Focus on sustainability in Indian rice exports

Kunal Bose / Apr 24, 2012,
Business Standard
India’s rice production in 2011-12 increased 7.1 per cent to 102.75 million tonnes (mt), which, according to the UN Food and Agriculture Organisation, is part of the “good performance in Asia”. In fact, the improvement in the production of this foodgrain has been widespread in the continent, with China making major gains and Indonesia, Vietnam, Cambodia and the Philippines reporting higher output. Pakistan, too, has seen a recovery in production after the earlier year’s floods caused damage to the crop.

In this secular Asian output surge, Thailand, which before the October floods was seen by the US Department of Agriculture accounting for 31 per cent of world exports of the commodity this season (July to June), found at least 3.5 million acres of its rice fields turning into a sea of water. While Thai losses in the beginning were estimated at 3.4 mt of paddy or 2.25 mt of milled rice, the Southeast Asia’s rice bowl saw some good recovery from wet season replanting, since harvested. The USDA now estimates Thai milled rice production at 20.3 mt, which makes it essentially unchanged from last year.

India could not have returned to exporting non-basmati rice at a more opportune time than in September last year. As there was speculation about the fate of Thai rice production around that time, the crop of that origin became so much more expensive, with the government launching a subsidy programme to buy paddy from farmers at a hefty premium over market prices. The combination of the two factors sent the Thai rice price to a three-year high of $669 a tonne in November, even as the Asian benchmark price was down 15 per cent from a year ago. This gave a major break to India, recommencing export of non-basmati rice after four years. India’s rice came very much cheaper than the one of Thai origin, in particular. It also enjoyed a competitive edge over Vietnamese rice.

Samarendu Mohanty, chief economist at the International Rice Research Institute, makes the important point that India’s return as an exporter spared a “spike in world rice prices”. He says India came as a saviour. “The timing was so perfect because Thailand was implementing in the same month its rice mortgage programme, where it increased domestic price by nearly 50 per cent,” he notes. “It pretty much boils down to if Thailand would increase domestic price by that much, then the global rice price would go up accordingly. But that didn’t happen because of Indian rice costing about $100 a tonne cheaper.”

The high cost of Thai rice will see its exports slipping to 8.5 mt to nine mt this season from 10.5 mt a year earlier. In fact, the problems visiting Thailand this time have worked to the advantage of India trying to find its feet again in the world rice market, thanks to the break caused by domestic difficulties. On cost count alone, some traditional Thai rice buyers have been procuring from Indian traders. Parallel to India making inroads into some friendly African countries, it is receiving good inquiries from Indonesia. It speaks well of the members of the All India Rice Exporters Association (AIREA) that India could export 4.5 mt of normal rice and another 2.5 mt of aromatic long-grain basmati rice in 2011-12. The latter happened despite the payment settlement issue with Iran, a major outlet for our premium grain.

Some fortuitous developments, like the ones in Thailand, came as a big aid to India, which absented itself from rice exports for a good while. The challenge for the country now is to cement its place as a regular exporter of the commodity. AIREA president Vijay Setia says the need of the time is to take a “long-term view of rice exports”. The high point of any such strategy should be to focus on selling processed and high value-added rice in the world markets. Perhaps, portions of the benefits of higher export price realisations will then percolate down to farmers. Trade officials think the good harvest in 2011-12, inventories well in excess of buffer norms and forecast of a normal monsoon this year should allow unhindered rice exports in the next two years, at least. Now is the time to sort out the infrastructure bottlenecks, particularly relating to cargo handling at ports that rice exporters have experienced.

However bullish the trade may be, the long-term sustainability of India’s rice exports will depend on its ability to break the very slow rate of growth in productivity of the crop. The 2011-12 Economic Survey says during the decade ended 2011-12, growth in area under rice was 0.04 per cent whereas “growth in production and yield was 1.72 per cent and 1.68 per cent, respectively”.

That land will remain perennially in short supply as room has to be made for building industry is not in doubt. The redemption in a situation of declining per capita availability of foodgrain lies in our research institutions introducing new high-yielding strains of rice. This is why Prime Minister Manmohan Singh has given a call for a second green revolution. The rice crop remains highly rain-dependent, the irrigation coverage for it being less than 60 per cent. That the command area of irrigation for rice needs to be stepped up quickly cannot be over-emphasised.