Indian Rice Replaced China's Expensive Corn...until now

China's expensive corn is upending agricultural markets in unexpected ways. India banned exports of broken rice last week and imposed a 20-percent export tax on most other types of rice to pre-empt food security risks. Booming demand for broken rice has been blamed on the war in Ukraine as importers sought out replacements for Ukrainian corn. That's true, but China's demand for broken rice has been on the rise for two years, driven by spiraling Chinese corn prices.

Customs data show a relentless growth in Chinese imports of broken rice--a type of grain typically used as an industrial or feed raw material and often imported by African nations. China's broken rice imports tripled from about 200,000 metric tons per quarter in 2020 to around 600,000 metric tons per quarter in 2021. With the onset of the Ukraine war, imports accelerated again to 800,000 metric tons in 2022 Q1 and over 1.2 million metric tons in 2022 Q2.

Back in 2020, China imported broken rice mainly from Vietnam, Myanmar, Thailand and Pakistan. Following an agreement to open China's market to Indian rice signed in 2018, China began importing broken rice from India for the first time in decades in December 2020. China's imports of Indian broken rice zoomed to over 1 million metric tons in 2021. This year, China imported 1.45 million metric tons in the first seven months of 2022. So far this year, nearly 60 percent of China's broken rice imports have come from India. 

China also cut its tariff on broken rice imports to 5 percent in 2018. That means Chinese importers can buy broken rice from abroad at a relatively low tariff without limit. In past years they had to beg the government for a tiny sliver of the annual tariff rate quota in order to buy any kind of foreign rice. 

China's taste for India's broken rice exactly corresponds to a price inversion between Chinese corn and imported broken rice. Chinese corn prices were $100 to $200 less than the unit value per ton of imported broken rice during 2019 when China was still dumping its massive corn reserves into the market. During 2020, Chinese corn prices began climbing while India offered discounts on broken rice sales. By early 2021, Chinese corn was about $40-$50 more expensive than imported broken rice, and the business boomed.

In a news report 6 months ago, Indian and Pakistani traders attributed China's "exceptionally vigorous" demand for broken rice to tight supplies of Black Sea corn and wheat. They cited Chinese demand for spurring a boom in prices for broken rice that inverted the spread between 100% and 25% broken rice. In late February, Indian 100% broken rice was quoted at $310 per ton fob, up $29 from the beginning of the year. Chinese corn was over $415 per ton at that time.