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Rice: The situation is not bleak - Views on News from Equitymaster
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  • Sep 24, 2009

    Rice: The situation is not bleak

    Kharif acreage has declined sharply following the failure of southwest monsoon this year. By 27th August, the area sown under the kharif crop was 84.4 m hectares against 91.7 m hectares by end of August 2008 and 93.95 m hectares by end of August 2007. This indicates a shortfall of 7.3 m acres or 8% decline in area sown from 2008 and 9.55 m hectares or 10% decline from 2007 levels. It is quite unlikely that the decline in acreage will contract significantly in the coming weeks as the sowing season is almost over. The yield of crops is also expected to be hit as rainfall was deficient by 23% till 2nd September. 11 states have been declared drought hit, most of which are the traditional food grain bowls of the country. The worst affected crops are paddy, bajra and groundnut.

    Rice acreage and yield
    Acreage under paddy reached 28.9 m hectares by end of August 2009. This was 19% lower than the acreage in the corresponding period.

    In Andhra acreage under rice till August 2009 was down by a steep 34%. However, in the past rice yield has shown resilience even in years of poor rains. As a result the damage is expected to be limited in acreage. In Bihar where, 26 of the 38 districts were declared drought hit, rice crop is expected to fall sharply due to a combination of 40% fall in acreage and 30% fall in yield. In Haryana thanks to excellent irrigation facilities, rice acreage has fallen by only 10% and the impact on yield is expected to be marginally negative. In Orissa, where rice is the most important crop, acreage was down marginally and with the late rainfall, the yields are expected to remain good. Punjab, where the rainfalls were 40% below normal, irrigation facilities saved the day. Rice acreage was 5% higher than normal while the yields are expected to fall only marginally. In Tamil Nadu, while the overall rainfall was normal, the deficit rainfall in July affected the sowing of rice. Acreage under rice fell by 28% while the fall in yield is expected to be over 10%. In Uttar Pradesh the state worse hit by the drought with 58 of its 71 districts being declared drought hit, acreage under paddy has fallen by 35%. Yields are also affected and are expected to fall by over 10%. In West Bengal where rice is the most important kharif crop, acreage was down by 11% by the end of August. However, the yield is not expected to be affected as the rainfall revived July onwards.

    What to expect?
    The government announced the increase in MSP of rice recently. The price has been increased by 5.6% for common variety. While this was anticipated as the increase last year was in excess of 30%, an earlier announcement may have helped in having higher acreage under plantation. Total rice production is expected to drop by 16% YoY to 83 m tonnes this year while the consumption is expected at 89.5 m tonnes. According to United States Department of Agriculture, there is 17 m tonne stock carried over, however, the government has proposed to scrap the 70% excise duty on rice imports till September next year to plug the gap. In the light of this we do not anticipate the same volatility in the price of rice as we have seen in sugar.



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