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    World

    India's ban on rice exports sends shockwaves through global trade, risking $1 bn worth of contracts

    India's ban on rice exports sends shockwaves through global trade, risking $1 bn worth of contracts

    India's recent decision to ban non-basmati white rice exports has sent shockwaves through the global rice trade, putting contracts for approximately 2 mn metric tons of the grain, valued at $1 bn, at risk, according to dealers on July 21.

    As the world's largest rice exporter, accounting for 40% of global rice exports, India's decision to halt its major rice export category was prompted by the need to stabilize domestic rice prices, which had surged to multi-year highs due to unpredictable weather conditions that threatened rice production.

    Photo: Labourers unload rice bags from a supply truck at India's main rice port at Kakinada Anchorage in the southern state of Andhra Pradesh, India
    Source: Reuters

    Traders had anticipated the possibility of export restrictions and had taken precautionary measures by securing letters of credit (LCs) or payment guarantees in recent days. However, the sudden imposition of the ban caught them off guard. Dealers in Mumbai revealed that they now have no choice but to invoke the force majeure clause to cancel the contracts. Force majeure refers to unforeseen external circumstances that prevent a party from fulfilling their contractual obligations.

    Reports indicate that export contracts for about 2 mn metric tons of rice, with a total value of $1 bn, are now at risk of cancellation due to the ban. The government's announcement stated that the ban would take effect from July 20, with only vessels currently in the process of loading being allowed to proceed with exports.

    Nitin Gupta, senior vice president of Olam Agri India Ltd, explained that the ban would impact contracts signed for the next few months, as traders typically sign agreements well in advance.

    Before the ban, India used to export approximately 500,000 tons of non-basmati white rice each month. However, with the current restrictions in place, that flow of trade will now come to a halt, leading to potential financial losses for traders.

    B.V. Krishna Rao, president of the Rice Exporters Association, revealed that around 200,000 tons of rice are presently being loaded at various Indian ports, and this quantity will be permitted to move out. Nevertheless, Rao and other traders are urging the government to allow exporters with valid LCs to ship out their cargoes, though it appears that an exemption is unlikely to be granted.

    The ban's ramifications are expected to reverberate in both the global and domestic markets. Global rice prices are likely to rise as a result of India's export restrictions, while local prices within India may drop. The ban's impact on the rice trade has also raised concerns for traders who had purchased rice from mills at higher prices when global buyers were rushing to secure supplies.

    India's non-basmati rice is in high demand by various countries, including Benin, Senegal, Ivory Coast, Togo, Guinea, Bangladesh, and Nepal, all of which rely on the staple grain to feed their populations.

    As rice remains a fundamental food source for more than 3 bn people worldwide, and with nearly 90% of rice production occurring in Asia, disruptions in export due to weather patterns like El Nino can have significant implications on global food security.

     

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    22.07.2023, 21:44   Comments (0)   1909
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