In today’s Finshots, we tell you why the government lifted a year long ban on rice exports.

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The Story

About a year ago, India hit pause on exporting non-Basmati rice. And you probably remember when this happened because we wrote about it back then. But in case you’ve forgotten, let’s jog your memory.

Rice is a staple food in India, feeding more than half the population.¹ It’s the foundation of many meals, from simple rice and curry dishes to fancy biryanis. And to keep all these rice bowls full, India has to produce a massive amount. And we do — 135 million tonnes annually, to be exact, making us the second largest producer after China.

But here’s the catch. Rice is a water-hungry crop, and its cultivation depends heavily on rainfall. Unfortunately, the weather’s been playing tricks lately, leaving the government worried about rice shortages last year. So it thought, “Hey, if we keep exporting at this rate, we might not have enough rice for ourselves, and prices will skyrocket.”

So, in a bold move, India shut off the rice export tap, halting nearly 40% of the global trade in the process.

The ripple effects of that decision were felt far beyond our borders. Global rice markets shook. Importing countries scrambled to find new suppliers. Prices soared and panic-buying of rice became a real thing in places that relied on India’s exports. But for us here in India, the government felt it was the right call — a necessary measure to protect our own people from potential shortages and inflation.

Fast forward to today, and the script has flipped. India has decided to lift the ban. So, what changed, you ask?

Well, as it turns out, the government’s predictions about a potential rice shortage didn’t exactly hit the mark. In fact, rice production in the 2023-24 crop year (July to June) turned out to be slightly better than expected.² Or 1.5% higher than the previous year. It’s not a huge jump, we know. But it’s enough to ease concerns about running out of stock.

Now, it isn’t fair to blame the government for being cautious. After all, the weather had been throwing curveballs, with El Niño, a climate pattern driving up temperatures and making rainfall unpredictable. But now, we seem to be slowly transitioning into La Niña — a return to normal monsoons and cooler conditions. And this could mean even better rice production in the next crop cycle.³

So you can imagine why instead of a shortage, India found itself with a surplus or an overflow of rice, even. Government granaries, especially in Punjab, are bursting at the seams.⁴ To put things in perspective, the government currently has a stockpile of about 32 million tonnes of rice.⁵ That’s almost three times the buffer stock required at the beginning of October. This stock isn’t just sitting idle either. It’s stored by the Food Corporation of India (FCI) and state governments to ensure that rice is available throughout the year.

But here’s the problem. There’s only so much space to store all that rice. And with farmers in Punjab just starting to harvest their new crops, there’s simply no room left. The granaries are already full of last year’s rice. So the government has been nudging other states to take rice off Punjab’s hands in advance, either by purchasing it sooner than planned or by expanding their own storage capacity. But the problem doesn’t end there.

To further manage the overflow, the government has even tried to channel some of the surplus into ethanol production.⁶ Ethanol, which can be blended with petrol to create biofuels, helps reduce our reliance on traditional fossil fuels. The goal is to blend 25% ethanol with petrol by FY26, and excess rice stocks could help meet that target.⁷ This approach kills two birds with one stone — reducing the rice surplus and moving India closer to its ethanol goals.

So after trying every domestic solution in the book, the government figured it was time to open the export gates again. After all, the world isn’t going to say no to Indian rice. Because like we mentioned earlier, the export ban had already pushed global rice prices through the roof, creating a shortage that left the world hungry for more. Sure, countries like Brazil, Pakistan and Thailand tried to plug the gap, but it wasn’t smooth sailing, especially for nations in sub-Saharan Africa, where rice importers faced higher costs and limited options.⁸

But remember when we mentioned at the beginning that the government was worried about causing a supply shortage at home? It wanted to avoid triggering rice inflation for the people, which is exactly why they banned exports in the first place. So, the big question is — did the export ban actually solve that problem?

Well, not really.

If you look at the wholesale price index (WPI), which tracks the average price changes of goods sold in wholesale markets, and the consumer price index (CPI), reflecting what you and I pay for rice over time, you’ll notice a clear upward trend.⁹ Just to put things in perspective, when the rice export ban went into effect last July, both the WPI and CPI for rice were hovering around 175. This means that rice prices had already shot up 75% compared to 2012. Fast forward to now, and that number hasn’t budged much. The WPI and CPI for rice have climbed to an average of 194, a staggering 94% above 2012 prices.

So, it’s clear that rice inflation is still a concern. And if you’re wondering why things haven’t improved, you can point a finger at the elections.¹⁰

You see, in the run-up to elections earlier this year, many state governments were eager to win over farmers, who are a powerful voting bloc. And one way they did this was by raising the minimum support price (MSP) for paddy or the price at which the government promises to buy crops from farmers.

In 2024, the MSP for paddy was up 7% from the previous year.¹¹ This meant that the government was buying more rice at higher prices, adding to the stockpile and pushing up storage costs. Naturally, all of this kept rice prices elevated.

But it’s not as if the government has been sitting on its hands. It tried selling off excess rice stocks in the open market at reduced prices.¹² But there’s a catch again. Most of this rice is fortified, meaning it’s been enriched with micronutrients to boost its nutritional value. And while this sounds like a good thing, consumer demand for fortified rice has been slow to pick up. You could partially blame a persistent myth that fortified rice is somehow “fake” or “plastic”, which has made many buyers wary.¹³ And this perception could be holding back sales.

So yeah, the other way to tackle the rice inflation issue might be to turn the export tap back on. But will it help?

It’s hard to say for sure. While resuming exports could relieve some of the pressure on domestic stocks, it may not necessarily bring down prices at home.

So we’ll just have to wait and see how things pan out.

Until then…

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Story Sources: Al Jazeera [1], Ministry of Agriculture and Farmers Welfare [2], S&P Global [3], The New Indian Express [4], Food Corporation of India [5], The Times of India [6], Rediff Money [7], International Food Policy Research Institute [8], UPAg [9] [11], Moneycontrol [10], Hindustan Times [12], The Hindu [13]

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