Business Features

Indian rice politics wins elections but upsets markets (Feature)

By Siddhartha Kumar Jul 7, 2009, 5:06 GMT

New Delhi - The populist politics that drove India to slap a ban on rice exports last year, triggering a food crisis in the global market, paid off at the ballot box this year but continues to play havoc with the rice trade. India, the world's second largest rice-producer after China, banned exports of rice, barring the premium basmati variety in March last year. The decision was aimed at taming runaway inflation amid depleted food grain stockpiles. With opposition protests against soaring food costs, the Congress Party-led coalition, already reeling from defeats in key state polls, was in a bind whether it would be able to retain power. It could take the political risk of rising food prices only at its own peril. Although there was no shortage of rice, supplies were tight owing to damaged crops due to floods or poor rains across several states. Another factor was a shortfall of wheat, due to a decline in imports from drought-hit Australia. With Congress focused on the April 2009 elections, it announced a 15-billion-dollar loan waiver for farmers and worked on a massive scheme for employment for the rural poor, programmes which analysts reckoned were instrumental in returning the party to power. Significantly, rice was such a political commodity in swing states such as Tamil Nadu and Andhra Pradesh that it had an impact at the national level. Political parties announced sops like free TVs, but cheap food grains are always a hit with voters. 'It (the export ban) was a political call on food management, it was not a trade decision,' said a food ministry official who declined to be named. 'It wouldn't have hurt had the exports continued, but it did help the country's food security,' he added. Weeks into the ban, it became clear the move was political. On June 1, the rice stocks held by the government were estimated to be 15 million tons, well above the buffer norms. Even with a bumper harvest for the crop year ending June, then-Commerce Secretary GK Pillai hinted at the political risk of lifting the ban, saying, 'this being an election year we will be cautious with exports.' 'The ban could have been withdrawn as the stock situation was comfortable. But the government did not want to annoy people and ensure food grain at affordable prices for welfare schemes, so as to draw political mileage,' said S Raghuraman, head of trade research at Agriwatch, a Delhi-based research firm. As India halted exports, shortages hit several countries and world prices hit record high of 1,000 dollars a ton in mid-2008. A year later, with the ban still in place, growth expectations and competitiveness of Indian agriculture have been hurt. Exporters lost earnings and credibility. 'While the government is ensuring adequate supplies, low prices hurt producers as it acts as disincentive to production. The myopic policy may threaten our long-term goal to be self-sufficient,' said Vijay Setia, former president of the All-India Rice Exporters' Association. The irony is that despite these curbs, domestic prices are not coming down. Over the past year, India's rice exports slumped to 1 million tons in the year ended March 31, 2009 as compared to 4 million tons the previous year. Since September, Delhi eased restrictions to allow shipments to African countries, Nepal and Bangladesh, which are dependent on Indian supplies. India produced 99 million tons of rice in the crop year, with a surplus of 6 million tons. The government granaries are overflowing, holding 54 million tons of grains including 24 million tons of rice. But despite the increased stockpiles, the fading of the global food crisis and Congress Party's re-election, the government is not likely to resume exports soon. The government now links the ban its election promise of a food security law that guarantees 25 kilograms of wheat or rice at subsidized rates to impoverished families. 'Although we are high on stocks and hold much more than buffer norms, we do not want to take a chance,' Food Ministry spokesman Manoj Pandey said. 'We had suffered with wheat imported at hefty prices. The government has to be doubly sure now with erratic monsoons and increasing consumption.' Some agriculture policy analysts oppose exports, saying food security is crucial even if it comes at the cost of destabilizing markets abroad. 'India has the largest population of hungry on this planet, with most of what is produced being consumed. With the food crisis, shortages might have sparked riots,' analyst Devinder Sharma said.

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Rajesh PahariaJul 7th, 2009 - 07:20:06

Dear Siddharth,

Since UPA-II, has been so keen to allow 4 mmt of grains out of INDIAN than why wheat and rice together, why not focus and encash which is more economical and viable.

Buffer norms wise asper FCI : Rice is 4 times in excess in comaprision with Wheat which is just 2.5 Times more. So is the consumption pattern of Rice & Wheat. Wheat and Rice Stocks ratio used to 3:1 as per buffer norms defined by CA&FPDS. Where as stocks wise with FCI its 1:1. Production wise Rice:Wheat is 97mmt(inpaddy terms) and 78 mmt.

As per current trade situation Rice for Exports will generate more Fx revenues for the country in comparision to Wheat which is high due to high MSP.

As during past 15 years India has been consistently exporting Rice at an annual average of 3 to 4 MMT pa, and we have never faced the problem of IMPORTS of Rice viz. viz. Imports of Wheat , which happend twice in past 10 years.

Indian Wheat FLour Mills & allied industries is more domestic oriented and not dependent of the Exports. Its also an OPPURTUNIST venture in comparision to Rice which is more regular and Fx generating.
Indian Rice in comparision to Wheat is more globally traded. Where in Wheat is having niche market of South East & SAARC and Middle East minus premium market of Kuwait - KSA - IRAQ (where INDIAN wheat was banned due to US)

Shelf life of Wheat for Human Consumption is more than Rice by virtue of which we can keep Wheat for a longer period than Rice.

Since Rice is sowed during Monsoon season if not than alternate irrigational methods can be used for the crop. Wherein for Wheat it has to be Traditional / nature based cultivational method with moderate climatic condition.

Since Rice is being marketed which is consumed directly by the end consumer. Whereas in Wheat can be exported by value-addition in related products. Which can be at the max. 3 /5 lac tons pa.

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