Markets
Mint Explainer: Why are Indians abroad rushing to stock rice?
Summary
- A ban on rice shipments will have a huge impact as India's exports of the food grain account for about 40% of the global rice trade
Social media footage showcasing non-resident Indians in the US frantically purchasing rice at grocery stores have gone viral. Mint delves into the causes behind this panic buying and examines the recent spike in global food prices.
Why are NRIs worried about rice availability?
Global food prices have been simmering since Russia pulled out of the Black Sea grain deal last week. To rein in grain exports amid a high food inflation, India has imposed a ban on non-basmati rice exports. While the move has had a cooling effect on domestic prices, it has triggered fears of shortages among non-residential Indians and Asian comminities in the US and elsewhere. India is a major player in the global rice market. Unlike its decision to halt wheat exports last year, a ban on rice shipments will have a bigger impact as India's exports of the food grain account for about 40% of the global rice trade. India’s wheat exports were barely 1% of the global trade.
Have heavy monsoon rains triggered the ban?
Yes, in part, the heavy monsoon rains have played a role in the export ban. A significant portion of India's freshly sown crops in key rice-producing states, including Punjab and Haryana, suffered substantial damage following severe rainfall in the northern regions of the country in recent weeks. The Indian Meteorological Department (IMD) had issued a red alert earlier this month for parts of Punjab and Haryana, two states that contribute around 20% to India's overall rice production. Local agricultural authorities report that nearly 250,000 ha of paddy fields in 14 districts of Punjab and 150,000 ha across seven districts of Haryana are inundated. If conditions persist, excessive rainfall could potentially result in a reduced crop yield due to additional damage to the paddy fields.
Why is the Black Sea grain deal so crucial?
The Black Sea grain deal holds critical significance due to the enormous influence Russia and Ukraine exert on the global grain market, contributing over one-third of total exports. Global food prices had surged to unprecedented levels following the outbreak of the Russia-Ukraine conflict in February last year. To safeguard food access for vulnerable nations, the United Nations and Turkey brokered a crucial agreement, known as the Black Sea grain deal, with Russia in July 2022. Under this agreement, Russia permitted grain exports from three major Ukrainian ports in the Black Sea: Odessa, Chornomorsk, and Pivdennyi. This deal was instrumental in mitigating the rise in global food prices. However, escalating geopolitical tensions led to Russia's withdrawal from the agreement, triggering fresh global concerns, and in turn pushing prices higher. In a minor relief, Russian president Vladimir Putin has promised free grain supplies to six African nations after pulling out of the deal.
Where are global food prices headed?
The future trajectory of global food prices is a subject of considerable concern. The International Monetary Fund (IMF) has projected that Russia's withdrawal from the Black Sea grain deal could potentially push global grain prices up by 10-15%. Pierre-Olivier Gourinchas, IMF's chief economist, has emphasized the crucial role of the Black Sea grain deal in ensuring continuous flow of grain supplies from Ukraine, thereby alleviating food price pressures. India's rice export ban will only exacerbate matters. Gourinchas has forecast that it might take until late 2024 or early 2025 for inflation to return to central bankers' targets, signifying the end of the current cycle of monetary tightening.
