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India moves to protect staple supplies
Traders say the problems of the market in basmati rice replicate that of the wider commodities market - strong demand and falling supplies
- By Amy Yee and Javier Blas, Financial Times
- Published: 00:32 March 10, 2008
The bounty of north India's recent basmati rice harvest is visible at the sprawling factory of Tilda Riceland, one of the world's largest producers of the prized grain.
Rice sacks form gigantic pyramids outside Tilda's factory near New Delhi as they wait to be processed and stored in towering silos. The sweet aroma of warm rice wafts through the air.
Business is booming as demand for the premium rice grows in Europe, the Middle East and the US. With supplies tight from the small paddy fields in Punjab, the strong demand has boosted wholesale prices 120 per cent since mid-2006.
Traders say the problems of the market in basmati rice - which is mostly exported outside Asia - replicate that of the wider commodities market - strong demand and falling supplies.
Affluent consumers will soon feel the pressure on basmati rice prices - so far the rises in wholesale prices have been mostly absorbed by traders and companies. Alex Waugh, of the UK industry-backed Rice Association, said basmati retail price rises in Europe and elsewhere were "inevitable". "At the moment, it is a question of by how much rather than if," Waugh said.
Basmati rice represents about a quarter of all European Union rice imports and up to 40 per cent of UK purchases. Iran and the Gulf, where economic growth is making more people able to afford high-quality foods, are also becoming greater consumers of premium grain.
Growing pressure
India, the world's third-largest exporter of rice, has seen pressure growing on both supply and demand, and its prices for ordinary rice grains have been going up since the middle of 2007.
Late in 2007 the Indian government, spurred by a fall in rice reserves and fears of rising food prices, banned exports of non-basmati rice, thus severely reducing supplies to the rest of the world.
In response to the ban "farmers took to the streets", said R.S. Seshadri, director of Tilda Riceland in New Delhi. "They wanted higher export prices. But with its hundreds of millions of poor who rely on low-priced food, India can't take a free market approach like in the US", he said.
The US estimated that India's rice exports would fall to 2.5 million tonnes, down from about 5 million tonnes in previous years.
European rice traders said they feared export restrictions in India even for the prized basmati rice which, until now, has escaped sales curbs.
Domestic demand is also outstripping supply. On the back of recent growth, middle-class Indians are eating more and better food. The government has launched major social programmes, including a national meal plan for children and a food-for-work scheme, which have contributed to burgeoning domestic consumption. Yet production of all grains, including rice, rose only 0.9 per cent last year, according to India's ministry of agriculture.
Dire lack of investment in agriculture since the Green Revolution of the 1960s has also left the country with low farm yields and crumbling infrastructure across much of rural India.
India's average rice yield of 2.9 metric tonnes per hectare barely exceeds that of Burma's, at 2.43 metric tonnes per hectare, according to India's ministry of agriculture.
Results of imbalance
At a local market in south Delhi, consumers are feeling the results of the imbalance between supply and demand. Non-basmati rice sold at about Rs12 a kilogramme in India's wholesale market two years ago. Today the price is about Rs19 a kg.
At the South Avenue General Store, where shop owner Ashok Khurana sells 20 varieties of rice from open sacks on the pavement, the retail price of ordinary rice has gone up about Rs5 per kg since last year to as much as Rs25. Basmati prices have jumped to Rs75 a kg from Rs38 last year.
Are customers complaining? "Very much so," said Khurana. "Grains are so expensive. All things are going up day by day."
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