Rice Production Essay

Background

India is one of the largest producers and exporters of rice in the world, despite the fact that it consumes 95% of the rice it produces. Hence rice prices are a major determinant of the welfare of not only consumers, but also producers in India. Since rice is also the staple diet of over half the population of the world, its supply and price has a major impact on food security, a highly debated topic in and outside India. In 2007-08, the world experienced a major food crisis, with the prices of the four major agricultural commodities- wheat, corn, soybean and rice reaching record highs. From January 2006 to October 2007, global corn and wheat prices more than doubled while from November 2007 to April 2008 global rice trading prices tripled. This can be seen in the graph below:

Note: Values used are Thailand nominal price quote (used as industry benchmark), 5% broken milled white rice.

By late December 2007, global rice prices had risen 10 percent in just 2 months. U.S. and global rice prices rose sharply to record highs in the spring of 2008. Rice prices rose when exporters like Vietnam, Cambodia and Egypt, announced restrictions. The fact that rice is a relatively thinly traded crop on the world market (only about 7-8 percent of total rice production actually trades on the global market) exacerbated the susceptibility of the world price to this supply shock. Thailand’s high-quality 100 Percent Grade B long grain milled rice—a benchmark for global trading prices—exceeded $1,000 per ton in late April 2008, more than double the prices in early February and triple the prices of November 2007. U.S. prices soared as well, with U.S. long-grain milled rice for export quoted at a record $948 per ton in late April 2008, up m...

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... by Philippines, Nigeria, Malaysia and Indonesia, four major rice consumers and importers. Since India imports very little rice, its consumers were not affected by global rice prices as were the consumers from the above countries. Such a phenomenon could result in a fall in import demand, decreasing trade opportunities, reduction in rice production etc. Already, the global market for rice is a thinly traded market, i.e. exporters trade in only a small proportion of their total production, thus making it highly susceptible to fluctuating world prices. Exit of importers due to the above reasons could make the market smaller, resulting in greater price volatility.

Hence, though such a trade policy proved to be beneficial to India in the short run, it is unsustainable and undesirable in the long run.

[India relaxed the export ban on non-basmati rice in September, 2011]