Indian farmers face profitability challenges as input costs rise 6.1%, outpacing MSP growth of 5.36%: Infomerics Ratings

Rising input costs and climate change threaten India's rice sector profitability, despite record production. While MSP growth lags behind input cost increases, government interventions are underway.

Dhirendra Kumar
Published27 Nov 2024, 10:35 PM IST
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The report also flags climate change as a major risk, predicting a 20% drop in rainfed rice yields by 2050.

New Delhi: India’s rice sector, which contributes 35% to global rice trade, faces profitability challenges despite record production of 137.8 million tonnes in FY 2023–24, according to a rice ondustry Outlook for 2024 released by Infomerics Ratings on Wednesday.

The report highlights a 6.1% rise in input costs during FY2024–25, outpacing the 5.36% growth in the minimum support price (MSP) for paddy, which now stands at 2,300 per quintal. Labour costs, accounting for half of production expenses, are increasing at 6% annually.

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The report also flags climate change as a major risk, predicting a 20% drop in rainfed rice yields by 2050.

Government interventions, including fortified rice schemes and climate-resilient seeds, are being deployed to mitigate these risks, but long-term challenges persist.

Regional dominance

Additionally, procurement patterns show regional dominance by Punjab and Haryana, which control 99% and 81% of central rice procurement despite contributing only a small share to national production, stated the report.

“Yield gap analysis suggests that better farming practices could boost production by an additional 7 million tonnes without expanding cultivation areas. Sustainable practices and cost management are essential for India to maintain its leadership in global rice trade while safeguarding domestic food security,” said Manoranjan Sharma, chief economist, Infomerics Ratings.

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Also read | With granaries full, India axes export duty on parboiled rice

India remains the world’s largest exporter of rice, contributing 35% to the global rice trade. In 2022–23, the country’s rice exports totaled $11 billion, with basmati rice experiencing a notable 21.9% growth in export value for 2023–24.

With an annual production of 525 million tonnes, India ranks second globally behind China, which produces 28% of the world’s rice, while Bangladesh accounts for 7%. India’s rice production reached an all-time high of 137.8 million tonnes in FY 2023–24, making up over 40% of the country’s total food grain output.

Crucial staple

Domestically, rice is a crucial dietary staple, especially in states like Andhra Pradesh and Odisha, where it accounts for 90% of monthly cereal consumption. Nationally, rice makes up 55.3% of rural and 53.2% of urban cereal consumption, reflecting its vital role in food security across India, the report highlighted.

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The Wholesale Price Index (WPI) for rice has surged by 17.46% over the past five years, with basmati rice prices contributing significantly to the rise. Basmati rice alone saw a nearly 28% increase in prices, reflecting growing demand and market dynamics.

Also read |  Cabinet clears extension of fortified rice scheme until 2028 to combat anaemia

India’s non-basmati rice exports, which account for 44% of the country’s total rice export value, witnessed a sharp decline of 28% in FY 2023–24, as reported by Infomerics Ratings. Exports rose from $6.13 billion in FY22 to $6.36 billion in FY23, but fell to $4.57 billion in FY24. The decline continued into FY25, with exports totaling $1.97 billion in the first five months (April-August).

In contrast

This drop contrasts with the 3.75% growth observed in FY 2022–23 and has been attributed primarily to policy changes, including the imposition of a 20% export duty on parboiled rice in August 2023.

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Bangladesh, which was the top destination for non-basmati rice exports in FY 2021–22, and China, which dominated in FY 2022–23 alongside Benin, have fallen off the list of top buyers in FY 2023–24 and FY 2024–25. Instead, West African nations like Benin and Guinea have emerged as consistent markets, reflecting changing global demand patterns, the report highlighted.

Also read |  India eases export restrictions on non-basmati white rice

In contrast to other rice exports, the export of basmati rice has remained strong, growing at around 25%, as per the report. Basmati rice constitutes 56.1% of India's total rice exports, with the majority directed to Middle Eastern countries.

Iran, Iraq, and Saudi Arabia account for 45% of these exports, with Saudi Arabia showing the largest growth. Basmati rice exports have been largely unaffected by recent changes in government policy.

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Exports grew from $3.54 billion in FY22 to $4.79 billion in FY23, reaching $5.84 billion in FY24, with $2.46 billion recorded in the first five months of FY25 (April-August). 

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First Published:27 Nov 2024, 10:35 PM IST
Business NewsIndustryIndian farmers face profitability challenges as input costs rise 6.1%, outpacing MSP growth of 5.36%: Infomerics Ratings
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