Global Markets: Rice – India’s Exports Soar on Competitive Prices Relative to Thailand

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    India’s exports are anticipated to continue to climb and well exceed those from Thailand on the continued decoupling of prices between the two exporters, mirroring the situation seen nearly a decade ago. Ever since India repealed its 3-year non-basmati export ban in late 2011, it has been the dominant global exporter, edging out Thailand which had held that role for over 3 decades.

    While exports from India are forecast to climb in 2020, exports from Thailand are forecast at the lowest since 1998. Thailand’s exports are expected to rebound in 2021, and India’s exports will also rise and dominate the global market based on the abundant supply situation and competitive factors.

    The price spread between Indian and Thai export quotes is the highest since 2013. When India came back to the global market in 2011 after its export ban, its supplies were ample given successive bumper crops and stocks that had ballooned with no external outlet.

    At that time, Thai supplies were also fairly robust, because of government programs, but those policies were also sustaining high export prices. Once those policies were removed, the Thai and Indian prices tracked closely in tight competition. However, since 2019, the prices have diverged quite remarkably, showing distinct patterns relative to the supply situation.

    Indian prices remained low on very robust supplies with a fourth consecutive record production forecast this year. Moreover, despite increased consumption as the government distributes highly subsidized rice to the majority of the population, stocks are at record levels. In contrast, Thai prices escalated amid a drought that reduced the area planted and tightened available supplies.

    In addition, when close competitor Vietnam imposed an export ban in March 2020, Thai prices shot up in response. Even as prices have eased from the recent peak, Thailand’s lower stocks and reduced prospects for the new crop have led to sustained high prices.

    Another key factor is competition within specific markets. Both countries export fragrant (basmati for India and jasmine for Thailand), parboiled, and regular white rice. India’s basmati rice only competes with Pakistan, compared to a more competitive landscape for Thai jasmine competing with Vietnamese and Cambodian rice.

    With the large price differential compared to Thailand, Indian parboiled exports are dominating that market. For the regular white rice, Thai exports to African markets are facing pressure from expanding Chinese exports. For all these reasons, Thai exports in the coming year are expected to be somewhat constrained while Indian exports continue to expand.

    Basmati Rice Exports to Iran Tumble, Offset by the Rest of the World

    Basmati rice exports from India and Pakistan have strengthened in the past few years based largely on rising Iran imports. However, so far this year, imports from Iran have fallen, while imports in most other markets are growing. Basmati rice is a fragrant rice and a staple food in many South Asian and Middle Eastern cuisine. Most basmati rice is exported to the Middle East with Iran, Saudi Arabia, and Iraq comprising half of all these purchases.

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    Basmati exports are dominated by India, which accounted for nearly 85 percent of all basmati exports in 2019. While India’s exports are highly seasonal (with large shipments after the autumn harvest and then abating throughout the summer), exports from Pakistan remain steady throughout the year.

    Exports by India and Pakistan were constrained particularly in April due to the COVID-19 lockdown. However, in May, exports to the world began to rebound, though exports to the top market Iran remained much lower than the prior year.

    Iran’s imports have faced a few challenges this year. In addition to the disruptions to shipments due to COVID-19, the drop in oil prices have had a negative impact on the Iranian economy. Moreover, U.S. sanctions have also played a role in Iran’s overall imports with Indian traders reluctant to sell rice to Iran due to challenges with payments. In addition, Iranian customs will impose the seasonal ban on rice imports to support domestic producers starting September 22.

    While exports to Iran have fallen, India and Pakistan have expanded basmati exports to other Middle Eastern countries and other regions. In fact, Iraq nearly doubled its imports of basmati rice in the first 5 months of the year, compared to the previous year, and imported more basmati than regular long grain rice from the Western Hemisphere. Although Saudi Arabia’s imports were expected to be sharply lower this year with reduced religious tourism, basmati imports have in fact been larger compared to the same period last year.

    Western countries like the United States, the European Union, and the United Kingdom are also seeing higher imports in basmati rice as consumer preferences change to include more of this fragrant variety. With this increase in basmati rice demand elsewhere, exports from India and Pakistan have actually risen thus far this year, despite Iran’s reduced demand.

    U.S. Paddy Exports Slump on Tight Supplies and High Prices

    The majority of global rice trade is milled rice that has been processed and milled in the exporting countries. Un-milled paddy or rough rice accounts for only about 5 percent of global rice exports. Regionally, it is most significant in the Western Hemisphere where it accounts for approximately one third of rice trade.

    The United States is the largest paddy rice exporter, accounting for over 60 percent of global paddy exports. Paddy accounted for nearly 45 percent of the volume of U.S. rice exports in 2019. However, thus far in 2020, paddy exports are down nearly 20 percent compared to the same time last year. In fact, in July 2020, paddy exports only totaled 13,000 tons, the lowest monthly volume since June 1994.

    There are a few reasons for these remarkably low exports. The 2019/20 crop was 17 percent lower than the prior year and consumption remained robust, causing this year’s August stocks to fall to the lowest level since 2004. By the end of the marketing year, there simply was not much available for export. The new-crop paddy exports in August rebounded, but were still below last year’s amount.

    With these tight supplies, U.S. paddy prices have been the highest since 2013/14, while South American exporter prices have remained relatively low. Within South America, the top exporters are Brazil, Uruguay, and Paraguay. These lower-priced competitors have found the opportunity to increase market share in the Western Hemisphere markets. Collectively, these three exporters have tripled paddy exports in 2020 compared to the same time last year.

    The major Western Hemisphere paddy rice importers are Mexico, Venezuela, Colombia, and Central American countries. The United States has been facing challenges exporting in the Western Hemisphere compared to a few years ago. Venezuela was once a key U.S. market but since 2018 it has largely been supplied by Brazil.

    Mexico is the world’s largest paddy rice importer and historically its free trade agreements with the United States have provided a competitive advantage for U.S. paddy rice. However, subsequent to Mexico creating a duty-free quota, Guyana entered the market in 2017, Paraguay in 2018, Uruguay in 2019, and Brazil in 2020, eroding U.S. market share, especially this year.

    The only bright spot for U.S. paddy exports in the first part of 2020 was to the Central American region and Colombia, leveraging the benefits of the respective U.S. free trade agreements with those markets. Looking ahead, the United States has improved prospects for the latter part of the year as the larger 2020/21 crop begins to be harvested and becomes available for export.

    Meanwhile, Brazilian domestic prices have recently risen, which may shift more of the South American exporters to supply that nearby market.

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