What's happening to India's rice output?

Saad (0:00)

Hello folks, you're tuned in to Finshots Daily. I'm Saad, if you're new, you're welcome. If you're returning, welcome back. In today's episode, we tell you why India is facing a huge drop in rice output, and what that could mean for you and me.

Before we head to the story, here's a quick word from Team Ditto. We're hosting a free two-day insurance masterclass that helps you build real financial security by understanding health and life insurance the right way. Right from understanding how to protect your family, choosing the right cover amount, and knowing what truly matters during a claim, to how hospitals process claims, the mistakes bios usually make, and how to choose a policy that won't disappoint you when you need it the most. We will explain it all in plain language. Head to the link in the description and save your spot. Now to the story. In 2009, India's rice output fell sharply by 15-18% because of a rainfall deficit and rots across about a third of the country. That meant lower incomes for farmers, a sharp spike in food inflation, and lower rice exports for countries that depended on India. And today, almost two decades later, India seems to be facing a similar problem.

Rice production this year could fall by about 6.5%, or 10 million tonnes, from last year to around 144 million tonnes. Rice production this year could fall by about 6.5%, or 10 million tonnes, from last year to around 144 million tonnes. The drop may not look as severe as it had in 2009-10, but it would still be the biggest fall in rice output since then. The reason is similar too.

As of mid-September, India has received 15% less rainfall than normal since the monsoon began. The deficit was as high as 42% in some major rice-growing states, such as Uttar Pradesh and Jharkhand. This was partly because of El Nino, which can weaken the monsoon. The lack of rainfall delayed the sowing of the Kharif rice, the summer crop that accounts for most of our annual rice production. It also meant a smaller area was eventually planted with rice. That's a problem because food inflation could rise further. Non-Basmati rice prices have already gone up by more than 10%, and with sugar, onion, and cooking oil also getting more expensive, the last thing we need is another staple becoming costlier. There's also another problem. Higher rice prices can make Indian rice exports less competitive. That's because India is the world's largest rice producer, accounting for over a quarter of global production. And if you remember, in 2023, India banned exports of non-Basmati rice because of concerns over domestic supplies. But the government reversed the curbs about a year later after the expected shortage didn't materialize. India then targeted record rice shipments for FY26. That flood of supply helped push global rice prices down sharply, by around 35% from the previous year, as Indian exports returned alongside strong harvests in other Asian countries. But now, if India's rice output falls, that trend could reverse. Low domestic supplies could push Indian prices up and make our exports more expensive, just as competing exporters, such as Thailand and Vietnam, are also seeing higher prices. But there's one thing that could ease our worries a little. The amount of rice in India already has in stock.

See, the Indian government buys rice from farmers every year at a minimum support price or an MSP, regardless of what happens to market prices. This ensures farmers get a minimum price for their produce, even when there is a bumper harvest. The government then stores this rice in warehouses run by the Food Corporation of India, or FCI, and distributes it cheaply or free through ration shops. This is India's public stockholding system, which is meant to ensure food security.

And right now, the government has around 60 million tons of rice in stock. That's roughly five to six times the amount it normally aims to maintain. So technically, we shouldn't have to worry about rice prices rising or Indian rice becoming less competitive globally, right?

Well, not quite.

Because there are a few problems. First, the 60 million tons doesn't consist entirely of rice that can be consumed immediately. It also includes unmilled paddy, which still needs to be processed before it can be consumed or exported. That takes time and costs money. Second, a large part of the stock is meant for the public distribution system. So traders can't simply access all of it whenever they want. And even the type of rice may not match what the market needs. Government stock contains different varieties, including basmati, non-basmati, parboiled, coarse and broken rice. These aren't perfect substitutes when there is a shortage of a particular variety that consumers or exporters want. A large part of the rice in the stockpile is also being used to produce ethanol, which is then blended into fuel. So even though India has a large rice stockpile, not all of it is necessarily available for food consumption. And that brings us to a trade-off between food security and lower fuel import bills. And finally, this may not just be a one-season problem.