Global rice prices hit a 15-year high in September, rising 30 percent year-on-year (YoY), according to an investor’s note by BMI, which quoted the UN’s Food and Agriculture Organization’s (FAO) All Rice Price Index report.

The largest monthly increase of 142.4 points in the index since 2010, the hike was driven by trade disruptions, concerns over production, and strong demand.

Of the 21 export quotations that make up the All Rice Price Index, BMI stated that those offered by Vietnamese traders showed the largest month-on-month growth in August. This consists of 25 percent broken rice, five percent broken rice, and five percent fragrant broken rice, which expanded by more than 20 percent.

Thai quotations also showed robust increases, with prices for glutinous rice 10 percent broken rice and parboiled 100 percent broken rice, rising by more than 15 percent, it said.

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BMI, a Fitch Solutions Company, also shared that the “second-month rough rice (paddy rice) futures on the Chicago Board of Trade rose 3.9 percent in August, climbing to the highest average monthly level since May, and are currently trading close to the FAO's price forecast for 2023”.

Restrictions and renegotiations push up rice prices

India’s decision to impose further export restrictions, including a 20 percent export duty on parboiled rice, is the most direct reason behind the price hike during the past six weeks.

This restriction follows its non-basmati white rice and broken rice export bans from July 20 this year and September 2022, respectively, the research house said, adding that India imposed a minimum export price on basmati rice of $1,200 per tonne on August 27.

India’s global market share in rice exports was 36 percent in 2021, with developing Asia accounting for three-quarters of the shipment, recent data by the Asian Development Bank stated. Therefore, India’s restrictions have had a significant impact on the global rice market.

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“Almost 45 percent of India's rice exports by weight in 2022 are now subject to an outright export ban. This has resulted in a marked tightening of the global export market and firm upward price pressures,” BMI said last week.

In addition, there is a short-term “inflationary dynamic”, a result of Thai and Vietnamese rice traders renegotiating existing contracts to leverage narrower trade supplies.

“It means that rice traders are asking for higher prices for existing contracts, which is further driving up the price of rice,” BMI said.

Amid this, Myanmar, the seventh largest global rice exporter by tonnage in 2021 and 2022, announced a temporary restriction on rice exports to “calm domestic rice price inflation”, further exacerbating the current scenario.

Thailand and Vietnam to fill Indian rice gap

In September, the US Department of Agriculture (USDA) dropped its forecast for Indian rice exports for 2023 and 2024 to 17.5 million from 19 million metric - the “lowest level of Indian rice exports since the 2019/20 season”.

Meanwhile, Thailand and Vietnam, which represented 12.2 percent and 10.6 percent of global rice exports in 2021, are likely to benefit from the 1.5 million tonne reduction in Indian rice exports to the international market.

However, the overall outlook for global rice exports in 2023/24 is 1.6 percent lower than the previous month, equivalent to 800,000 tonnes, it said.

The USDA also revised down its 2023/24 forecasts for rice production in Bangladesh, India, Myanmar and Thailand to 518.1 million tonnes compared to its August outlook of 520.9 million tonnes.

Despite lower production and export forecasts, BMI believes that the risks to its views tilted downward, as rice is a staple commodity in most of Southeast Asia and demand is “relatively inelastic with respect to prices”.

Cambodia meets neighbors’ rice needs

According to Cambodia Rice Federation (CRF), milled rice exports rose three percent YoY to 637,004 tonnes in 2022/23 due to lower freight costs and the removal of safeguard measures by the EU.

In its report, CRF also said Cambodia's rice exports to Vietnam increased to 1.1 million tonnes in 2022/23 on higher demand for feed use.

Additionally, the Trade Data Monitor showed that Cambodia shipped more than 3.5 million tonnes of paddy to Vietnam in 2022/23. The total reflects a vast difference from Vietnamese custom’s records, where 1.8 million tonnes of paddy rice imports from Cambodia is registered.

Based on ADB’s data, Cambodia accounted for nearly three percent of global rice exports in 2021.

In comparison to Vietnam, Cambodia exported a minimal amount of paddy rice to Thailand of about 5,400 tonnes in 2021/22, the General Department of Customs and Excise of Cambodia stated.

Climate risk production

Aside from India's trade restrictions, rice prices have been impacted by weather concerns, particularly El Niño, which is expected to peak in the second half of 2023 and impact the global market.

Expectations of future water stress have also resulted in lower-than-expected rice plantings in some markets, such as Indonesia, as farmers shift toward the cultivation of less water-intensive crops, BMI said.

Owing to weather conditions, the Thai government has asked rice farmers to limit cultivation during the second rice season, which relies on reservoir water to safeguard against a potential drought.

BMI mentioned that El Niño weather events have the potential to impact rice production in Southeast Asia, with the likelihood of droughts that can damage rice crops and reduce yields.

“[Around] 2015 and 2016, which overlapped with a historically severe El Niño event, global rice exports fell to 40.7 million tonnes from 43.9 million tonnes, equivalent to a season-to-season decrease of 7.1 percent,” it said.