How Does Indian Rice Ban Affect Chinese Rice and Ethanol Market?

Opinions Focus

• India has banned broken rice exports to ensure domestic supply.
• Chinese rice production may be hit by the worst drought in 60 years.
• China will need to find alternative feedstocks to make ethanol in 2023.

Why Restrict Exports – Indian Corn & Rice Reduction

• Indian rice production in 22/23 season could fall 3.8m tonnes to 127m tonnes.
• Moreover, India corn production in 22/23 could fall 2.1m tonnes to 31.5m tonnes.
• The 5.9m tonnes of grain reduction is equivalent to 2.5b litres of ethanol.
• For India, the crop shortfall has made the government nervous and its begun to restrict exports.

India Bans Broken Rice Exports for Animal Feed & Ethanol

• India produces 5 to 6m tonnes of broken rice a year, mainly for animal feed and ethanol use.
• Domestic grain-based ethanol production was around 0.63b litres in 21/22 and 1.13b litres in 22/23.
• To meet domestic demand, India has banned broken rice exports since September 9th.

Where Will Its Largest Rice Buyer Go?

• China was the largest buyer of Indian broken rice in 2021 and 2022.
• It imported 1.18m tonnes in Jan-Jul 2022, 907k tonnes higher than same time last year.
• China uses broken rice mainly for animal feed and ethanol production.
• With the Indian ban, China may be forced to other origins: Pakistan, Vietnam, Myanmar, and Thailand.

• China is also facing rice reduction due to worst drought in Yangtze River Area since 1961.
• Some rice farmers were reporting up to 20% reduction of agricultural yields, whilst the National Meteorological Centre (NMC) was forecasting a [-1.5% – 1.5%] average yield variation.
• The reduction of rice crop could be 9m tonnes under a scenario of 5% loss of middle and late rice.

• With the Indian export ban, China may need to find new sources of animal feed or ethanol feedstock.

Impact on Chinese Ethanol Production?

• China produced 8b litres of fermented ethanol in 2021 using corn, cassava, wheat, rice, molasses and etc as feedstocks.
• Grain-based ethanol accounted for 63% of fermented ethanol and 32.51% for cassava-based.
• China could use more corn and wheat to produce ethanol or import more cassava.
• This could potentially drive up cassava returns in Thailand and lead farmers to reduce cane acreage in favour of cassava.

• However, ethanol demand could be less than last year’s because gasoline consumption was dampened by ongoing COVID restrictions.
• Today, China consumes 3.5m tonnes of fuel ethanol a year, 3% of gasoline consumption, far less than its E10 mandate – 12m tonnes of potential fuel ethanol demand.
• It halted E10 mandate in 2020 when the food security concern rose with the pandemic.