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India - Rice Market report 2004 crop
Despite an estimated near record harvest in Crop Year 2003/04 (July/June), India’s rice exports are likely to decline sharply due to a steep draw down in government-held stocks. The government discontinued new export allocations of subsidized rice in August 2003 and has not yet announced the modalities for the new export program.

Assuming the crucial south west monsoon rains remain normal this summer, Post forecasts 2004/05 rice production, harvested mostly in the fall and early winter, at 90 million tons from 44.5 million hectares, compared with this year's estimate of 89 million tons. However, a monsoon failure could bring this largely non-irrigated crop down by 10 million tons or more from the forecast level, while a well-distributed precipitation could take production up to 94 million tons.
The government’s preliminary estimate placed 2003/04 kharif (fall and early winter harvested) rice production at 75.1 million tons, which, although significantly higher than the 2002/03 drought-reduced output, was 4.7 million tons below the record production of 79.8 million tons the year before. Even assuming a record rabi (summer harvested) crop of around 14 million tons (which in the past ranged between 10 and 13 million tons), total 2003/04 rice production is estimated at 89 million tons. Despite nationally well-distributed rains, some states like Maharashtra, Andhra Pradesh, and Karnataka complained about inadequate rains in some important growing regions. The government recently revised the 2002/03 rice production significantly downward to 72.7 million tons from its earlier estimate of 75.7 million tons, based on latest reports received from states. Most of the high value, aromatic, basmati rice is grown in Haryana and Punjab. Last year’s high basmati prices encouraged increased planting this year, with production estimated at around 1.5 million tons.
80 to 90 percent of India’s rice crop is seeded during the monsoon season, and is predominantly rain fed (except for the major rice surplus states of Punjab, Haryana, and Andhra Pradesh), and hence subject to wide year-to-year fluctuations (Fig 2). Use of high-yielding seed varieties is also largely confined to the irrigated states. Fertilizer application at the national level is not high, but is near optimum in these states. The use of hybrid seeds, despite its high potential yields, has not achieved wide acceptability among farmers due to quality concerns. Although efforts are underway to develop genetically modified varieties of rice (Golden rice and Bt), approval and commercialization of these are still years away. Some of the surplus rice growing states in the north are attempting to diversify the intensive rice/wheat rotation due to ecological and marketing concerns, but a significant shift is not imminent in the absence of a more profitable rotation.

Rice consumption in MY 2004/05 is forecast to increase to 86.5 million tons, close to the trend level, and 3.0 percent higher than the estimated 2003/04 consumption. The government’s recent decision to expand the Antyodaya Anna Yojana (the highly subsidized grain distribution program for the “poorest-of-the-poor”), if implemented, and the rising per-capita income, would support higher consumption. Faced with large rice stocks, the government took several measures to boost domestic consumption, such as increasing the quantity of rice/wheat supplied to the “poorest-of-the-poor” from 25 kg per month to 35 kg per month per family at a highly subsidized price of rs. 3 per kg for rice and rs. 2 per kg for wheat, and distributing significant quantities of rice and wheat for drought relief operations. Rice is supplied under the PDS at rs. 8,300 ($182.4) per metric ton for the APL clientele and rs. 5,650 ($124.2) per ton for the BPL clietele.

More than 4,000 varieties of rice are grown in India. For government procurement purposes, however, rice is classified into two categories: common (length to breadth ratio less than 2.5) and Grade A (length to breadth ratio more than 2.5). The paddy support price for MY 2003/04 was unchanged from the 2002/03 level at rs. 5,500 ($120.8) per ton for common varieties and rs. 5,800 ($127.5) per ton for Grade A.
Historically, most government rice procurement came from millers who must sell the government a portion (ranging from 75 percent in Punjab and Haryana to 50 percent in Andhra Pradesh, and even lower in marginal surplus states) of their milled rice at established rates, called the “levy price,” which is linked to the support price of paddy and milling costs. But in recent years, most of the procurement by the government is in the form of paddy bought at the support price. Following a steep decline in production last year, government rice procurement declined sharply to 16.4 million tons in MY 2002/03 from 21.3 million tons in the previous marketing year. Procurement in MY 2003/04 is likely to increase to 18.5 million tons due to higher production.

Post forecasts CY 2005 rice exports at 2 million tons, unchanged from the CY 2004 export estimate. MY 2004/05 exports are also forecast at 2 million tons, down from 2.5 million tons in MY 2003/04, and the revised estimate of 5.4 million tons in MY 2002/03. The steep decline in exports follows the discontinuation in August 2003 of new allocations of subsidized rice for exports. Furthermore, the government increased the sales price of rice for exports for the January – March 2004 quarter by rs. 300 ($6.60) per metric ton to rs. 7,600 ($167) for the 2002 crop and rs. 7,525 ($165.4) for the 2001 crop.

Although exports were constrained by inconsistent government policies and infrastructure bottlenecks, such as the shortage of railcars, Indian rice exporters managed to export significant quantities of rice in CY 2002 and CY 2003. Major destinations for Indian non-basmati, white/parboiled rice, were Bangladesh, Indonesia, Philippines, Nigeria, South Africa, Ivory Coast, and other African countries. India also exports around 600,000 metric tons of basmati rice every year, mostly to Saudi Arabia and other Middle East Countries, Europe, and the United States.

The government began subsidizing exports of rice following a large build up in government-held stocks three years ago, which reached a record 26.5 million tons on November 1, 2002, resulting in serious storage problems. With the rice and wheat stocks down sharply, there are no domestic reasons for the government to export rice, particularly at highly subsidized prices.
Although the government announced that it would reconsider exports in late January 2004, when a better picture of the stock situation would emerge, it is unlikely that any decision will be made until after the national elections in late April 2004. Even if the stock situation improves, concerns about the unpredictable monsoon this summer might prompt the government to be cautious and postpone any export decision until the fall, when a better picture about the 2004 crop is available.

Government rice stocks dipped to 5.2 million tons on October 1, 2003, the lowest since 1989, from 15.8 million tons a year ago. The steep decline in stocks was the result of lower government rice procurement in MY 2002/03, combined with record offtake for domestic consumption (due to drought) and large (subsidized) exports. Government procurement during MY 2003/04 is likely to be somewhat higher than last year’s level at 18.5 million tons. With likely higher domestic offtake, there may be only a marginal increase in government stocks on October 1, 2004. The PS&D table includes estimated private held stocks.

India is not an attractive market for US rice, as India is a “price-buyer” when imports are required. Although Indian low-quality white rice exports do not pose a challenge for US rice exports, Indian high quality basmati can challenge US rice in several markets, particularly in the European Union, because of the preferential duty structure for Indian basmati rice.

The Indian government discontinued allocation of rice for exports in August 2003. To preclude any rice imports, the government negotiated higher import duties (70 to 80 percent) under Article 28 of the WTO, which became effective April 1, 2000.
MGR Archive 26.2.2004
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