Despite some significant region-specific differences, generic factors, such as, government support in rice production, favourable monsoons, rising number of rice processing companies and increasing exports have positively impacted the Indian rice industry, reports Infomerics Valuation and Rating, a SEBI-registered and RBI-accredited financial services credit rating company. It underlines the need for immediate attention to the industry risks – container shortage, scanty rainfall and low MSP coverage.
The report Rice Industry – Emerging Contours released today is optimistic about the future of the rice industry in India. It highlights the need for a comprehensive rice strategy, with a focus on new systems, technologies and new rice seed varieties. It lists the government initiatives on bringing about structural changes in the sector and the efficient ways to reduce the extent of dependence on the vagaries of the monsoon.
Key highlights of the study
Positive outlook of the industry
- India is the world’s second-largest producer of rice after China with a production of roughly 120 million tonnes
- In both Kharif and Rabi seasons, rice production has been seeing an increasing trend over the years. The total production rose by almost 15 per cent from FY 14 to FY 21
- Rice (including basmati and non-basmati) occupy a major share (more than four-fifth) in India’s total cereals export
- The quality of Indian basmati is world-renowned, and India exports its basmati to the world. It is interesting to see that almost two-third of the basmati export is accounted for by five nations – Saudi Arabia, Iran, Iraq, Yemen Republic and UAE
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Government initiatives
- Increasing Cultivation Area – Telangana, Tamil Nadu, and Andhra Pradesh constitute over 80 per cent of the total area under paddy cultivation, which rose from 30 lakh hectares in FY 20 to 35 lakh hectares in FY 21.
- Rice Fortification – The government is fortifying rice distributed under government schemes, such as Public Distribution System (PDS) and Mid-Day-Meal scheme. The government distributes over 300 lakh tonnes of rice under the National Food Security Act, 2013. The Centre allocated 328 lakh tonnes of rice for Targeted Public Distribution System (TPDS), Mid-Day-Meal (MDM) and Integrated Child Development Scheme (ICDS) under National Food Security Act (NFSA) in FY 22.
- Increased Rice Procurement – Total rice procurement rose by 14 per cent from the marketing year 2019-20 (50.58 million metric tonnes) to the marketing year 2020-21 (57.82 million metric tonnes).
- Increasing Minimum Support Price (MSP) – The MSP almost doubled in the last decade. Recently, the government announced the MSP at ₹1,940 per quintal for ‘common paddy’ and ₹1,960 for ‘Grade-A paddy’ for the marketing year 2021-22.
Industry Risk
- Rice production is beset with a variety of risks. High fertiliser prices, plummeting water table, soaring agricultural input prices and asymmetric market price information constitute risk factors. Other issues include high rent charges of agricultural machinery, poor transportation, poor consultancy facilities and adequacy, timeliness and cost of credit.
- Diverse setting significantly impacts seasonal concentration, spatial spread, and loss of about 10 per cent of paddy/rice in processing, storage and transport. Heterogeneity of rice milling in terms of kind, capacity location, services and ownership makes the application of any standard investment, cost and return template difficult.
Some specific industry risks relate to the following three aspects
- Container Shortage – About 25,000-30,000 containers are lying at ports because of disputes with Customs. Basmati rice exports have been hit hard because 80 per cent is routed through containers.
- Scanty Rains – Erratic rainfall could affect crop production. Farmers have planted hectares of land with rice this year with fears of scarce rainfall although the Indian Meteorological Department has forecast the country will receive normal monsoon rains in 2021.
- Low MSP Coverage – Insufficient MSP realisation is reflected in paddy households selling their produce to the APMC (Agricultural Produce Market Committee) reducing from 17 per cent (2013) to 2.7 per cent (2019) because of poor participation of private traders, low infrastructure, unawareness, among various other related issues.
Way Forward
Paddy/rice production in India cannot be considered in a silo; it is inextricably linked to the broader question of land rights and land ownership, food security, political stability, preservation of natural ecosystems and agricultural diversification. Stringent international food quality and safety standards of EU, US and Japan can help enhance the quantity and quality of organic production.
Since Indian agriculture continues to be a gamble in monsoon, risk mitigation measures, crop insurance, price stabilisation measures, stress on geographical indicators (GI) of basmati rice in India and optimum use of agro-climatic conditions can reduce the dependence on the monsoon.
