India extended its embargo on rice exports: The world has already felt the first consequences, that will reach Ukraine in a month or two

India, one of the major producers and exporters of rice in the world, has significantly expanded the ban on trading this crop, making restrictions almost absolute. Starting from July 20, the government has imposed an embargo on the export of all varieties of white rice, except for the more expensive and premium Basmati. Parboiled rice is also allowed for export.

"The export policy for non-Basmati white rice (parboiled or non-parboiled), has been changed from free to prohibited," according to the government announcement. This decision, taken by the nation that is the largest supplier to the global market for the staple food of the poorest countries, is affecting the trade balances of entire regions.

Mind analysed the initial consequences of India's démarche.

Why did India impose a ban on one of its major export categories? This measure is a way to control prices in the domestic market after heavy rains resulted in significant crop damage. Over the past year, the cost of rice in India has risen by nearly 12%, and in the last month alone, due to alarming news from the fields, it increased by 3%.

As stated in a government circular, the export ban is in place to "ensure its sufficient availability in the domestic market at reasonable prices".

How significant is India as a player in the global rice market? India is the world's largest rice exporter, accounting for 40% of the total share. The country produces around a quarter of the world's rice crop (according to statistics from the last two seasons).

In 2022, India exported over 22 million tonnes of rice to more than 140 countries. More than half of this export consisted of inexpensive varieties, which are now affected by the ban.

What are the potential consequences of the embargo? A natural consequence of reduced supply is an increase in commodity prices. In the case of rice, its cost is already close to a record level due to climate-related problems. The UN Food and Agriculture Organisation's rice price index for the year ending in June has already risen by 14%, the highest in the last 15 years.

According to data from Gro Intelligence, food prices in Benin, the largest rice importer in Africa, are 40% higher than two years ago.

What are the signs of the rice crisis that are already manifesting? Retailers worldwide are witnessing a frenzy of demand.

Such panic is a natural situational response from consumers, and it shows no sign of abating at the moment. As a result, many stores, from Australia to Indonesia, have had to impose restrictions on rice sales to a single person, usually limited to 5 kg of grains. Indian and other Asian cuisine restaurants around the world are also trying to stock up on rice supplies.

Which countries will be most affected by the rice fever? Inexpensive varieties from India are particularly popular in poor countries such as Bangladesh, Nepal, and certain regions of Africa south of the Sahara.

Reduced shipments and inevitable price hikes of alternatives will lead to increased prices in consumer markets in these countries.

Are there other suppliers? Yes, rice can be found in other countries, but the question is at what cost.

The average cost of Indian product batches is one of the lowest among the major suppliers, according to UkrAgroConsult analysts.

The exception is Kazakhstan, but this country has an extremely low supply and even fewer resources for export. Consequently, it won't be able to partially cover India's volumes in the near future.

What are the real alternatives? An alternative to Indian rice could be the supply from Thailand or Vietnam, where this product is also relatively cheap. However, the problem is that the cost of imported 'affordable rice' from these countries during the period of the war in Ukraine turned out to be 24% and 16% higher than the batches purchased from India.

How important is India as a rice supplier for Ukraine? It is crucial.

This country is one of the main suppliers. During the war period (March 2022 – June 2023), Ukraine received 34.5 thousand tonnes of rice from India, amounting to a total of $26.2 million. This accounts for a third of the entire rice import.

In terms of supply volumes to Ukraine during this period, India slightly lags behind China, which supplied 37.7 thousand tonnes (33%) of rice amounting to $29.5 million (33%).

Can Ukraine provide itself with rice? Absolutely not. This was already impossible before the annexation of Crimea, where the main volumes of Ukrainian rice were grown – even considering them, Ukraine was far from self-sufficiency.

After the annexation, the main regions of internal rice production became the Kherson and Odesa oblasts, but they are currently either occupied or in a zone of heightened military danger. Rice farming is a very specific and complex process, and organising it under conditions close to combat is impossible.

According to the forecast, rice consumption in Ukraine in the 2023/24 marketing year may amount to about 115,000 tonnes. Nearly 80% of this volume, approximately 90,000 tonnes, will need to be imported.

Given these conditions and the increasing cost of imports, the price of rice in the domestic market will rise within a month or two after the arrival of new batches. The good news is that, unlike countries in Asian and African regions, rice is not a staple crop in the diet of Ukrainians.