India's Rice Export Restrictions Put 2 Million Tons Of Contracts at Risk

India, one of the world's largest rice exporters, has recently imposed restrictions on rice exports, putting contracts for approximately 2 million tons of rice at risk, Reuters reported.

India, which exports 40% of the world's rice, ordered a halt to its main rice export category on Thursday in an effort to stabilise domestic prices, which have recently risen to multi-year highs as unpredictable weather threatens supply.

Over the past several days, merchants have acquired letters of credit (LCs), or payment guarantees, anticipating that the government will put limitations on rice shipments, according to a Mumbai-based dealer with a global trade house.

"But the trade wasn't expecting the government to impose restrictions so soon. It was expecting them to come into effect in August or September. As a result, these traders have no choice but to use the force majeure clause to cancel the contract," he said.

A party to a contract cannot fulfil their commitments due to force majeure, which are sudden external events.

Four dealers verified the potential cancellation of export contracts for almost 2 million metric tonnes of rice, worth $1 billion.

The government announced on Thursday that the export restriction would start on July 20 and that only ships that are presently loading would be permitted to do so, not shipments that would later be supported by LCs.

"Traders typically sign contracts in advance, so the contracts signed for the next few months cannot be executed now," Nitin Gupta, senior vice president of Olam Agri India Ltd told Reuters.

Approximately 500,000 tonnes of non-basmati white rice were exported from India each month prior to the export prohibition, according to Gupta.

According to B.V. Krishna Rao, head of the Rice Exporters Association, about 200,000 tonnes of rice are currently being loaded at various Indian ports, and this number will be permitted to leave the country.

Rao said that the government should also permit exporters with legitimate LCs to convey their cargo.

India is not likely to permit any such exemption, according to two traders and one government official.

Some exporters paid more for rice from mills because buyers throughout the world were eager to get their hands on supplies and were prepared to pay more. Now, prices are probably going to fall, and traders probably won't make any money, according to a global trade house dealer in New Delhi.

The export ban imposed by India, according to traders, will result in an increase in global prices but a decrease in local prices.

Bangladesh, Senegal, Ivory Coast, Togo, Guinea, Benin, and Nepal are among the top consumers of Indian non-basmati rice.

More than 3 billion people rely on rice as a staple food, and Asia, where the El Nino weather pattern typically results in decreased rainfall, produces about 90% of the water-intensive crop.