Global rice shortage is set to be the biggest in 20 years

From China to the U.S. to the European Union, rice production is falling and driving up prices for more than 3.5 billion people across the globe, particularly in Asia-Pacific – which consumes 90% of the world’s rice.

The global rice market is set to log its largest shortfall in two decades in 2023, according to Fitch Solutions.

And a deficit of this magnitude for one of the world’s most cultivated grains will hurt major importers, analysts told CNBC.

“At the global level, the most evident impact of the global rice deficit has been, and still is, decade-high rice prices,” Fitch Solutions’ commodities analyst Charles Hart said.

Rice prices are expected to remain notched around current highs until 2024, stated a report by Fitch Solutions Country Risk & Industry Research dated April 4.

The price of rice averaged $17.30 per cwt through 2023 year-to-date, and will only ease to $14.50 per cwt in 2024, according to the report. Cwt is a unit of measurement for certain commodities such as rice.

“Given that rice is the staple food commodity across multiple markets in Asia, prices are a major determinant of food price inflation and food security, particularly for the poorest households,” Hart said.

The global shortfall for 2022/2023 would come in at 8.7 million tonnes, the report forecast.

That would mark the largest global rice deficit since 2003/2004, when the global rice markets generated a deficit of 18.6 million tonnes, said Hart.

The shortfall is partly due to result of “an annual deterioration in the Mainland Chinese harvest caused by intense heat and drought as well as the impact of severe flooding in Pakistan,” Hart pointed out.

Rice is a vulnerable crop, and has the highest probability of simultaneous crop loss during an El Nino event, according to a scientific study.

In addition to tighter supply challenges, rice became an increasingly attractive alternative following the surge in price of other major grains since Russia’s invasion of Ukraine in February 2022, Hart added. The resulting rice substitution has driven up demand.

Lower year-on-year rice production in other countries like the U.S. and EU have also contributed to the deficit, said Oscar Tjakra, senior analyst at global food and agriculture bank Rabobank.

“The global rice production deficit situation will increase the cost of importing rice for major rice importers such as Indonesia, Philippines, Malaysia and African countries in 2023,” said Tjakra.

Many countries will also be forced to draw down their domestic stockpiles, said Kelly Goughary, senior research analyst at Gro Intelligence. She said countries most affected by the deficit would be those already suffering from high domestic food price inflation such as Pakistan, Turkey, Syria and some African countries.

“The global rice export market, which is typically tighter than that of the other major grains … has been affected by India’s export restriction,” said Fitch Solutions’ Hart.

India banned exports of broken rice in September, a move Hart said has been a “major price driver” for rice. 

However, the shortage may soon be a thing of the past.

Fitch Solutions estimates that the global rice market will return to “an almost balanced position in 2023/24.”

That could lead to rice futures falling in year-on-year terms to below their 2022 level, but remain elevated at “more than one third above their pre-Covid (2015-2019) mean value, in part as inventories are replenished after a period of extensive drawdown.”

“We believe that the rice market will return to surplus in 2024/25 and then continue to loosen through the medium term.”

Fitch further projects that the prices of rice could drop almost 10% to $15.50 per hundredweight in 2024.

“It is our view that global rice production will stage a solid rebound in 2023/24, expecting total output to rise by 2.5% year on year,” Fitch’s report forecast, hinging on India being a “principal engine” of global rice output over the next five years. 

However, rice production remains at the mercy of weather conditions.

While India’s Meteorological Department expects the country to receive “normal” monsoon rainfall, forecasts for intense heat and heat waves through the second and third quarters of 2023 continue to pose a threat to India’s wheat harvest, the report cautioned.

Other countries may not be spared either.

“China is the largest rice and wheat producer in the world and is currently experiencing the highest level of drought in its rice growing regions in over two decades,” said Goughary.

Major European rice-growing countries like France, Germany and the UK have also been afflicted with the highest level of drought in 20 years, she added.