INDIAN RICE LANDSCAPE: Trade, Production & Government Intervention in Marketing Shweta Saini and Ashok Gulati paper presented at Kyushu University, Fukuoka, Japan
Focus of the Presentation Evolution of India s rice exports over 1990-91 to 2012-13 Export policy balancing interests of domestic consumers & exporters/farmers Trends in domestic production Government intervention in rice market The way forward
Rice in World Trade Rice - a very thinly traded commodity (only 9%of world production being traded) Five countries - Thailand, Viet Nam, United States, Pakistan and India) supply close to 81 % Fragmentation of import markets & wide yearto-year fluctuations Amplified effect on world prices of changes in production/consumption
Global Scenario of Rice in terms of Production, Export and Import Million Ton Year Production Export Import 2002-03 377.5 27.6 27.6 2003-04 391.5 27.3 27.3 2004-05 401.4 29 29 2005-06 418.4 29.1 29.1 2006-07 420.3 31.9 31.9 2007-08 432.3 29.6 29.7 2008-09 449.1 29.4 29.4 2009-10 440.9 31.5 31.5 2010-11 449.2 36.2 36.2 2011-12 465.8 39.1 39.1 2012-13 471.9 39.4 36.5 2013-14 477 42.6 40 2014-15 475.5 42.6 40.1 2014-15 TE 474.8 41.5 38.9 Source :- USDA
Production,Export and Import of Rice TE- 2011-12 Production India 22.1% Indonesia 7.8% Bangladesh 7.2% Export China 30.4% Others 17.6% Vietnam 5.9% Thailand 4.4% Philippines Myanmar 2.4% 2.3% Thailand 21.6% Vietnam 19.3% India 22% Others 12.0% Pakistan 8.6% USA 8.6% Brazil 2.8% Uruguay 2.5% Cambodi a 2.3% Source : USDA Others 48.1% Japan 1.8% Nigeria 7.7% Mexico 1.9% South Senegal Africa 2.4% China 5.9% Indonesia 5.3% Iran 4.7% Iraq 3.4% E-U 3.6% Philippines 3.3% Saudi Arabia 3.1% 2.8% Malaysia 2.8% Import Cote d'ivoire 3.2% 5
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 45.0 40.0 35.0 India s Agricultural Exports versus India s Agricultural Imports from 2001-02 to 2012-13 Agri Exports (US$ billion) Agri Imports (US$ billion) Net Exports (US$ billion) 41.4 30.0 25.0 20.1 20.0 15.0 10.0 6.0 3.4 2.6 21.2 5.0 0.0 Source : Agricultural Statistics at a Glance Various issues and DGCIS 2/4/2015 6
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Million Tonnes US $ Billion Cereal Exports: Record breaking! (43 mt in last two yrs never done that before in history) 25 Rice Wheat Maize Others Value of Exports (US$ Bn) 22.1 12.0 20 20.4 10.0 8.0 15 10 8.8 8.1 8.0 9.7 12.0 6.0 5.0 5.4 5.5 6.5 5.0 5.7 4.0 5 0 2.4 1.5 2.2 5.1 3.4 4.8 4.1 4.7 6.5 2.5 2.2 2.5 7.2 10.1 10.5 2.0 0.0
MMTs Direct Impact of Policy on Exports of Rice 12 Indian Rice Exports 10 10.1 10.5 8 6.5 Non-basmati rice export banned 7.2 6 4 4.9 5.0 5.0 3.4 4.8 4.1 4.7 2 0.5 0.7 0.6 1.1 0.9 2.5 2.4 1.9 1.5 2.2 2.5 2.2 2.5 0
Increasing Share of Basmati Rice in Rice Exports (Due to ban on non-basmati Rice, particularly after 2007) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Basmati Non-basmati
Million Tonnes (MTs) Percent India s Exports as a % of Rice Production 120 Production (MTs) Rice Export as % of production 12 100 9.69 10 80 8 60 40 20 2.37 6.92 3.85 5.75 4.45 5.09 6.69 2.51 2.42 2.57 6.81 6 4 2 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 0
India s Stop-Go Rice Trade Policy Until 1991, exports of common rice subject to canalization, MEP & export quotas. 1994- Removal of export bans on non-basmati rice & eliminating the MEP for basmati rice 2007-08: Export ban on non-basmati Rice 2009: MEP of US$ 900 on Basmati Rice 2010-11 onward: Gradual liberalization of non-basmati rice
India s Trade Policy India is net exporter in agricultural commodities. India has exportable surplus in cereals like Rice, Wheat and Maize. There is import duty at a high level of 70 percent on semi-milled or wholly milled rice and 80 percent on paddy, brown rice and broken rice.
Such a high import duty is not desirable when the country is in a position to export 9-10 million tonnes of rice annually. The import duty on rice needs to reduced to the level of 5-10 percent.
2001-02 Q1 2001-02 Q3 2002-03 Q1 2002-03 Q3 2003-04 Q1 2003-04 Q3 2004-05 Q1 2004-05 Q3 2005-06 Q1 2005-06 Q3 2006-07 Q1 2006-07 Q3 2007-08 Q1 2007-08 Q3 2008-09 Q1 2008-09 Q3 2009-10 Q1 2009-10 Q3 2010-11 Q1 2010-11 Q3 2011-12 Q1 2011-12 Q3 2012-13 Q1 2012-13 Q3 Domestic prices verses International Prices of major agricultural commodities Rice International price Rs/Tonne Domestic Price Rs/Tonne MSP Rs/Tonne 32000 29000 26000 23000 20000 17000 14000 11000 8000 5000 Source: World Bank for International Prices and DES for Domestic Prices 2/4/2015 14
Is Indian Rice Export competitive? 25000 Indian Rice is Price competitive 20000 15000 10000 5000 0 2006-07 2007-08 2008-09 2009-10 2010-11 Thai 25% All India Average Levy price Source: World Bank and Ministry of Consumer Affairs, Food & Public Distribution Note: USD Converted to Rupees as per the annual average exchange rate All India Average Levy Price has been calculated by weighing levy Prices in Top Five States with their shares in procurement of rice. Levy Price is imposed by FCI on FAQ (Fair Average Quality) Rice with 25% broken component.
MMTs/Mn ha Trends in Area, Production and Yield of Rice 120 3 100 2.5 80 2 60 1.5 40 1 20 0.5 0 0 Area (Mn ha) Production (MMTs) Yield (tn/ha)- RHS
Yield Paddy yield level in China three times that of India. Only 3% of the area under hybrid seeds in 2009 in contrast to China at 60% Yield increased at a rate of 1.47% p.a. during 2000-01 to 2010-11 as compared to 1.36% during 1990-91 to 1999-00 Wide differences in yield levels across states Punjab, Haryana, Andhra Pradesh and Tamil Nadu have high yields. All the eastern states except West Bengal have much lower productivity levels
kg/hect Percentage Yield and irrigated area (2010-11) 4500 4000 3500 3000 2500 2000 1500 1000 500 0 100 90 80 70 60 50 40 30 20 10 0 Area Under Irrigation (%) Yield(kg/hect)
Low Productivity of Rice in Eastern India (Kg/ha) Bihar 1095 Punjab 3828 Jharkhand 1541 Haryana 2789 Orissa 1616 A.P. 2570 Assam 1843 T.N. 3040 All India Rice yield: 2125 kg/ha (2010-11)
Second Green Revolution in Eastern India Eastern Region of the country comprising of Bihar, Jharkhand, Eastern UP, Chhattisgarh, Orissa and West Bengal. 56% area under rice but 48% of total rice production Productivity levels (except West Bengal) among the lowest in India, Rice productivity not only low (1.1 to 2.5 tons/ha) but also fragile. Relative advantage for sustainable production of rice - High rainfall, unexploited good quality ground water aquifers
1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Million Tonnes Production of Food grains in India 250 200 176.39 180.42 174.78 218.1 264.39 150 100 50 0 Wheat Rice Coarse Cereals Pulses
Million Tonnes Procurement 70 60 Rice and Wheat Procurement Trends since 1990/91 54.5 54.1 50 32.2 36.2 40 30 20 10 0 16.6 18.2 Rice Wheat*
Bulging Grain Stocks with the Govt. (from 21 mt in 2006 to 70 mt in 2014)
How did it happen when only in 2006 India imported more than 6 mt of wheat And in October 2007 imposed ban on exports of wheat and common rice in the wake of rising global food prices How did this turn around from panic and deficit of grain to surplus stocks and massive exports took place in just five years?
Answer lies partly in NFSM and partly in improving price incentives India launched National Food Security Mission (NFSM) in 2007 to produce additional 20 mt of food grains (10mt rice, 8 mt wheat and 2 mt pulses) in five years Focused on delivery of better seeds, farm practices, and other technologies largely in central, east, and southern India Result: Foodgrain production increased by 42 mt in 2011-12 over 2006-07 level.
But was it only a technology catch up?? Technology on its own could not have succeeded if the price environment was not favorable Minimum support prices (MSPs) of wheat and paddy were raised in a big way (by more than 30% in 2008-09 over 2007-08 marketing years) This led to a major change in the incentive structure for wheat and rice, and gave robust results
INR per quintal Minimum Support Prices of Paddy and Wheat (Rs/qtl) 1600 1400 1200 1000 800 600 400 200 0 MSP(Common Paddy) MSP(wheat)
Index Values Despite export bans, Indian food prices gradually integrated with world prices 250 Convergence of FAO food price index (2002-04=100) and Indian Food price index (2004-05=100) 200 150 100 50 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 WPI-Food FAO-Food
MSP of Rice and Wheat in India and Selected Countries
Index Values Despite Occasional export bans & high import duties, Indian food prices gradually integrated with world prices 250 Convergence of FAO food price index (2002-04=100) and Indian Food price index (2004-05=100) 200 150 100 50 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 WPI-Food FAO-Food
Where is Indian Grain policy headed now? Focus shifted from production to distribution under UPA-2 Entitlement approach Right to Food under Life Cycle National Food Security Act (NFSA) passed in Sept 2013.
NFSA, 2013 Envisages highly subsidized cereals (roughly at onetenth the cost (Rs 3/2/1 per kg* of rice/wheat and coarse grains) to 67 percent population (75% rural & 50% urban) 5 kgs per person per month to priority HHs; and 35 kgs/hh under AAY scheme (extreme poor) Legal commitment of 61.4 MMTs subsidized grain distribution *US$ 0.0335 /kg for wheat and US$ 0.0502 /kg for rice and US$ 0.0167 /kg Coarse grains
Challenges of NFSA Direct fiscal cost roughly $20-22 billion p.a at current exchange rates (Rs 60=USD) calculated by govt. Our estimates much higher Existing public delivery system highly leaky (PDS leakage around 40%) Massive government intervention in procurement, storage and distribution of cereals will drive away private sector expensive Cereal centric policies will slow down diversification towards high value crops
Likely impact on global markets High stocks in India (and China) could keep world prices of wheat and rice high; Erratic entry and exit of India from global rice and wheat trade will bring in additional uncertainty in global prices Better option will be greater integration with world markets with exports and imports open, and keeping duties at low levels
The Way Forward Promoting competition devoid of policy-induced distortions Gradual shift of rice and other water guzzling crops from North-Western India to Eastern States India s stop-go rice export policy - uncertainty in the international market Switch to income policy to help the poor Liberating rice exports Domestic & Global Food Security