Rice is one of the most consumed foods across the world, with India reporting for approximately 40 per cent of all rice exports.
However, the Indian government has banned non-basmati white rice, wheat, and sugar exports, effective from 20 July 2023. Current reports note that this ban will take place in order to stabilise the demand and price of domestic rice.
The non-basmati white rice industry is the largest rice export in India, said to be worth up to $1.4 billion per contract. The country has historically sold approximately 500,000 tons of the rice every month, where contracts signed in advance by traders will now be unable to proceed.
Traders have made attempts to obtain payment guarantees or letters of credit as the government imposes the restriction sooner than expected. However, it is unlikely that India shall allow for exporters to ship out their cargoes even if their letter of credit is still valid. Only shipments ready to be exported, and currently loading will be allowed to proceed.
The only exception is for exports requested by other countries’ governments, in order to satisfy basic food security needs.
As a result, many traders must now resort to the force majeure clause to cease their contracts. The clause allows for traders to cancel the contract due to unforeseen, external circumstances which prevent their obligations from being met.
Indian traders have stated that the country’s local rate will most likely drop as the ban is enforced nationwide. While global prices are estimated to increase, the lower prices in India are likely to cause rice traders to suffer losses, especially those with an international network.
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