Rising Farm Subsidies Posing Threat to Rice Supply Resulting in Higher Prices

The global price of rice, which is currently at its highest level in 11 years, is expected to rise further due to India's decision to boost payments to farmers.

This move comes at a time when El Nino threatens rice yields in major producing countries and the cost of alternative staples rises for impoverished populations in Asia and Africa.

India is responsible for over 40% of global rice exports, which amounted to 56 million tonnes in 2022. However, low stockpiles mean that any reduction in shipments will contribute to the rise in food prices caused by Russia's invasion of Ukraine last year and unpredictable weather patterns.

B.V. Krishna Rao, the president of the Rice Exporters Association (REA) said that India was the cheapest supplier of rice. As Indian prices increased due to the new minimum support price, other suppliers also started raising prices.

Rice is a staple for more than 3 billion people, and nearly 90% of this water-intensive crop is grown in Asia, where the El Nino weather phenomenon typically leads to reduced rainfall. Despite the potential disruption in production caused by El Nino, the global rice price index of the Food and Agriculture Organization remains above an 11-year high.

The U.S. Department of Agriculture (USDA) has predicted near-record output from the top six global rice producers: Bangladesh, China, India, Indonesia, Thailand, and Vietnam.

However, Nitin Gupta, vice president of Olam India's rice business stated that the impact of El Nino is not limited to any single country; it affects rice output in almost all producing countries.

The price of Indian rice exports has surged by 9% to reach a five-year high, following a 7% increase last month in the government's purchase price for common rice during the new season. Export prices in Thailand and Vietnam have also risen to more than two-year highs since the introduction of this incentive, which was intended to attract votes from farmers in key Indian state elections this year and the general election next year.

In recent months, the prices of meat, sugar, and eggs have also soared to multi-year highs globally due to reduced exports aimed at stabilizing domestic costs.

Despite the forecast for a robust Asian rice crop, some major trading companies anticipate that El Nino will hinder the output of all key rice-producing nations.

According to the USDA, global rice inventories are projected to decline to a six-year low of 170.2 million tonnes by the end of 2023/24, as stocks dwindle in China and India, the leading producers, following increased demand in recent years.