Listen: Indonesia’s rice import surge, ban on Indian exports: what lies ahead for rice markets?

Elizabeth Thang:

Hello and welcome to the Platts Commodities Focus podcast by S&P Global Commodity Insights. In this episode, we are going to be focusing on the rice markets, and we are discussing some key questions.

The rice industry is asking about Indonesia returning as a top rice importer. In the last year, we've seen them be quite self-sufficient in the last decades, but recently, they have become quite a big player in the imports market and also to discuss about the India rice ban.

Joining me today are three rice experts. We have Tanya Rana, Elvis John, who are the associate editors in the rice markets, as well as Mugunthan Kesavan, who is the market engagement lead for agriculture and food. Welcome everyone.

We are here to discuss how the markets are react to Indonesia's return and what the industry is anticipating about rice export ban in India ahead of the elections. So before we dive into the subject, for the benefit of everyone who is not really trading in rice, let's do a quick one-on-one on rice, because there are so many different varieties. Elvis, could you start off by giving us a brief introduction to the different types of rice, please?

Elvis John:

Thank you, Liz. So at present, Asia accounts for almost 90% of the world's rice production. And for thousands of years, Oryza sativa or Asian rice, have been the continent's staple food.

There are more than 40,000 varieties of Oryza sativa set to exist. So there are two major sub-species of rice that account for the most cultivated varieties or most traded varieties across the globe, and that is indica and japonica.

Indica rice varieties are generally classified as long-grained rice, while japonica rice varieties can either be medium or short grain. An example of japonica rice is a rice that we use in sushis.

So India is the biggest exporter of rice accounting for almost 40% of the global trade by volume, which is followed by Thailand, then Vietnam and then Pakistan. At Platts, we assess the prices of rise from major Asian origins like Thailand, Vietnam, India, Pakistan, Myanmar, and Cambodia. Thailand rise prices serve as a benchmark price globally.

Elizabeth Thang:

Thanks, Elvis, for that introduction. What about the importers, Tanya? Could you comment about who are the biggest consumers, how they are ranked, etc?

Tanya Rana:

Well, yes. Thank you, Liz, for the question. So let's delve into the latest updates from the USDA's Foreign Agricultural Service. In the marketing year 2023 to 2024, the Philippines emerged as the leading country for rice imports worldwide, representing 8% of the total imports globally.

Following closely behind is Indonesia securing its place as the world's second-largest rise importer. While Vietnam takes the third spot, followed by European Union, Iraq, Nigeria, and then China.

Looking ahead to 2024, it is anticipated that Philippines will maintain its position as the top rice importer with the USDA's Economic Research Service estimating imports of 3.8 million metric tons,, surpassing major importers like China Indonesia, European Union, Iraq.

Other than that, it is interesting to note that Indonesia has been importing huge amount of rice for the past few years. As per the Control Bureau of Statistics Indonesia, during 2019 to 2022, they were importing nearly 300,000 to 400,000 metric ton of rice annually. However, things have taken a dramatic turn with Indonesia now importing 3.6 million metric done.

Elizabeth Thang:

That's really interesting, Tanya. Thanks for that. According to the Food and Agriculture Organization, the per capita rice consumption in Indonesia is only 95 kilograms. Compared to Philippines, they eat a lot more rice there, about 190 kilos per capita. So why is Indonesia importing so much? I mean, they have their own domestic production too, don't they?

Tanya Rana:

So yeah, that's right, that Indonesia's per capita annual rice consumption stands at about 95 kg, which is much higher than the average yearly consumption of other carbohydrates like corn, sweet potato, potato.

So it's safe to say that rice dominates in Indonesian diets. Climatic changes, including dry weather fueled by El Nino have triggered a rice shortage in Indonesia, sending rice prices to record highs.

Last year also, there was a relatively hot year due to El Nino weather pattern, coupled with prolonged rice seasons in parts of Indonesia that has led to the fall in rice production at around 18%.

And now, let's take a closer look at the insights provided by Greg Evans, a food and agricultural economist researcher from S&P Global, shedding light on Indonesia's rice dynamics. Evans' analysis forecasts Indonesia's rice production this year at 33 million metric tons.

Estimating a decline of 900,000 metric tons compared to the previous year, and a significant drop of 1.4 million metric tons from 21/22 production. He attributes much of this decrease to the adverse effects of El Nino phenomena, which disrupted rainfall patterns and delayed crucial planting periods, ultimately impacting the crop.

So Indonesia's first rice crop, which typically runs from October to February, many farmers were not able to plant until late November. And then the planted area is also likely to be lower year over year, and the delay in the first crop planting will also delay the timing of the second and the third crop, that could exacerbate stresses like insect pests.

Evans also highlights that the figures could be even lower. Evans emphasized the critical role of imports in Indonesia's rice stocks with ending stocks dipping below three million metric ton in 21/22 for the first time since '90s. So that is the major reason why Indonesia has started importing a lot of rice.

Elizabeth Thang:

So let's turn our attention to the suppliers and the biggest being India. So well, Mugunthan, can you explain what has happened in India, why they have decided to set restrictions on their rice exports? Give us a bit of a background to that story.

Mugunthan Kesavan:

Sure, Liz. India has always been very sensitive when it comes to food prices and food security. So before the ban, there were many pressure points building in rice supply system in 2022.

During COVID years, the government had expanded its welfare scheme significantly, which more rice was being diverted towards the domestic market. At the same time, exports were also going very strong and as a result, there was this steady increase in local prices.

And in response to this, India first imposed restrictions on white rice export in September 2022 by imposing 20% duty and also banned broken rice exports around the same period. Now, the parboiled rice price was trading around $380 per metric ton FOB when India imposed 20% duty on white rice.

But by July 2023, you can see the prices rose almost $440 per metric ton. All this was also happening when El Nino was pretty active in this region and there were real concerns about rice crop output falling.

So adding to this, rice exports showed no signs of easing as importers sensed an impending export ban and they started [inaudible 00:07:42]. So this cocktail of issues forced the government to proactively impose various restrictions on Indian rice exports.

Yeah, just in a hope that that could stop the stubborn rice and rice prices. It's also interesting to note that despite all these efforts, rice prices are still hovering around $529 per metric ton FOB, which is quite expensive for an average consumer in West African country who are the major buyers of Indian rice.

Elizabeth Thang:

So the prices have moved up and down quite a lot. Are you hearing anything on the ground? Are there any policies or any hints that the Indian government might lift this ban? What are the market participants thinking or telling you?

Mugunthan Kesavan:

So far, there has been no indication of the government lifting the ban in the near term because we are in the middle of the general election. Generally, major policy decisions are not taken around this time, especially on things as sensitive as rice.

So the market is of the view that the government would like to wait and see how the monsoon rainfall fares this year and take a call on reviewing the export curves so we have an idea about the size of the crop.

So this would mean by September, we would get an idea whether the rainfall would be sufficient. Then there is a good chance that the government might have a relook at the export curves around this time.

If we look at the government stock levels of rice, it's currently around 30 million metric ton, which is 21% higher year-on-year. And paddy stocks are also up by 24%. So that is a good place to begin.

Also, the current forecast suggests that La Nina weather pattern could develop around monsoon season, which is usually associated with good rainfall in India. So we could say at least things are looking better at this stage, but ultimately, local prices have to come down for the government to lift the ban on basmati white price, even if there are all these favorable circumstances around.

Elizabeth Thang:

When you say that the local prices have to come down some more, I mean, what are they performing now and how much more do they have to come down before the decisions will be made?

Mugunthan Kesavan:

See, it has to come down significantly. Like I said, currently, prices are around $530 metric ton. If you go back to the time before those import duty and bans on different varieties of rice, it was around $380, $350.

And a lot of buyers were generally comfortable in this level. So at least the local prices have to go below this level or around this level for the government to reconsider lifting or easing the current restrictions.

Elizabeth Thang:

That means it must be a drop of over $100, right?

Mugunthan Kesavan:

Yeah. But what also complicates the matters is that MSP has risen and sometimes the local government also provides bonuses, so it increases the cost of procurement. So that comes in the way of bringing down the rice prices. So unless we see increase in more supply and that puts pressure in the local market.

So far, there has been not much indication that prices going to come down significantly because we are just back from the Kahrif harvest and even Rabi harvest has started. But even during the peak of harvest period, we didn't see rice prices dropping significantly.

Elizabeth Thang:

Fantastic, thanks. Elvis, you watched the Pakistan markets very closely and they compete with India. What have you been seeing in those markets? How are they reacting to the export bans in the past? What's happening there? Tell us a bit more.

Elvis John:

So India's export ban had helped Pakistan reach new milestones in rice exports actually. So in the past year, we have seen that the rate of export volume has increased significantly.

So during the current fiscal year, 23/24, Pakistan's foreign exchange earnings from rice exports have nearly doubled. And the quantity of rice exported has also increased by at least 50 percentage, and it is most likely to meet the USDA's export forecast of 5.7 million metric ton for the 2023 crop, which is also a record high.

So from November 2023 to February 2024, that is within a span of four months, Pakistan exported almost 2.87 million metric ton of rise globally. But another interesting factor, which we have seen in Pakistan is that they are shifting into new markets actually.

So beyond their traditional African and Middle Eastern markets, Pakistan has expanded exports to Southeast Asian markets like Indonesia, Malaysia and Philippines. So Pakistan's position post India's export ban had significantly improved. And looking forward, obviously they're going to increase their production expecting India to be absent in the market at least and for a couple of months.

So one thing that we need to remember is that agriculture produce is finite by definition. So which means that output cannot be scaled immediately because there exists an unmet demand in the market.

So by the time producers can scale up, usually by the next crop or so, competitors globally, especially those with a better economies of scale, can increase the supply. Often flooding the market with what was until then a commodity short of supply.

What would be the result then? It would be a crash of prices across the globe. So take for example, Pakistan, which has a single crop every year. With India's ban, Pakistani farmers got great prices for the 2023 paddy.

So which naturally means that they will increase the planting this year. So market participants in Pakistan expect an increase by about 15 percentage on year of basmati planting in 2024.

But what happens is if there is any slight softening of stance of India's export policy, then we could see that there would be supply glut in the market. But what we see in South Asian market especially is that exporters rarely take a long position in the market. So if India reopens the export market again, then the prices are likely to crash, but the eventual result is that farmers will have to bear the brunt.

Elizabeth Thang:

Well, thanks for that insight, Elvis. Tanya, you look at the Vietnamese rice markets and you talk to a lot of the buyers in the Philippines. Tell us a little bit more about what you are seeing there.

Tanya Rana:

So lately, we have seen tenders coming up from Indonesia, and so far in 2024, there has been four tenders altogether. And because of this, the prices in Vietnam and Thailand has sold up. In Vietnam, prices are firming up after this fall due to the harvest pressure of the main crop.

That is the winter/spring crop. Nearly 92% of the winter/spring crop has been harvested and now, very little paddy is left in the field. With most of the crops safely tucked away in warehouses, millers are seizing the opportunity to raise rice prices.

Over in Thailand, a similar scenario is unfolding as the off-season crop harvest wraps up. Prices increase lately due to the [inaudible 00:14:47] tender in Thailand also. And apart from that, there's a surge in demand from the neighboring like the Philippines and Indonesia.

Paid sources also reveal an interesting twist here, that the Vietnamese sellers are purchasing Thai rice to fulfill the contracts with the Philippines, adding another layer of complexity to the market dynamics.

Meanwhile, in Vietnam, preparations are underway for the next crop, that is the summer/autumn crop, with warehouses brimming with rice. Experts also predict that prices may take a dip once the new crop hits the market in July. So that was about Vietnam and Thai market.

Elizabeth Thang:

So finally, just back to Indonesia, Elvis, could you comment about where you see Indonesia's imports? Will they maintain their pace of imports? Are they going to stay on top and continue to support the markets in Asia?

Elvis John:

Liz, according to our analyst, Evans, he's expecting rice production for Indonesia to return to a normal level by next year. So that would be between 33.4 to 34.5 billion metric ton. And again, El Nino, as Mugunthan has mentioned, is forecast to move to a neutral phase sometime between May and June with the potential of turning it into a La Nina sometime later in the second half of 2024.

So assuming this forecast is realized, rainfall should return to normal for Indonesia by the start of the first crop plantings in October. So maybe by the second half of 2024, we can see where the import demand of Indonesia would be settling in. So I guess it's time for the market to eat and watch.

Elizabeth Thang:

Yeah, thanks a lot for all the great insights. I think we have covered a lot of ground today. The weather is something to watch. India's elections is another. Perhaps we could hear from you guys again in the near future about new developments. But I thank you very much, Tanya, Elvis, and Mugunthan for joining me in today's conversation. This podcast was produced by Shikha Singh in Gurgaon. Thank you for listening.