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Rice Prices Soar to a 12-Year High Amid India's Export Ban and Adverse Weather Conditions
Rice prices have reached their highest level in almost 12 years, driven by India's rice export ban and unfavorable weather conditions that threaten production, according to the United Nations' food agency.
Surge in Rice Prices
The Food and Agriculture Organization (FAO) All Rice Price Index for July increased by 2.8% to 129.7 points. This figure represents a 19.7% rise compared to the same period last year and is the highest nominal value since September 2011, as per FAO data. The most significant price increases were observed in Thailand.
Impact of El Nino and Rain-Induced Interruptions
The report highlighted concerns over the potential effects of El Nino, a climate phenomenon characterized by extreme temperatures and weather conditions that could disrupt lives and livelihoods. This, along with rain-induced interruptions and quality variability in Vietnam's ongoing summer-autumn harvest, provided further support to the rising prices.
India's Rice Export Ban
India, the world's leading rice exporter, imposed a ban on non-basmati white rice exports on July 20. The move aims to control skyrocketing food prices domestically and ensure sufficient supplies "at reasonable prices." India accounts for over 40% of the global rice trade. Even if the ban affects only a portion of India's total rice shipments, the FAO noted that it "raises substantial food security concerns for a large swathe of the world population."
Rice Prices at Decade Highs
Rice prices are currently at decade highs, with rough rice futures last trading at $16.02 per hundredweight (cwt). These prices could potentially rise even further. "We will most probably see a higher FAO rice price index for August 2023 vs July 2023," said Oscar Tjakra, a senior analyst at global food and agriculture bank Rabobank.
Impact of Export Restrictions and Stockpiling
Tjakra added that India's non-basmati white rice export ban coincided with a time of seasonal low inventories in major global rice suppliers, especially those in Asia. Prices could surge further if other countries implement similar export restrictions. "The prices can go even much higher if importing countries try to stockpile rice for domestic food security, and exporting countries put export restrictions," said Samarendu Mohanty, Asian regional director at the International Potato Center.
El Nino's Potential Impact on Global Production
El Nino could further increase risks to global production in other major Asian rice producers such as Thailand, Pakistan, and Vietnam. "For the next few months, global rice prices' direction will be determined by the impact of El Nino," Tjakra stated in an email. As a vulnerable crop, rice has the highest probability of simultaneous crop loss during an El Nino event, a scientific study showed.
Thailand's Water Conservation Efforts
Adding to the concerns, Thailand, the world's second-largest exporter of rice, is now encouraging its farmers to plant less of the crop in an effort to conserve water due to low rainfall. This move could potentially exacerbate the already rising rice prices and further impact global food security.
The soaring rice prices, driven by India's export ban and adverse weather conditions, present a complex scenario for new businesses, especially those in the food and agriculture sector.
For businesses that rely on rice as a primary ingredient or commodity, the increase in prices could significantly impact operating costs and profit margins. This could necessitate a reevaluation of business models, pricing strategies, and supply chain management.
The export ban by India, a major player in the global rice trade, underscores the vulnerability of businesses to policy changes and geopolitical factors. It serves as a reminder for new businesses to diversify their supply sources and consider geopolitical risks in their strategic planning.
The potential impact of El Nino on global rice production adds another layer of uncertainty. Businesses must consider the implications of climate change and extreme weather events on their operations and supply chains.
Finally, the conservation efforts by Thailand, another major rice exporter, highlight the importance of sustainable practices in business. As resources become increasingly scarce due to climate change, businesses that prioritize sustainability and resource efficiency may be better positioned to navigate these challenges.
In conclusion, while the current rice market dynamics present significant challenges, they also offer opportunities for new businesses to innovate, diversify, and prioritize sustainability in their operations.
Article First Published at: https://www.cnbc.com/2023/08/10/global-rice-prices-soar-close-to-12-year-highs-according-to-un-fao-.html
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