India Rains: World’s food supply faces new threat from lack of rain in India

Rice could become the next challenge to the global food supply, as rain shortages in parts of India, by far the world’s largest exporter, have resulted in planting area shrinking to its smallest in about three years.

The threat to Indian rice production comes at a time when countries are grappling with rising food costs and rampant inflation. Total rice acreage has fallen by 13% so far this season due to lack of rainfall in some areas, including West Bengal and Uttar Pradesh, which account for a quarter of India’s production.

Traders are concerned that a decline in rice production will complicate India’s fight against inflation and impose restrictions on exports. Such a move will have far-reaching implications for the billions of people who depend on the staple. India accounts for 40% of the global rice trade and the government has already restricted wheat and sugar exports to ensure food security and control local prices.

The jump in rice prices in India reflects production concerns. Prices of some varieties have risen by more than 10% in major growing states such as West Bengal, Odisha and Chhattisgarh in the past two weeks due to insufficient rainfall and increased demand from Bangladesh, said Mukesh Jain, director at Sponge Enterprises Pvt., a rice shipper. Export prices could rise to $400 a ton in September, from as much as $365 now on a free-on-board basis, he said.

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Most of the world’s rice is grown and consumed in Asia, making it vital to the region’s political and economic stability. Unlike the rise in wheat and maize prices after the Russian invasion of Ukraine, rice has been subdued due to ample production and stocks, preventing a bigger food crisis.

Much depends on the rice harvest in India and the progress of the monsoon. Some agricultural scientists are optimistic that there is still time to replant and make up for some of the shortfall. Rain is predicted to be normal from August to September, which may improve crop yields.

Farmers are less optimistic. Rajesh Kumar Singh, 54, a grower in Uttar Pradesh, said he planted rice on only half of his seven acres (2.8 hectares) of land due to a lack of rain in June and July. “The situation is really precarious,” he said.

Rice prices are under pressure, says Himanshu, a professor at Jawaharlal Nehru University who only goes by one name. “Rare seeding is done after mid-July, so hopes of recovery are unlikely,” he said, adding that a decline in production is a risk to inflation.

Rice could pose a new challenge to India’s fight against inflation. Consumer prices remained above the Reserve Bank of India’s 6% tolerance threshold this year, leading to a sharp rise in interest rates. The central bank could further increase borrowing costs this week as a weakening rupee offsets the effect of falling commodity prices such as fuel and vegetable oils.

If geographic differences in rainfall persist, it could adversely affect crop production, negatively impacting economic growth and inflation, according to Sonal Varma, an economist at Nomura Holdings Inc.

India supplies rice to more than 100 countries, with Bangladesh, China, Nepal and some countries in the Middle East among its largest customers. For the world as a whole, there are some bright spots when it comes to food security. The US is poised to deliver a great wheat crop in the coming weeks, while Ukraine has made its first grain shipment since the Russian invasion.

As India’s rice production threatens to decline in several states, the government should consider revising its policy of allocating rice for ethanol production, said Siraj Hussain, a former secretary of India’s Ministry of Agriculture.

India wants to boost ethanol production using excess sugar and rice as part of its efforts to reduce its fuel costs. Rising food prices after the war in Ukraine have increased the risk of hunger and sparked a “food versus fuel” debate.

“Right now it is difficult to estimate the exact level of production loss,” said Hussain. But at current prices, there’s hardly any justification for allocating rice for ethanol production, he added.

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