Why Indian rice prices are ruling high despite Govt’s efforts to control them  

The Indian government has expressed concern over the rise in prices of rice and has urged traders to buy the cereal from the Food Corporation of India (FCI) from its stocks. 

According to the Ministry of Consumer Affairs, rice prices have increased by nearly 13 per cent, while those of wheat flour (atta), at the same time, have gone up by 1.5 per cent only. 

Last week, the Food Ministry convened a meeting of rice exporters and traders to find out the reasons for rice prices ruling higher and why the offtake from the FCI e-auctions held every week is poor. 

At the weekly auctions, FCI has been able to sell 3.53 lakh tonnes (lt) of the 4 lt on offer, while at the same time only 10,000 tonnes of rice have been sold of the 1.93 lt offered. 

Wheat vs rice

Trade and industry sources, speaking to businessline on the condition of anonymity, said Government officials have failed to appreciate the dynamics of rice trade. 

“Officials will have to know there is a lot of difference in selling wheat and rice. Also, the issue of rice prices ruling higher is because there is short-supply of the varieties that are in demand,” said an exporter based in South India.

Each country in the region consumes a particular variety of rice and there is a shortage that has been carried over since 2022 and aggravating now. “We are typically witnessing a scenario similar to the one we saw in wheat in 2022,” said a trade analyst. 

The problem with rice is that farmers, particularly in the North and a few other parts of the country, are growing varieties that are procured by FCI and consumed by African countries,  said the analyst. 

Shortage of key varieties

“Therefore, the response to FCI auctions is poor as it will not be consumed by a major section of the rice-eating population. These are basically rice distributed through the public distribution system. How many people actually consume rice issued through ration shops?” he wondered. 

Seed industry sources say over 430 paddy varieties are grown in various agro-climatic conditions across the country. This is actually down from the 15,000 varieties grown before Independence.

“There is a shortage of key rice varieties such as Sona Masuri or Ponni leading to rise in the cereal’s prices,” said the exporter. 

The trade analyst said a majority of the farmers are trying to grow paddy that will be procured by FCI. Hence, they try to boost their yield of these varieties. 

Procurement down 14%

“The other issue is FCI has set a target to procure 52 million tonnes (mt) from October 2023. But its procurement is 14 per cent lower than last year. The agency trying to compete with traders to procure is also pushing up prices,” the analyst said. 

Rice procurement by FCI for the Centre’s buffer stocks during October 1-December 31 dropped to 29.93 mt from 34.79 mt lt a year ago. 

An exporter from the North said FCI terms for its tenders were also a hindrance. It is selling in lot sizes of 100 tonnes on a “quality as is where is” basis.  The agency offers old crop and seeks 100 per cent advance payment. 

“There are also logistics costs of lifting the consignment and sale it through tender where an earnest money deposit has to be made,” he said. 

Huge infra cost

On the other hand, farmers get cash from mills while traders do not have to conform to lot sizes. “There are no fund blocks and red-tapism,” he said. 

Planning on cultivating drought-tolerant varieties is being done out of “ignorance” and officials have to focus on “consumers preference”, said the analyst. The Centre will also have to re-evaluate production estimates of previous years to reflect the ground reality rather than simply look at food security, he said. 

The analyst said the price of non-basmati rice is ₹42 a kg mainly due to infrastructure and other costs such as labour and milling. Many traders rely on the Central Warehousing Corporation to store rice and it charges ₹14 a bag per month. “With rice traders operating on a thin 2-3 per cent margin, such costs have to be lowered or controlled,” the analyst said.

The Centre can get a clear picture on production by asking the States to provide data since they collect cess for the cereal traded in their State. Also, the Agricultural Produce Marketing Committees can help with the data they have.

“In 2007, when India banned rice export the production was around 93 mt catering to population of 118 crore. Currently, the population is 142 crore and rice production is claimed to be 130 mt. Also, a majority of the population are young. There is clear demand-supply gap,” the analyst said, adding that if possible, the Centre should get data on variety-wise rice consumption.