Salient Features of the International Rice Market Trade of Residual Supply

- Govt. in most rice growing countries protect both consumers and farmers from price variation by maintaining non- price barriers between domestic and international markets

As a result, international trade in rice has become a function of excess domestic supply over demand

The trade is not much responsive to world prices.

Salient Features of the International Rice Market

Thin International Market- world rice market is thin in relation to world production- Less than 5 percent of annual rice production is traded internationally.- Bulk of rice production occurs in the Asian countries which are also major rice consumers

Salient Features of the International Rice Market

High price volatility- Thinness of the international market leads to increased price volatility- It creates added incentives for self sufficiency in rice, further thinning the market

Salient Features of the International Rice Market

High search and transaction cost- fluctuation in the participants’ share in the market- absence of fixed trade channel leads to high search and transaction cost- Each decision to enter the market generally requires a new search for trading partner.

Salient Features of the International Rice Market

Non-homogenous commodity- different varieties and grades are preferred by different consumers- Many attributes influence the value of the produce resulting in large price differentials among different grades

Indicators of global competitiveness

Basmati rice Location: karnal, Haryana Exported from kandla port NPC = 0.89 EPC = 0.88 ESC = 0.74 DRCR = 0.48 Although basmati rice is sufficiently

price competitive, India has failed to perform sufficiently well in rice trade

Perspective on rice exports

Supply constraints- Need to augment production of basmati rice - Backward and forward linkages to farmers

Procurement constraints- Lack of requisite statistics for purchase planning by the exporters- High incidence of local taxes/charges

Perspective on rice exports

Processing constraints- Excessive investment in rice milling capacity- milling capacity of 286 million tons of paddy against production of about 120 million tons.- low cost of installation and replacement of rice huller- low capacity utilization (180-220 days in a year)

Perspective on rice exports

Low incidence of modern rice mills Levy disincentives to exporting rice mills

- most exporters are merely traders instead of processor-cum-exporter

Exporter pre-qualification is absent- only registration with APEDA- most rice traders are fly-by-night operators, striving to maximize short term gains