Late on Thursday, India prohibited the exports of non-basmati white rice, the latest step in the country’s fight against skyrocketing food costs.

According to the Ministry of Consumer Affairs, the prohibition will “allay the rise in prices in the domestic market” and ensure “adequate availability” of non-basmati white rice in India.

More than 40% of the world’s rice commerce is accounted for by India, which is also the second-largest producer behind China.

The country’s September restriction on shipments of broken rice may have been compounded by this week’s embargo, according to analysts who spoke with CNBC.

“Global rice [supplies] would drastically tighten … since the country is the world’s second top producer of the food staple,” said Eve Barre, ASEAN economist at trade credit insurer Coface.

As main export destinations, Bangladesh and Nepal would be particularly heavily hurt by the embargo, according to Barre.

Panic reactions and speculation on international rice markets would compound the price increase in addition to a decrease in the world’s supply of rice.

In a recent research released prior to the announcement, agribusiness analytics firm Gro Intelligence warned that the ban might make food insecurity worse for nations that rely heavily on rice.

“Top destinations for Indian rice include Bangladesh, China, Benin, and Nepal. Other African countries also import a large amount of Indian rice,” Gro Intelligence’s analysts wrote.

About 25% of India’s rice exports are non-basmati white rice, according to the Ministry of Consumer Affairs.

As a result, affected importers can switch to different regional suppliers like Thailand and Vietnam, according to Radhika Rao, a senior economist at DBS Bank.

“In addition to a reduction in global rice supply, panic reactions and speculation on global rice markets would exacerbate the increase in prices,” said Coface’s Barre.

Prices are already at decade-high levels, in part because of limited supply when the staple turned into a desirable substitute as the cost of other important grains skyrocketed in the wake of Russia’s invasion of Ukraine in February 2022.

After Russia pulled out of the Black Sea grain agreement, wheat prices increased this week. The goal of the agreement was to stop a global food catastrophe by allowing Ukraine to keep exporting.

“Rice inflation has already accelerated from an average 6% year-on-year last year to nearly 12% in June 2023,” DBS’ Rao said.

After India’s announcement, rough rice futures increased by 1% to $15.8 per hundredweight (ctw).

The South Asian country is struggling with exorbitant pricing for fruits, vegetables, and grains. Due to the unfavourable weather, tomato prices in India have increased by more than 300% in recent weeks. According to a Reuters survey, the nation’s inflation rate would likely reach 4.58% year over year due to rising food prices.

Oscar Tjakra, a senior analyst at Rabobank, forecasted that India’s market share will cause rice prices to increase even more globally. When rough rice prices reached $18 levels per cwt, Tjakra predicted that prices might potentially approach second-quarter highs.

(Adapted from CNBC.com()