India restricts food exports, what is the impact on China's market?

India recently announced a ban on broken rice exports and a 20% tariff on exports of some rice, including unmilled rice, husked rice, semi-milled rice, and fully milled rice, effective September 9.

At a time when the Black Sea 'grain corridor' has been reopened and the global food crisis has eased slightly, India's move has once again stirred the global grain market, potentially triggering a new round of global food price increases and further exacerbating the global food crisis.

Extreme drought may lead to rice reduction, India imposes tax

India's rice exports play a pivotal role in the global rice market supply. India is the world's second-largest rice producer and the world's largest rice exporter, supplying rice to more than 150 countries globally. Its rice exports account for 40% of global rice trade, exceeding the combined rice exports of Thailand, Vietnam, Pakistan, and the United States. In 2021, India's rice exports reached a record 21.5 million tons.

This year, affected by extreme drought, India's rice planting area has significantly decreased, leading to strong expectations of rice reduction. Officials from India's food department stated that the country's food reduction is mainly due to drought in four states, with a drought-affected area of 2.5 million hectares, resulting in a reduction of approximately 7 to 8 million tons of food. It is expected that by this winter, the rice planting area may further decrease by 3.8 million hectares, potentially reducing rice production by 10 to 12 million tons.

Domestic rice prices in India have risen sharply, exacerbating inflation. According to the Central Statistics Office of India, India's CPI in August rose from 6.71% in July to 7%, ending a three-month downward trend. Among them, the price of grains and their products increased by 9.57%. Therefore, the Indian government announced on the 8th that it would impose a 20% tariff on some exported rice.

Rice prices may rise, further exacerbating the global food supply and demand imbalance

India's restriction on rice exports will help ensure domestic supply and stabilize rice prices, but it will further exacerbate the global food supply and demand imbalance, push up rice prices, increase import costs for rice-importing countries, and potentially put additional inflationary pressure on countries heavily reliant on rice imports from India.

From a supply and demand perspective, the global rice supply and demand situation has remained relatively loose in recent years. This year, affected by extreme high temperatures, drought, and floods, rice production faces severe challenges. In addition to India, the main rice-producing areas in southern China have been affected by continuous high temperatures and drought. Although early rice production has slightly increased, there is a risk of reduced production of medium and late rice. In the United States, the rice planting area in California has significantly decreased due to extreme drought, and the harvest is expected to be halved, leading to a decrease in rice exports. Pakistan's rice production has been severely hit by extreme floods. Some institutions predict that global rice production will slightly decrease this year.

Faced with the challenge of rising rice prices, countries around the world should work together. Rice-exporting countries should abandon food trade protectionism, and developed countries should help developing countries improve their food self-sufficiency, jointly striving to build an efficient, open, and fair global food supply system.

The impact of the broken rice export ban on China is controllable

China is the largest buyer of broken rice from India, and the impact of India's rice export ban on China's rice market is controllable.

China has had a surplus of rice production over demand for many years, with sufficient reserves and a self-sufficiency rate exceeding 100%, fully meeting market needs. Imported rice is mainly used to adjust demand. In 2021, China's rice imports reached 4.96 million tons, accounting for only about 3% of that year's output. Moreover, China's rice imports mainly come from India, Vietnam, Pakistan, Myanmar, Thailand, and other countries, with diversified import sources and strong risk resistance.

This year, affected by the Russia-Ukraine conflict and the high volatility of global wheat and corn prices, China's corn and wheat imports have decreased, rice prices are low, and the demand for import substitution has increased, with a significant increase in broken rice imports, mainly used for feed and alcohol production. India's restrictions on rice exports will have some impact on some feed and industrial enterprises in China, but the impact on food is extremely limited.

Data from the Ministry of Agriculture and Rural Affairs shows that in the past 10 years, China's supply of grain and important agricultural products has been stable. Grain production capacity has steadily increased, with output remaining stable at over 1.3 trillion jin for seven consecutive years. In 2021, output reached a record high of 1365.7 billion jin, with per capita grain possession reaching 483 kilograms, exceeding the internationally recognized food security line of 400 kilograms, achieving basic self-sufficiency in grain and absolute food security. The Chinese people firmly hold their rice bowls in their own hands.

In the first half of this year, China's summer grain wheat achieved increased production, with summer grain output reaching a record high, laying the foundation for a bumper harvest of grain throughout the year. Currently, autumn grain is being harvested. The latest agricultural situation dispatch shows that more than 130 million mu of autumn grain has been harvested nationwide, with the progress exceeding 10%, 0.9 percentage points faster than the same period last year.

Source: China Economic Net - Economic Daily (author Liu Hui), CCTV Finance, etc.