Question

Covid-19 lockdown: Indian rice exports suspended on supply chain disruption
Reuters

Last updated on April 6, 2020 at 07.21 am
Indian rice traders have stopped signing new export contracts amid the nationwide lockdown to curb the spread of coronavirus, as labour shortages and logistics disruptions have hampered the delivery of even existing contracts, industry officials said.
The halt in exports from the world's biggest exporter is allowing rival countries such as Thailand to raise shipments in the short term and lift global prices, forcing millions of poor consumers in Africa to pay higher prices.

"Shipments have stalled as transport has become very difficult because of the lockdown. Drivers are not coming and labour is not available at mills and ports," said B.V. Krishna Rao, president of the Rice Exporters Association (REA).

Indian traders have stopped offering quotes to overseas buyers as they are not sure when they would be able to ship their cargoes, four top exporters told Reuters.

India's export volumes have fallen by four to five times, said Prem Garg, chairman of the Lal Mahal Group, which exports rice to more than 44 countries.

India will gradually pull out of a three-week lockdown in phases, Prime Minister Narendra Modi has said.

About 400,000 tonnes of non-basmati rice and 100,000 tonnes of basmati rice, meant for March-April delivery, are either stuck at ports or in the pipeline due to the lockdown, exporters said.

New Delhi mainly exports non-basmati rice to Bangladesh, Nepal, Benin and Senegal, and premium basmati rice to Iran, Saudi Arabia and Iraq.

As Cambodia, Vietnam and Myanmar curbed their rice exports, demand for Indian rice surged, but traders are not signing new contracts, said Nitin Gupta, vice president of trader Olam India's rice business.

Thailand, the only key exporter to offer rice currently, has seen its export prices soared to their highest in seven years this week.

Before the lockdown, India was offering 5% broken parboiled variety at around $365 per tonne free-on-board basis. Thailand is now been offering the same grade at around $540 per tonne.

"After the lockdown, there will be a huge demand for Indian rice, as India is in a sweet spot in terms of offering competitive prices," said Olam's Gupta.

Since India has vast surplus stocks, it could start cashing in on demand once labour shortages ease, said REA's Rao.

India's rice exports in 2019 fell 18.1% from a year earlier to 9.87 million tonnes, the lowest in eight years, as demand moderated from key Asian and African buyers.

India is likely to produce 117.47 million tonnes of rice in 2019/20 against an annual consumption of about 100 million tonnes, with state inventories at 31 million tonnes. If the lockdown is extended, or the pandemic spreads among key buying nations, denting demand, India's rice industry could suffer major losses, said large exporter Vijay Sethia.

Question 2:

What types of international business risks, you could imply from your reading of this article; discuss them?

Question :3
How companies can deal with these risks now and in future?

Answer 1

There are only two questions, question 2 & question 3, I am giving you an answer for both the questions.

Question 2. In general, there are four categories of riks while doing the international business, which are as below, and we can find all the four types of risk in this case.

a. Country risk: This risk category is country-specific as the problem which arose in India due to the shortage of labor and drivers resulted in the disruption of the supply chain.   

b. Political risk: what if the Indian government decides to further hold the export of rice considering the low output incoming season and keeping the stock for local consumption.

c. Regulatory risk: In order to get some relief on the economy of India which is under tremendous pressure, new tariffs on the export can be imposed. This is totally in the hand of the regulatory authorities of the subject country. Any change in regulation can disrupt the supply chain arrangements.

d. Currency risk: during this lockdown period the value of USD is increasing against the Indian rupees and the depreciation of Indian rupees can pose a risk for importers as they had made the contract before lockdown when Indian Currency INR was relatively stronger.  

Question 3.

In order to deal with such a situation in the near or future, the dependencies on any one country for the products must be reduced and local arrangement as alternate ways of improving the supplies locally should be ensured. Increase intervention by international trade association can also help in reducing the negative impact of the act of any one country. Diversification of source countries and regulations on prices need to be established in order to avoid short losses or gains.

Another way that needs consideration is to focus on good meaningful relationship between the exporting and importing countries, a good relationship can long way, as we have seen recently India did agree to open the export for some critical medicines which were needed by many countries to fight COVID-19.