India’s Rice Export Ban and its Consequences

The government claims that the prohibition is required to guarantee domestic food security and a sufficient supply of feed. However, the administration guaranteed that the status of rice availability is comfortable and that there is no scarcity concern barely two weeks after the ban on broken rice.

International rice prices have become unstable, partly due to the increase in parboiled rice cargo prices, and there’s a risk of trade disruptions. It doesn’t appear that the ban will provide much relief to Indian consumers who faced continuous price hikes in rice over the past year. Additionally, it’s doubtful that farmers will benefit from rising food prices. Instead, powerful lobbies representing private traders and ethanol producers seem to be the main beneficiaries of the export ban.

India's Rice Export Ban and its Consequences

The ban has put the food security of several rice-importing countries in Africa and South Asia at risk. Additionally, India’s credibility as a reliable exporter is in jeopardy. However, whether with or without the ban, the possibility of benefiting Indian farmers seems slim. Rather, private traders, mill owners, and exporters might shift the burden of their losses onto farmers, especially during the upcoming rice procurement season. This becomes more pronounced in the absence of government procurement, which acts as a countervailing power in the market.

The government’s argument that the ban will ensure domestic food availability seems dubious, especially considering its limited efforts in recent years to procure food grains. This has left room for exploitation by private traders. Consequently, the government’s ability to intervene in the market to control prices and ensure adequate availability has significantly diminished.

Impact on Feed and Ethanol Industries

Broadly, India’s rice categories include Basmati rice, Non-Basmati rice (N-B), and Broken rice. N-B rice is further divided into two sub-categories: Parboiled Non-Basmati (PNB) and Raw Non-Basmati (RNB).

Exporting Broken rice is currently about 5% of India’s total rice exports while exporting Raw Non-Basmati (RNB) accounts for about a quarter of all rice exports. Export of both these categories is now restricted. The majority of Basmati rice and Parboiled Non-Basmati (PNB) make up around 55% of India’s rice exports.

India's Rice Export Ban and its Consequences

The export of Broken rice is linked to the animal feed industry and ethanol production. In September 2022, the government imposed a ban on the export of Broken rice. During that time, domestic Broken rice prices were on the rise due to the impact of high international prices on domestic rates. In response to soaring global prices, Indian exports were rapidly growing. Between April and August 2022, around 2.13 million metric tons of Broken rice were exported, compared to just 0.41 million metric tons in the same period of 2018-19, representing an increase of over 5000% in three years.

Most of India’s Broken rice was being sent to China, accounting for 97% of India’s total rice exports to China, most of which catered to China’s feed industry and wine production. It’s evident that the increasing Indian exports have domestic repercussions, leading to higher input costs for the Indian feed industry and subsequently raising prices of milk, eggs, and meat.

The government claims that the prohibition is required to guarantee domestic food security and a sufficient supply of feed.-However, just two weeks after the ban on Broken rice, the government assured that the situation of rice availability is comfortable, and there’s no concern of shortage.

The government also deemed the ban appropriate considering the needs of the ethanol industry. India’s domestic ethanol production heavily relies on Broken rice and maize, especially during periods of low sugarcane supply. A few years ago, the Food Corporation of India (FCI) started supplying ethanol distilleries with Broken rice from buffer stocks. Since then, supplies have increased significantly: from 0.49 million metric tons in 2020-21 to 10.68 million metric tons in 2021-22, and with five months still remaining in the current ethanol season, reaching 13.05 million metric tons by July 10.

India’s total production of Broken rice is around 50-60 LMT, with a target of delivering 32 LMT to ethanol distilleries this year. This seems to favor domestic ethanol producers, ensuring enough supply while the ban on exports impacts the traders. While exporters are affected, rising rice prices in India might allow private traders to generate more profit, especially if there continues to be a decline in government purchases, as seen in recent years.

However, there’s more in storage for exporters.

On July 28, the government imposed a ban on the export of another major byproduct of rice mills, Defatted Rice Bran (DORB), until November 30. DORB is obtained by extracting solvents from rice bran, containing about 13-19% oil content. With its rich vitamin B structure, it is primarily used in animal feed products. DORB constitutes about 25% of cattle feed in India, and the majority of it was exported to China, accounting for 97% of India’s total exports of DORB to China, most of which served China’s feed industry and winemaking.

Clearly, the increasing Indian exports have a domestic impact, leading to higher input costs for the Indian feed industry, ultimately raising the prices of milk, eggs, and meat.

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