Abstract
India's frequent and strict non-basmati rice export controls significantly impact the global market, especially South Asian economies. While aiming to ensure domestic food security and control inflation, these policies cause price uncertainties in rice-importing smaller South Asian neighbors, running counter to India's "Neighborhood First" aspirations. This approach contrasts with the targeted strategies from major exporters like Thailand and Vietnam. While remaining compliant with WTO rules, India has faced concerns from other countries. It continues to supply rice to dependent nations through government-to-government agreements, making humanitarian exemptions to the export ban. Developing more predictable policies could benefit both India and the global rice market.
India, the world’s largest rice exporter, plays a pivotal role in the global rice market. With an average annual export of 18 million metric tons of rice, valued between $7 billion and $10 billion, India’s influence on global rice prices and supply is substantial . During 2023-24, India exported approximately $10.4 billion worth of rice. Alongside India, Thailand and Vietnam are also major players in the global rice market. Together, these countries dictate global trends in prices, and any fluctuations in their export or production levels can significantly impact the world.
In 2023, rice production in Vietnam, Thailand, and most of South India was reduced due to El Niño. In India alone, rice production has decreased by 4.25 million metric tons. In Vietnam and Thailand, production fell by 0.63 and 0.54 million metric tons, respectively. This created considerable shortages in the global market, leading to rising prices worldwide. Additionally, India imposed several export restrictions on rice, especially non-basmati rice. These restrictions, coming during such an unstable period in the global market, have further aggravated the crisis.
This blog delves into the historical context, rationale, and implications of India’s non-basmati rice export controls, comparing them with those of other countries, and exploring recent geopolitical impacts and compliance with WTO rules. It does not go into the details of basmati rice export policies, which have generally been less restrictive.
Impact of India’s recent export restrictions
The significant reduction in India’s rice exports worsened the global rice situation. Although Pakistan and the USA increased their rice exports, these gains could not offset the decline in exports from India, Vietnam, and Thailand. Consequently, the global price of rice surged. In July 2023, India imposed a comprehensive ban on the export of Non-Basmati White rice, leading to a 16.09% increase in the price of Thai White Rice (5% broken), a major type of Non-Basmati Rice export, between July and August (Figure 1). By January 2024, the price increase reached 20.66%. This marked the first time since 2012 that rice prices exceeded the $600 per MT threshold.
These ramifications have been more pronounced in South Asia. Countries such as Nepal, Bhutan, and Sri Lanka, which rely almost entirely on India for their rice imports, have been severely impacted. For instance, Nepal sources nearly 100% of its rice from India, and the imposition of export restrictions has led to increased prices and supply disruptions. This has disproportionately affected low-income households who spend a large portion of their income on food.
According to Sharma and Karthikeyan (2024), India's neighboring countries are highly vulnerable due to their reliance on Indian rice imports. They highlight that these restrictions not only cause price shocks but also disrupt domestic production in countries like Nepal, where rice mills depend on paddy imports from India to meet local demand. This dependence, compounded by climate risks and socio-economic disparities, puts additional pressure on these nations, making them particularly susceptible to any supply chain disruptions caused by India’s export policies.
India has been imposing such restrictions on rice exports over the last two decades. According to information available on government websites like DGFT and CBIC, the most explicit restrictions were imposed in 2007-08 when India implemented a sweeping ban on Non-Basmati Rice exports to curb domestic inflation and ensure supplies. Since then, several restrictions have been introduced to manage both domestic and global obligations. These restrictions have significant implications for global prices, but accompanying exemptions to select countries usually soften the impact.
History of Control on Non-Basmati Rice Exports from India
India's history of controlling non-basmati rice exports dates back to the early 2000s. The first major restriction was imposed in 2008 in response to soaring domestic prices and global food price spikes. These controls aimed to ensure adequate domestic supply and stabilize prices. Over the years, export controls have fluctuated, with significant restrictions reintroduced in 2011 and 2013 during periods of domestic price volatility or production shortfalls.The frequency and strictness of these controls have generally increased, reflecting the government’s efforts to balance domestic needs with export opportunities (Box 1).
In 2008, India’s export ban was notified to the WTO but criticized for its broad impact on global prices. Similar concerns were raised regarding the predictability and reliability of India’s trade policies during the 2011 and 2013 restrictions. During the COVID-19 pandemic, export restrictions were notified as necessary, highlighting the tension between domestic priorities and international obligations. The Indian stance is that its policy changes aim to balance domestic food security with its international trade obligations, influenced by global market dynamics and geopolitical factors. These export restrictions often lead to significant impacts on global rice prices and food shortages, particularly in countries reliant on Indian rice exports. However, many restrictions include exemptions, especially for friendly nations and poorer countries.
WTO Rules on Rice Exports and India’s Compliance
The World Trade Organization (WTO) framework governing rice exports includes the Agreement on Agriculture (AoA) and the General Agreement on Tariffs and Trade (GATT) 1994. The AoA requires the reduction or elimination of trade-distorting export subsidies and mandates consideration of importers' food security and advance notifications for export restrictions. GATT 1994 generally prohibits export restrictions, except in cases of critical shortages, and allows for temporary export restrictions for balance of payments measures. It also requires members to notify the WTO of export restrictions, detailing their nature, duration, and reasons.
India’s Compliance:
India’s rice export policies, particularly regarding non-basmati rice, generally comply with WTO rules but have raised concerns. India frequently implements restrictions to stabilize domestic prices and ensure food security, which is permissible under Article XI of GATT. However, the timeliness and detail of these notifications have been contentious. India's restrictions often cause price volatility and supply disruptions in partner countries. While aiming to balance domestic objectives with international obligations, India’s policies are sometimes perceived as trade-distorting by other WTO members.
India has faced several challenges at the World Trade Organization (WTO) related to its rice export policies. In July 2023, India imposed a ban on non-basmati white rice exports to control domestic prices, raising concerns among WTO members such as the USA, Canada, Japan, and Australia about the impact on global food security and market transparency. Additionally, in early 2024, Canada, Brazil, Australia, and the UK questioned India at the WTO over its alleged prohibition on rice exporters participating in UN World Food Program (WFP) tenders, on the grounds that these were contrary to its commitment to exempt humanitarian food purchases from export bans. These instances illustrate the ongoing tension between India's domestic food security measures and international trade norms. India has assured that it will respond to these queries and clarify its stance, emphasizing that it continues to supply rice through government-to-government agreements to countries facing food shortages. However, as the global food security situation remains volatile, India’s policies will continue to face scrutiny from its trade partners.
Initially limited, these exemptions have expanded over time, targeting neighboring countries and humanitarian aid efforts, showcasing a more nuanced and strategic approach.
Detailed Examples of Exemptions:- 2008: Specific exemptions for exports to Bangladesh and Nepal.
- 2009: Exemptions for bilateral agreements and humanitarian aid to African countries.
- 2011: Ban lifted due to a bumper crop, with exemptions for government-to-government contracts and World Food Programme (WFP) shipments.
- 2013: Restrictions reintroduced with exemptions for specific quantities to Bangladesh.
- 2018: Exemption of 100,000 metric tons to Nepal.
- 2020: Stringent controls during the COVID-19 pandemic with exemptions for Bangladesh, Myanmar, and African nations.
- 2022: Exemptions for broken rice exports under government contracts, particularly for humanitarian purposes, with allocations for Bhutan, Nepal, Ethiopia, and Mauritius.
- 2023: In July, a ban on non-basmati white rice was implemented (the ongoing set of restrictions), but exemptions were made for UAE, Mauritius, Singapore, and Nepal under bilateral agreements. Exports were also allowed to Bangladesh.
- 2024: India has maintained its export restrictions on non-basmati rice, first imposed in 2023. However, exemptions have continued and expanded. Singapore and Mauritius received exemptions in early 2024, and exports have been allowed under special agreements with Nepal and Bangladesh. Additionally, India continues to exempt humanitarian programs such as those led by the World Food Programme.
Such export restrictions are not unique to India; other major rice exporters also employ mechanisms to safeguard their domestic supplies during crises. However, unlike India’s broad bans, other countries typically adopt more targeted and nuanced approaches (Box 2).
How do other rice exporters intervene?
Several countries, like India, have implemented export controls on rice to manage domestic supply and stabilize prices. Thailand focuses on farmer welfare through schemes like the rice pledging scheme and market interventions such as stockpiling, emphasizing farmer incomes compared to India’s consumer protection. Vietnam employs structured export quotas and temporary bans that are often short-term and situational. Pakistan uses a Minimum Export Price (MEP) mechanism to control exports. Cambodia implements export licensing and temporary bans, providing flexibility with less restrictive controls compared to India’s outright bans. Myanmar uses export bans and quotas influenced by political and economic instability, similar to Vietnam’s approach with a focus on stability.
In the context of trade restrictions, it is worth noting that while external and internal shocks significantly disrupted supply chains globally, they did not notably impact India’s rice production. However, these shocks still caused fluctuations in rice prices.
Internal and External Shocks Internal Shocks:- Farmers’ Protests (2020-2021): Although the protests did not directly affect rice production, they prompted the Indian government to adopt a cautious approach to rice exports. Fearing public unrest due to potential rice price hikes, the government limited exports to ensure domestic price stability. This resulted in a slight decline in rice exports, as the government sought to avoid exacerbating public dissatisfaction during a politically sensitive period.
- Russia-Ukraine War (2022-present): The war disrupted global grain supplies, particularly wheat, driving up global demand for rice as a substitute. This substitution effect pushed rice prices even higher. Although India’s rice production remained stable, the war’s impact on other grains indirectly contributed to rising global rice prices and a reevaluation of export policies to protect domestic food security.
In summary, while these events did not directly affect rice supplies in India, they had a significant impact on both export volumes and prices, demonstrating how both domestic and global crises can indirectly influence trade policies and market dynamics.
Conclusion
India’s non-basmati rice export controls, aimed at stabilizing domestic prices and ensuring food security, have had profound global impact. The most recent ban, implemented in July 2023, has exacerbated price volatility and raised food insecurity in nations heavily reliant on rice imports. While governments can be expected to give priority to domestic prices, India can draw lessons from past crises and from the approach of other countries to better balance domestic and international priorities. In general, price-based restrictions are better than quantity-based ones. Partner countries would also benefit from greater predictability and timeliness in information sharing, if restrictions are announced. If India, a major exporter of rice and many other farm products such as sugar and onions, can devise a more predictable and structured approach to its export controls, it could significantly improve food security, especially in developing countries.