Declining rice production in India may cause another food crisis | Business and Economics News


Rice could become the next challenge to the world’s food supply, as lack of rain in parts of India, by far the world’s largest exporter, has reduced planting area to a minimum in about three years.

The threat to India’s rice production comes at a time when countries are grappling with soaring food prices and runaway inflation. The total area planted with rice has declined by 13% so far this season due to a lack of rainfall in some regions, including West Bengal and Uttar Pradesh, which account for a quarter of India’s production.

Traders fear that a drop in rice production could complicate India’s fight against inflation and trigger restrictions on exports. Such a decision will have far-reaching implications for the billions of people who depend on the staple food. India accounts for 40% of the world’s rice trade and the government has already curbed wheat and sugar exports to safeguard food security and control local prices.

Soaring rice prices in India reflect production concerns. Prices of some varieties have soared by more than 10% over the past two weeks in major producing states such as West Bengal, Odisha and Chhattisgarh due to lack of rain and increased demand for Bangladesh, said Mukesh Jain, director of Sponge Enterprises Pvt., a rice shipper. Export prices could climb to $400 a ton by September from the current $365 free on board, he said.

Most of the world’s rice is grown and consumed in Asia, making it vital to the region’s political and economic stability. Unlike the spike in wheat and maize prices after Russia invaded Ukraine, rice was brought under control due to abundant production and stocks, which averted a more serious food crisis. severe.

Much depends on the rice harvest in India and the progress of the monsoon. Some agronomists are optimistic that there is still time to continue planting and make up some of the shortfall. Rainfall is expected to be normal from August to September, which could improve agricultural production.

Farmers are less optimistic. Rajesh Kumar Singh, 54, a farmer in Uttar Pradesh, said he only planted rice on half of his seven acres (2.8 hectares) of land due to a lack of rain in June and July. “The situation is really precarious,” he said.

Rice prices are coming under pressure, said Himanshu, a professor at Jawaharlal Nehru University, who goes by only one name. “Rarely does sowing take place after mid-July, so hope that it will pick up is unlikely,” he said, adding that a fall in production is a risk for inflation.

Rice could represent a new challenge for the fight against inflation in India. Consumer prices have held above the Reserve Bank of India’s 6% tolerance limit this year, causing interest rates to rise sharply. The central bank could raise borrowing costs further this week as the weaker rupiah offsets the impact of falling commodity prices such as fuel and vegetable oils.

If geographic disparities in rainfall persist, it could negatively impact agricultural production, negatively impacting economic growth and inflation, according to Sonal Varma, an economist at Nomura Holdings Inc.

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India supplies rice to more than 100 countries, with Bangladesh, China, Nepal and some Middle Eastern countries among its biggest customers. For the world as a whole, there are positives when it comes to food security. The United States is poised to deliver a bumper wheat crop in the coming weeks, while Ukraine made its first shipment of grain since the Russian invasion.

As Indian paddy production is set to decline in several states, the government should consider reviewing its policy of allocating rice to ethanol production, says Siraj Hussain, former secretary of India’s Ministry of Agriculture .

India is looking to boost ethanol production by using surplus sugar and rice as part of efforts to cut its fuel costs. Soaring food prices following the war in Ukraine increased the risk of famine and sparked a “food versus fuel” debate.

“At this point, it’s difficult to estimate the exact level of production loss,” Hussain said. But at current prices, there is little justification for allocating rice to ethanol production, he added.

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