year (2022-23, April-March) 

Basmati rice export volumes

(Total: 4.55 million tonnes)

Top five buyers of Indian basmati rice (in tonnes)

• Saudi Arabia: 989,000
• Iran: 934,000
• Iraq: 355,000
• United Arab Emirates: 319,000
• Yemen: 291,000

Non-basmati export volumes

(Total: 17.78 million tonnes)

Top five buyers of Indian non-basmati rice (in tonnes)

• Benin: 1.47 million
• China: 1.38 million
• Senegal: 1.2 million
• Ivory Coast: 1.17 million
• Togo: 924,000