Rice, WTO and the Iran-Israel conflict

Rice, India’s staple food, is always in the news – albeit for different reasons. Last June, India’s ban on non-basmati white rice triggered panic and inflation fears across the world markets. At that time, the Indian government had said it was forced to make the decision to soften prices and ensure availability during the festival season. It was also seen as a measure to stem any possible short-supply as excessive rain in some places and deficient rain elsewhere either battered paddy crops or affected sowing.

Rice is again in the news, but not on a scale like last year. At least till now.

At the World Trade Organization (WTO), India invoked the peace clause for the fifth consecutive time for the 2022-23 (October-September) marketing year as it breached the prescribed subsidy limit for rice offered to its farmers.

According to global trade rules, there is a cap of 10% domestic subsidy support. In 2022-23, a subsidy worth $6.39 billion was given to farmers. The value of India’s production of rice in that period was $52.8 billion, which means India offered a 12% subsidy.

India argued that rice stocks were acquired and released (via its public distribution system – PDS) to meet the domestic food security needs of India’s poor and vulnerable population. India had been exceeding the domestic support limits on rice since 2018-19, media reports said. Others feel the subsidy could distort trade or adversely affect the food security of other member nations.

According to the peace clause decided at WTO’s Bali Ministerial meeting in December 2013, developing countries are allowed to breach subsidy limits on food crops subject to certain conditions being met related to notifications on the PSH programs and food security. India argues that the 10% subsidy ceiling is outdated and needs to be revised. India’s public distribution system reaches around 80 million people and is crucial to ensuring the food security of its vulnerable population.

Rice output

In other news, though the area covered under summer crops (March to June) has risen compared to last year, production of rice is set to fall for the first time in eight years in 2023-24 because of below-average rainfall, Reuters said quoting government data. Rice production is expected to fall to 123.8 million metric tons in the crop year to June, the ministry of agriculture and farmers welfare said. Total production of rice was recorded at 135.75 million tonnes in 2022-23 and 129.47 million tons in 2021-22. The Reuters report says lower rice production raises the prospect of the Indian government extending the curbs on rice exports in an election season.

The weekly area coverage of rice under summer crops as of 12 April 2024, however, was 29.61 lakh hectares compared to 26.69 lakh hectares in the same period last year. Summer or Zaid crops are grown before kharif sowing and after rabi harvest, from March to May. However, it all depends on the rain. IMD has, though, forecast above-average rain in its long-range forecast issued on 15 April, which spells good news. (One hectare is equivalent to 10,000 square meters or 2.47 acres.)

Pulses more or less remained the same at 11.85 lakh hectares this year compared to 11.28 lakh hectares last year. The coverage area of coarse cereals was 10.18 lakh hectares till 12 April 2024 over 9.04 lakh hectares last year, a slight increase. Area coverage of oilseeds was 8.99 lakh hectares this year against 9.03 lakh hectares last year. 

War clouds

Meanwhile, the Iran-Israel conflict in West Asia has left Indian exporters of basmati rice worried. They fear it could affect shipment. Iran accounted for US$ 598 million of the total nearly US$ 4.59 billion worth of basmati rice exported in the first 11 months of last fiscal, as per government data quoted by The Economic Times. Iran, Israel and other nearby countries are major consumers of basmati rice.

On April 14, Iran launched hundreds of missiles at Israel in retaliation to an airstrike on its embassy compound in Damascus on 1 April. Israel has vowed to retaliate amid international calls for restraint.

“Shipping routes will change if the tension further escalates. Then it will become a very difficult situation for the basmati rice exporters,” said Vijay Setia, a leading exporter and former president of All India Rice Exporters Association, told The Economic Times. Exporters of tea and importers of edible oil are equally worried, keeping their fingers crossed and hoping all will be well.