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explained | Ban on export of broken rice

the story So Far: On 9 September, the Center banned the export of broken rice. Additionally, it mandated an export duty of 20% on rice husk (paddy or coarse), husk (brown rice) and semi-milled or full-mill rice. The measures do not affect the export of basmati or boiled rice. Sudhanshu Pandey, Secretary, Department of Food and Public Distribution, said the measures would ensure adequate availability of broken rice for consumption by the domestic poultry industry and other animal feedstock. In addition, it will sustain the production of ethanol which will further aid in the successful implementation of the Ethanol Blending Program (EBP) of the Central Government. However, these measures could affect countries dependent on Indian food exports in the event of a lost ‘breadbasket’ in Ukraine due to the Russian conflict.

What does this have to do with inflation?

The lower the supply of a commodity, the higher the price of the product, resulting in inflationary pressure. The adequacy of the stock of rice in the country will ensure that the markets do not experience excess demand and thus, lead to a sudden rise in prices. For seven consecutive months, inflation has been above the Reserve Bank of India’s 6% tolerance limit. The consumer price index (CPI), or retail-based inflation, stood at 7% in August this year, with rural and urban inflation at 7.15% and 6.72%, respectively. This was further fueled by a 7.62% increase in food prices during the same period.

The COVID-19 pandemic also had an impact on India’s already existing surplus. The Union Cabinet had launched a food security program called Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY) in March 2020 as a response to the hardships caused by the pandemic for the vulnerable sections. There is a provision of additional 5 kg ration per person in this scheme. Every month in addition to their normal foodgrain quota under the National Food Security Act. In March, the scheme was extended for another six months till September 2022.

Hindu Businessline It was reported this week that foodgrain stocks (including rice, wheat and un-milled paddy) in the Food Corporation of India’s (FCI) central pool had fallen 33.5% on a year-on-year basis to 60.11 million tonnes as of September 1 – according to the plan. doubted its continuation. Research analysts at Nomura believe that overall, although rice stocks should remain above the buffer level, the demand-supply situation may not improve materially from the current export restrictions, which means that the demand for rice may increase. The risk of price increases remains. “As such, we believe there is a risk that further restrictions may be imposed on the export of rice, especially in those categories that are still exempted,” it says.

What happened to rice production?

The major rice cultivation season in India is the kharif season, with crops sown during June-July and their harvesting in November-December.

It is important to note that rice is a water-intensive crop which also requires a hot and humid climate. Thus, it is best suited for areas with high humidity, prolonged sunlight and an assured supply of water. This is the reason that in the eastern and southern regions of the country, stable humidity and suitable average temperature are considered favorable for the crop. While both regions are capable of growing paddy crops throughout the year, high rainfall and temperatures prompt the northern regions to grow only one crop of rice from May to November. Andhra Pradesh, Telangana, Punjab, Haryana, Chhattisgarh, Odisha, Madhya Pradesh, Tamil Nadu, Maharashtra, Uttar Pradesh and Bihar are among the rice producing states of India.

An observation of the data of the Indian Meteorological Department between June 1 and September 14 shows that Uttar Pradesh, Jharkhand, Punjab and Bihar have received less rainfall. The latter implies 20-59% less rainfall than normal in a particular area. While West Bengal, the country’s largest producer, has received normal rainfall, its major productive areas such as Nadia, Burdwan and Birbhum have received scanty rainfall. This indicates a potentially lower production this year.

What are the concerns over ethanol blending?

Ethanol is an agro-based product, produced primarily from molasses, which is a by-product of the sugar industry. EBP seeks to blend ethanol with vehicular fuel as a means of combating the use of fossil fuels and, in turn, increasing pollution. According to the government, only sugar based feed stock will not be able to meet its set target of 20% ethanol blending by 2025.

In the Ethanol Supply Year (ESY) in 2018-19, the government had allowed FCI to sell surplus rice to ethanol plants for fuel production. The idea was to have an insurance scheme and an emergency provision for distillers.

However, in the ongoing ESY, there has been a pick-up in rice procurement from FCI due to supply constraints. The total ethanol produced from rice raised from FCI was 26.64 crore liters, while it was 16.36 million liters from damaged food grains outside the purview of FCI. This means that the production from FCI rice has increased 10 times from 22 million liters used in a full ESY. At the same time, the production from damaged food grains has been reduced by half.

Thus, the export ban would attempt to capture this supply and, in addition, free the FCI from making provisions to distillers.

What are the possible after-effects of the ban?

Geopolitical tensions between Russia and Ukraine have destabilized global food supply chains. Due to the disruption of trade in the Black Sea region, bloomberg It was reported in March that rice prices are rising as traders are betting that it will be a substitute for wheat which is becoming increasingly expensive.

India accounted for 41% of the world’s total rice exports in 2021, bigger than the next four exporters combined (Thailand, Vietnam, Pakistan and the United States).

As far as broken rice is concerned, the United States Department of Agriculture (USDA) says India accounted for more than half of the commodity’s global exports in the first half of 2022. According to government data, between April and August this year, India had its share of broken rice. The overall rice export mix (of India) stood at 22.78% as compared to 18.89% in FY21.

In descending order, China, Senegal, Vietnam, Djibouti and Indonesia are India’s largest importers of broken rice.

Vinod Kumar Kaul, Senior Executive Director of All India Rice Exporters Association said Hindu“Thailand, Vietnam and Pakistan would benefit from losing this market. Once lost, regaining the market would be a task.”

Mr. Kaul has estimated a loss of around ₹5,600 crore to exporters for the entire year due to the ban.

essence

On 9 September, the Center banned the export of broken rice. Additionally, it mandated an export duty of 20% on rice husk (paddy or coarse), husk (brown rice) and semi-milled or full-mill rice.

In the ongoing ethanol supply year, there has been a spurt in rice procurement from FCI due to supply constraints. Export restrictions are a means to capture this supply and, in addition, prevent FCI from making provisions to distillers.

With trade disrupted in the Black Sea region, rice prices are rising as traders are betting it will be a substitute for wheat which is becoming increasingly expensive. India accounted for 41% of the world’s total rice exports in 2021.

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