India scraps rice import levy as drought bites

India has scrapped its rice import duty in the face of a drought which threatens to cut the domestic harvest by up to 17%.

The world's second biggest rice consumer said it had scrapped the 70% duty until next September, the end of a marketing year expected to witness a drop of at least 15m tonnes in India's crop.

The withdrawal comes amid a growing effort by New Delhi to quell rising food inflation also evident in soaring prices of sugar, of which India is the world's biggest consumer, and pulses, which have jumped 50-70% in a year to record highs.

Crop production has been hit by the weakest monsoon since 1972 which, at its low point last month, brought drought to nearly half of India's 600 districts.

'Administrative constraints'

A move to encourage imports represents a turnaround for a country which has, historically, been the world's third largest rice exporter, after Thailand and Vietnam.

India's falling rice exports

2005-06: 4.54m tonnes

2006-07: 6.30m tonnes

2007-08: 3.38m tonnes

2008-09: 2.00m tonnes

2009-10: 1.5m tonnes (forecast)

Source: USDA

World's biggest rice exporters, 2009-10 (year on year change)

1: Thailand, 10.0m tonnes (+17.6%)

2: Vietnam, 6.00m tonnes (+3.3%)

3: Pakistan, 3.30m tonnes (+10%)

4: US, 3.05m tonnes (-1.6%)

5: India, 1.50m tonnes (-25%)

Source: USDA forecasts

But this inventory has proved only a partial buffer against price rises, in part because it was built at some expense to privately-held stocks, and in part because of hold-ups in getting government rice into consumers' hands.

"Although the government is supplying adequate quantities of rice and wheat to various state governments for distribution… at subsidised prices, several states are unable to make use of the allocated quantities due to financial and administrative constraints," a briefing from US officials in New Delhi said.

"Thus the country is facing the paradox of large government grain stocks and high food prices.

Price gap 

Nonetheless, local prices are, at about $275 a tonne, still below those on international markets, signalling that imports are likely to remain scarce for now.

 

However, India's government, which was re-elected on a ticket of cheap food for the poor, has since last year successively tightened export restrictions in an effort to build stocks and keep prices low.

 

However, Vietnam reported prices up 5% over the last week, supported by strong demand from the Philippines, the world's biggest importer, whose own crop has been damaged by storms.

The US report also forecast a cut to potentially 82m tonnes in India's 2009-10 rice production, 2m tonnes below current Washington forecasts.