India’s rice story is entering an unusual phase. The world’s largest rice producer is heading for its first decline in output in a decade and potentially its sharpest fall in nearly two decades, even as the country sits on a massive stockpile built up after years of record harvests. That combination — a weaker crop, large government-held stocks and rising scrutiny over how those stocks are used — is putting India’s rice policy under two very different kinds of pressure.
On one side is the weather. On the other is the World Trade Organization (WTO). According to a September 17 Reuters report, industry officials estimate India’s rice production could fall by around 10 million tonnes this year to about 144 million tonnes, down roughly 6.5% from last year’s record 154 million tonnes.
If realised, that would be the biggest drop since 2009-10 and the first decline in a decade. The weather setback is already visible. India has received 15% less rainfall than normal since June 1, while the deficit in some rice-growing states has reached as much as 42%, Reuters reported.
Summer-sown rice acreage stood at 42.68 million hectares as of September 11, nearly 4% below a year earlier. More than 80% of India’s rice output comes from the summer crop. Lower reservoir levels could also weigh on winter-sown rice, adding another layer of uncertainty to the production outlook.
Local rice prices have started rising, while export prices have climbed to their highest level in more than a year, according to Reuters. From record harvest to a weather setback India entered 2026 with a very different rice story. In May, the government estimated India’s foodgrain production for 2025-26 at a record 376.563 million tonnes.
Rice production was put at a record 154.024 million tonnes. Agriculture Minister Shivraj Singh Chouhan said India had become the world’s largest rice producer, surpassing China. That bumper harvest helped build an unusually large cushion of government stocks.
The monsoon, however, has changed the outlook for the next crop. And this is where India’s enormous rice inventory becomes important. The buffer is the difference India is not entering the weather setback empty-handed.
State rice reserves, including unmilled paddy, stood at a record 59.6 million tonnes as of September 1, according to government data cited by Reuters. That was far above the government’s target of 10.3 million tonnes for October 1. That stockpile gives the government considerable room to absorb a weaker harvest and maintain domestic availability.
It also means the current rice debate is not simply about whether India has enough grain. It is about what the government does with the surplus. India procures paddy at administered prices, including through minimum support prices, and holds rice in the Central Pool for the Public Distribution System, the National Food Security Act and other welfare requirements.
Surplus stocks can also be released through mechanisms such as the Open Market Sale Scheme (OMSS). Some of that surplus has also been made available to ethanol producers. Why is Washington asking about ethanol?
This is where India’s domestic biofuel policy intersects with global trade rules. In August 2024, the Department of Food and Public Distribution allowed ethanol distilleries to participate again in auctions of Food Corporation of India (FCI) rice. The programme was subsequently expanded, with the government allowing ethanol producers to buy FCI rice under the OMSS.
In February 2025, distilleries were allowed to buy up to 24 lakh tonnes of FCI rice at ₹2,250 per quintal. By Ethanol Supply Year (ESY) 2025-26, the role of FCI rice had grown significantly. The Petroleum Ministry said FCI rice accounted for 24.64% of ethanol production, compared with just 0.02% in ESY 2023-24.
The government’s position is that ethanol does not take precedence over food distribution. The Petroleum Ministry has said FCI rice is approved for ethanol only after requirements under the Public Distribution System, the National Food Security Act, welfare schemes and mandatory buffer stocks have been met. That distinction matters.
The WTO question is not simply whether India can make ethanol from rice. Rather, the issue being raised by Washington concerns the broader system — how India procures rice at administered prices, builds public stocks and subsequently releases some of those stocks for non-food uses. The United States has sought fresh details from India on the use of government-held rice for ethanol and other non-food purposes, according to an Economic Times report on September 16.
Washington has also sought details on government expenditure related to public stockholding, foodgrain distribution and sales to industrial users such as ethanol manufacturers. The matter is expected to come up at the WTO’s Committee on Agriculture meeting on September 24-25. So, where does the WTO come in?
The underlying issue is India’s agricultural support. Under WTO rules, certain forms of trade-distorting domestic support are subject to limits. For developing countries, the relevant de minimis threshold is generally 10% of the value of production.
This is not an entirely new issue for India. In April 2026, India invoked the WTO’s Bali peace clause for the seventh time after notifying the WTO that its rice support for 2024-25 had exceeded the 10% threshold. According to an Economic Times report, India reported rice subsidies of $7.6 billion, equivalent to about 11.85% of the value of production.
The peace clause, agreed at the WTO’s 2013 Bali Ministerial Conference, provides protection from certain WTO challenges for qualifying public stockholding programmes of developing countries when subsidy limits are breached, subject to specified conditions. Those conditions include transparency and notification requirements, as well as provisions intended to ensure that public stockholding does not distort trade or adversely affect the food security of other WTO members. That is what makes the latest US questions relevant.
Washington is seeking to understand how India’s growing use of government-held rice for non-food purposes fits with the food-security rationale underpinning its public stockholding programme and the WTO protection it invokes. Importantly, the US questioning the policy is not the same as a WTO finding that India has breached its obligations. This is not the first WTO challenge India’s rice support was already under examination at the WTO before the latest questions.
At the May 27-28 Committee on Agriculture meeting, the US, Australia, Paraguay and Ukraine submitted a counter-notification challenging India’s calculations of market price support for rice and wheat. They argued that India’s support was significantly higher than notified and was fuelling rice and wheat export growth with a distorting impact on global markets. India rejected those calculations, saying the underlying data were disputed and defending its policies as necessary for food security and consistent with WTO rules.
The WTO recorded both sides’ positions following the meeting. The latest questions therefore extend an existing debate rather than opening an entirely new WTO dispute. So, what is the real pressure point?
For consumers, the large rice buffer provides a cushion against a weaker harvest. But that does not make domestic prices immune from pressure. India’s retail inflation rose to 4.82% in August, while food inflation accelerated to 5.95%.
For farmers, the picture is more nuanced. A weaker crop means less grain to sell, but higher prices for premium varieties could partly offset lower yields for farmers whose crops withstand the weather stress. Reuters also reported that some industry participants expect farmers to sell less to the government if open-market prices become more attractive.
For New Delhi, meanwhile, the unusually large stockpile provides policy flexibility — to protect food security, manage domestic supplies, support exports and, where stocks are deemed surplus, supply other uses such as ethanol. But that flexibility is also what is drawing greater scrutiny from trading partners. India’s rice story has therefore moved from a record harvest to a more complicated balancing act.
A weaker monsoon threatens the next crop, massive stocks soften the immediate supply shock, and the way those stocks are accumulated and deployed is drawing fresh questions at the WTO. For now, India has the rice. The bigger question is what happens to the surplus.
Source: cnbctv18.com
