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Rice: Rising prices - Views on News from Equitymaster
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  • Oct 6, 2009

    Rice: Rising prices

    The delay in advanced crop output estimates for the kharif season has raised fears that the decline in rice output this season could be more than the government projection of 10 m tonnes, forcing India to resort to imports. According to the government, rice production is projected to drop from 99 m tonnes last year to 89 m tonnes this year due to drought However, a report by the United States Department of Agriculture (USDA) pegged the drop in India's rice output at as high as 17 m tonnes, which means production at around 82 m tonnes. This is while India's annual rice consumption is about 89.5 m tonnes.

    Though the new rice marketing season started from 1st October with about 17 m tonnes of rice stocks, well above the minimum buffer norm of 5.2 m tonnes, retail prices are already up by 14% YoY. This is because the market is sensitive to production shortage signals and it got jittery after several nervous decisions of the government such as delaying the advance estimates on crop output, extension of stock holding limits by traders and continuing with the export ban on non-premium rice.

    While the planning commission has stated that food prices would reduce in the coming months due to reduction in speculative activity, the market is expecting the prices to climb higher as the shortfall puts pressure on existing stock and the government buys rice for its welfare and PDS priorities.

    Meanwhile the government to check prices has eased exports of Basmati rice while indicating that the private sector should import at least twice non-Basmati rice for every tonne of Basmati exported.

    What we expect?
    While there is definitely a large shortfall in rice output this year, the buffer stock seems to be more than adequate to tide over this shortage. While the government is taking steps to ensure that adequate supply is available, the recent steps are sending out mixed signals leading to speculation. However, we are concerned about the impact of the recent floods on the paddy crop in Andhra, which is a major rice producing state. Under such circumstance, we would like to wait and see what the actual rice production numbers look like and how the government faces up to the situation.



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    Oct 7, 2009

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