Pacific Cash | Economic system | Southeast Asia
The impacts are more likely to mirror the differing function that rice performs in every nation’s political financial system.
Rice fields in Tamil Nadu, India.
Credit score: Depositphotos
In Southeast Asia, rice is extra than simply meals. Imports, exports and manufacturing of rice have main financial implications, typically reflecting deep-rooted historic and political forces. As an example, self-sufficiency in rice manufacturing was a serious purpose within the early New Order years in Indonesia, the eventual attainment of which helped legitimize the regime’s fashion of financial growth. Whether or not the worth is excessive or low, whether or not it comes from home or overseas sources, rice within the area is as a lot about politics as it’s about simple financial elements similar to provide and demand.
So when India, the world’s largest rice exporter, introduced it might stop exporting non-basmati rice in late July, it roiled markets and has little doubt led to some nervousness. How will this export ban impression Southeast Asia? To parse this query, it’s essential to unpack the function of rice within the political financial system of particular person nations.
Final yr, Indonesia imported 429 thousand tons of rice, 42 % of which got here from India. In recent times India has develop into the biggest supplier of rice to Indonesia. With India shutting down this provide for now, we’d count on rice costs in Jakarta to rise. However Indonesia additionally produces loads of rice – the Central Statistics Company estimates that home manufacturing was round 32 million tons in 2022.
So at the same time as India has been supplying extra of Indonesia’s rice imports, it’s a comparatively modest quantity in comparison with what the nation produces domestically. State-owned logistics company Bulog can be purported to be managing the nationwide stockpile of rice which, in concept, ought to forestall a market shock similar to this from translating into main value volatility or shortages. In any occasion, there are different huge rice exporters within the neighborhood that may fill shortfalls from Indian rice, together with Thailand and Vietnam.
In 2021, Vietnam exported $2.87 billion price of rice and Thailand $3.3 billion. India has been their major global rival within the rice export market, so the choice by New Delhi to chop again on rice exports might really create alternatives to seize extra of the market. With much less Indian rice available in the market, we’d count on the worth for exported Thai and Vietnamese rice to go up.
The trick will probably be to make sure a ample stability between home provides and surpluses for export. When rice is in scarce provide this could distort the stability as a result of exporters would favor to chase income on world markets. Vietnam has signaled that transferring ahead it’ll prioritize home rice provide and begin slicing again on exports over time. All of which suggests there’s a good probability that Thai rice exports will seize a bigger share of the market.
The Philippines is the biggest rice importer in Southeast Asia, with imports hitting about $1.3 billion in 2021. Final yr the Philippines imported 3.7 million tons of rice and can most likely import a number of million tons this yr. The excellent news is the Philippines imports most of its rice from Vietnam and comparatively little from India. India’s export ban will most likely trigger the worth of imported rice to extend, which isn’t nice for the Philippines as it really works to carry one of many area’s highest charges of inflation beneath management. However within the speedy time period, the Philippines’ direct publicity to Indian rice is just not that giant and there are different huge exporters close by who can choose up the slack.
Within the greater image, India’s rice export ban reveals how a lot the worldwide financial system has shifted lately. Unfettered free commerce is giving strategy to financial nationalism in pretty direct methods. We’ve seen this with the rise of commercial coverage in unlikely locations like the US, and we see it in more and more assertive rising markets that aren’t afraid to make use of export bans on vital commodities in the event that they consider it’s of their nationwide self-interest.
India’s ban on rice exports echoes Indonesia’s determination to ban exports of palm oil and coal when home provide was working skinny. It’s clear that nationwide self-interest will take priority over ideological commitments to free commerce even when it means depriving world markets of a staple good like rice, and it’s doubtless these types of financial statecraft will develop into extra widespread within the years forward. Prefer it or not, that is the world we live in and governments, policy-makers, and companies ought to get used to it.
