Ripples from India export ban reach all corners of global rice market

Exporters in the world's main rice producing origins pressed pause on dealmaking this week after India's ban on white rice exports sent the market into a tailspin.

The ban on new shipments of non-Basmati white rice from the world's biggest supplier of the grain has prompted exporters in Asia and as far as South America to ponder the knock-on financial effects before making more sales.

"Everybody is on stand-by," one trader active across South America told S&P Global Commodity Insights.

The ban, announced on July 20, covers non-Basmati white rice, a type which roughly accounted for more than a third of Indian non-Basmati rice exports in 2022-23 (April-March). Indian rice exports of non-Basmati rice totaled 17.8 million mt in 2022-23, while shipments of rice types covered by the export ban reached 6.39 million mt.

While purely financial markets thrive on the kind of volatility rice is witnessing, physical rice exporters instead prefer to trade in more predictable conditions, given that they often have not yet procured domestically the product they are committing to ship. If farmers raise prices in the period between an exporter agreeing a sale and sourcing rice, that can dent or eliminate the exporter's margin.

Trade sources took different readings of the ban. While the South America-focused trader was fairly relaxed based on the view that India and Pakistan still have a "huge exportable surplus," a Pakistani source was concerned about the trade disruption the ban would cause. Added to this, markets are still digesting what Russia's attacks on Ukraine's grain exporting infrastructure mean for global food supply.

One Pakistan-based trader was angered by the Indian ban, questioning whether there was a supply security justification and raising concerns that the least wealthy rice importing nations would suffer.

"The condition that India has created globally is at a very [bad] time," the trader said. "The food crisis in African countries will worsen. Pakistan will take advantage of this ban by cashing in on the void created by India. Most buyers will turn to Pakistan for supplies in September when the new crops arrive," they said, expecting the price of Pakistani 5% broken white rice to cross $600/mt FOB as demand grows.

Others countered that India plans to allow for exceptions to the ban where a country's food security is in jeopardy and a Europe-based trader also argued that existing African stocks would also dampen any impact.

As predicted, the ban has lowered Indian domestic white rice prices, with fewer outlets for it now, but the price of parboiled rice, not subject to the export ban, has risen about $7/mt.

Watch and wait

Outside India, buyers and sellers alike are standing aside, waiting for some calm to return to their markets.

"The Indian ban has caused a lot of disruption on current contracts. Price increased drastically. Shippers say farmers and paddy traders are holding the paddy and asking for higher prices. For now, we just wait for our contracts to be completed," said a rice importer from the Philippines.

In Vietnam, the upward pressure from the ban on rice prices was already manifest within a few days in the world's third largest rice exporter with 5%, 25% and 100% broken white rice typically offered $20-$25/mt higher than before the ban, a source there said.

"Exporters are panicking. All this needs to stabilize first," the source said, explaining that a sharp rise in Vietnamese domestic prices left exporters with "no basis" upon which to calculate export offers.

Asked when Vietnamese exporters could return to the market with offers, they said: "No idea. I will wait and see as it will depend on local pricing. Warehouses are locked."

There were signs that previously agreed export deals that are yet to be delivered could be in jeopardy in some cases if exporters struggle to get hold of the now-more-expensive rice to honor them.

That is making for an anxious wait in importing destinations such as the Philippines for purchases already signed and sealed before the ban, as one importer there said. The country is one of Vietnam's biggest rice customers and among the world's biggest per capita consumers of the grain.

"The Indian ban has caused a lot of disruptions on current contracts. Prices increased drastically. Shippers say farmers and paddy traders are holding onto the paddy and asking for higher prices. For now, we just wait for our contracts to be completed," they said.