Impact on the Philippines, Indonesia, Thailand: Nomura


India’s rice production fell 5.6 percent year-on-year in September as below-average monsoon rainfall hit the crop, Nomura said.

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India, the world’s largest rice exporter, has banned shipments of broken rice – a move that will reverberate across Asia, according to Nomura.

In a bid to control domestic prices, the government banned broken rice exports and imposed a 20 percent export tax on several varieties of rice from September 9.

Nomura said the impact on Asia will be uneven, and the Philippines and Indonesia will be the most vulnerable to the ban.

India accounts for around 40% of global rice shipments, exporting to over 150 countries.

Exports reached 21.5 million tonnes in 2021. That is more than the total shipment of the next four biggest grain exporters – Thailand, Vietnam, Pakistan and the United States, Reuters reported.

But production was down 5.6% year-on-year to Sept. 2 amid below-average monsoon rainfall, which affected the harvest, Nomura said.

For India, July and August are the “most crucial” months for rainfall, as they determine the amount of rice sown, said Sonal Varma, chief economist at the financial services firm. This year, uneven monsoon rains during these months reduced production, she added.

India’s major rice producing states such as West Bengal, Bihar and Uttar Pradesh receives 30 to 40 percent less rainfall, Varma said. Although precipitation increased towards the end of August, “the later the plantings [of rice] that is, the greater the risk that the return will be low.”

Earlier this year, the South Asian nation curbed wheat and sugar exports to control rising local prices as the Russia-Ukraine war threw global food markets into turmoil.

Most affected

The Indian government recently announced that rice production during the southwest monsoon season between June and October could drop by 10-12 million tonnes, implying that crop yields could drop by 7.7% year-on-year, Nomura said.

“The impact of a rice export ban by India would be felt both directly by countries that import from India and also indirectly by all rice importers, due to its impact on prices world rice markets,” according to a recently released Nomura report.

Nomura’s results revealed that the cost of rice has remained high this year, with price increases in retail markets reaching around 9.3% year-on-year in July, compared to 6.6% in 2022. Inflation consumer price (CPI) for rice has also increased. 3.6% year-on-year in July, compared to 0.5% in 2022.

The Philippines, which imports more than 20% of its rice consumption needs, is the country in Asia most exposed to the risk of rising prices, Nomura said.

As Asia’s largest net importer of commodities, rice and rice-based products account for a 25% share of the country’s food CPI basket, the highest share in the region, according to Statista. .

Inflation in the country was 6.3% in August, according to data from the Philippine Statistics Authority – above the central bank’s target range of 2% to 4%. In light of this, India’s export ban would be a further blow to the Southeast Asian nation.

Similarly, India’s rice export ban will also hurt Indonesia. Indonesia is probably the second most affected country in Asia.

Nomura said the country depends on imports for 2.1% of its rice consumption needs. And rice makes up about 15% of its CPI food basket, according to Statista.

For some other Asian countries, however, the pain is likely to be minimal.

Singapore imports all of its rice, including 28.07% from India in 2021, according to Trade Map. But the country is not as vulnerable as the Philippines and Indonesia because “the share of rice in [country’s] The CPI basket is quite small,” Varma noted.

Singaporean consumers tend to spend “a larger portion” of their spending on services, which generally seems to be the case for high-income countries, she said. Low- and middle-income countries, on the other hand, “tend to devote an even larger proportion of their spending to food”.

“Vulnerability needs to be considered both in terms of the impact on consumer spending and how dependent countries [are] on imported food products,” she added.

Countries that will benefit

On the other hand, some countries could benefit from it.

Thailand and Vietnam will most likely benefit from India’s ban, Nomura said. This is because they are the world’s second and third largest exporters of rice, making them the likeliest alternatives for countries looking to fill the void.

Vietnam’s total rice production was around 44 million tonnes in 2021, with exports worth $3.133 billion, according to a July report by research firm Global Information.

Data from Statista showed that Thailand produced 21.4 million tonnes of rice in 2021, an increase of 2.18 million tonnes from the previous year.

With increased exports and India’s ban putting upward pressure on rice prices, the overall value of rice exports will increase and both countries will benefit.

“Anyone currently importing from India will be looking to import more from Thailand and Vietnam,” Varma said.


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