Rice production decline worldwide, including in China, the US, and the European Union, is leading to increased prices for over 3.5 billion people worldwide, especially in the Asia-Pacific region where 90% of rice is consumed. Fitch Solutions predicts that the global rice market will experience its largest shortfall in two decades in 2023, which could harm major importers, according to analysts who spoke to CNBC. Charles Hart, a commodities analyst at Fitch Solutions, stated that "the most evident impact of the global rice deficit has been, and still is, decade-high rice prices."

A report by Fitch Solutions Country Risk & Industry Research dated April 4 predicts that rice prices will likely stay at their current high levels until 2024. The report states that the average price of rice was $17.30 per cwt from the beginning of 2023, and is only expected to decrease to $14.50 per cwt in 2024. "Cwt" is a unit of measurement used for certain commodities, including rice.

Hart stated that as rice is the primary food commodity in several markets throughout Asia, its prices play a crucial role in determining both food price inflation and food security, particularly for the most economically disadvantaged households.

According to Hart, the report predicts that the global rice deficit for 2022/2023 will be 8.7 million tons, which would be the highest deficit since 2003/2004. During that period, the global rice markets experienced a shortfall of 18.6 million tons.

Limited availability of rice

The current scarcity of rice can be attributed to various factors such as the prolonged conflict in Ukraine and unfavorable weather conditions in major rice-producing countries like China and Pakistan. For instance, heavy monsoon rains and floods that occurred during the latter half of the previous year wreaked havoc on a significant portion of farmland in China, which is the largest rice producer globally.

Gro Intelligence, an agriculture analytics company, reported that the rainfall recorded in China's Guangxi and Guangdong provinces, which are the major centers for rice production in the country, was the second-highest in the past two decades.

Meanwhile, the U.S. Department of Agriculture (USDA) noted that Pakistan, which accounts for 7.6% of global rice trade, experienced a 31% decline in annual rice production year-on-year, mainly due to severe flooding that occurred last year. The USDA described the impact of the flooding as "even worse than initially expected."

Hart noted that the rice deficit is partly due to the annual decline in the harvest of Mainland China, which is caused by extreme heat and drought, as well as the severe flooding in Pakistan. According to a scientific study, rice is a delicate crop and has the highest likelihood of experiencing crop failure simultaneously during an El Nino event.

According to Hart, in addition to the challenges of limited supply, rice has become a more appealing option as the prices of other significant grains have increased sharply following Russia's invasion of Ukraine in February 2022. Consequently, there has been a rise in demand for rice due to the substitution effect.

Who will be impacted in terms of their rice supply?

Oscar Tjakra, a senior analyst at Rabobank, stated that the deficit is also a result of decreased rice production in other nations like the U.S. and the EU. As a result, major rice importers like Indonesia, the Philippines, Malaysia, and African countries will likely face increased costs of importing rice in 2023 due to the global rice production deficit.

According to Kelly Goughary, a senior research analyst at Gro Intelligence, several countries will need to deplete their domestic rice stockpiles. The countries that will be the most impacted by the rice deficit are those that are already experiencing high domestic food price inflation, including Pakistan, Turkey, Syria, and some African countries.

Hart from Fitch Solutions pointed out that the global rice export market, which is usually more constrained than that of other significant grains, has been impacted by India's export restrictions.

In September, India prohibited the export of broken rice, which has significantly contributed to the surge in rice prices.

An anticipated surplus in the near future

The shortage of rice may soon be resolved as per Fitch Solutions' estimates. They predict that the global rice market will be almost balanced in 2023/24. This could lead to a reduction in rice futures below the 2022 level, although they will remain significantly higher than their pre-Covid mean value due to the replenishment of inventories after a prolonged period of drawdown. Fitch also forecasts that the rice market will become increasingly surplus in the medium term. In 2024, the price of rice could drop by almost 10% to $15.50 per hundredweight.

Fitch Solutions' report anticipates a significant recovery in global rice production in 2023/24, with an expected year-on-year increase of 2.5%. The report's projections rely on India being a crucial driver of global rice output in the next five years.

However, weather conditions still pose a risk to rice production.

While India's Meteorological Department anticipates "normal" monsoon rainfall, the report cautioned that forecasts of intense heat and heat waves during the second and third quarters of 2023 continue to threaten India's wheat harvest.

Other countries may also be affected. "China, the world's largest producer of rice and wheat, is currently experiencing its most severe drought in rice-growing regions in more than two decades," said Goughary. She also mentioned that major European rice producers such as France, Germany, and the UK have been affected by the worst drought in 20 years.