Will India’s new 40% export duty on onions worsen food inflation in the Arab world?

Special Will India’s new 40% export duty on onions worsen food inflation in the Arab world?
An Indian labourer carries a sack of onions on his shoulder at a wholesale market in Chennai on February 1, 2019. (AFP)
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Updated 25 August 2023
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Will India’s new 40% export duty on onions worsen food inflation in the Arab world?

Will India’s new 40% export duty on onions worsen food inflation in the Arab world?
  • Move by Indian government could lead to higher prices, if not immediate shortage, of the vegetable
  • Experts say recent decisions by India underscore the risks of Arab overreliance on a single supplier for kitchen staples

RIYADH/NEW DELHI: In an era of increasing global interdependence in a wide range of sectors, from energy supplies to food security, the effects of decisions and events in one country rarely remain limited to that country.

Take the India government’s recent move to impose a 40 percent duty on onion exports in a bid to calm rising domestic prices. The announcement has prompted concern in import-dependent countries of the Gulf Cooperation Council area about securing adequate supplies of the vegetable.

India, the world’s leading onion exporter, said the duty is in the “public interest” and will remain in place until December 31. What this means for GCC countries is that local markets must brace for possible price fluctuations of a staple of the kitchen.

“Since onions are a basic ingredient in cooking, the 40 percent export duty levied by India will add to food inflation in the (Gulf) countries, given the already strained supply chains for wheat and rice,” Anupam Manur, an economist at public policy research and education organization the Takshashila Institution in Bangalore, told Arab News.

According to the Observatory of Economic Complexity, the UAE imported $41.7 million of onions from India in 2021, which made the country the fourth-largest importer of Indian onions that year.

The volume of Emirati imports of onions from India has been rising in recent years. In 2020, the value of the trade was $34.8 million, up from $27.7 million in 2019. The increase is likely due to the UAE’s growing population and the normally relatively low price of Indian onions.

The imposition of the new export duty could well raise the price of onions across the GCC region and eventually lead to shortages, affecting consumers and businesses. As a result, families accustomed to having onions as a key part of their daily diet might be compelled to adapt their cooking habits.

India said it imposed the duty to boost domestic supplies and thereby bring down rising local prices. “Onion prices had been inching up over the last three weeks,” Pushan Sharma, research director of Mumbai-based CRISIL Market Intelligence and Analytics, told Arab News.

“As per data from India’s Ministry of Consumer Affairs, onion prices on Aug. 19 reached over 30 rupees ($0.36), which is 20 percent higher than last year.”




A vendor cleans and sorts onions at a stall in the market in Bengaluru on April 7, 2023. (AFP)

The effects of a fickle climate on crops have also played a role in the apparent shortages of local supplies.

“High rainfall in July 2023 in key producing regions of Maharashtra and Karnataka damaged the stored onion crop,” said Sharma. “Traders had around 2.5 million tons of onions stored and it is estimated that around 10 to 20 percent of the stock got damaged.

“The rabi season, or winter crop, which produces 70 percent of India’s onion requirement, typically matures in March. However, this year we saw high temperatures in February and unseasonal rainfall in March, which caused early maturity of the rabi crop and reduced the shelf life of this year’s rabi onion crop from six to five months.”

With the rabi crop expected to be depleted by early September, prices have increased further.

“The effect of the price rise will be immediate and will gradually accentuate,” said Manur.

“The news of the export duty will have already reached households and traders, who will put in higher buy orders which, by itself, will lead to a price hike. The price of onions in the market tomorrow would have already factored in a future price rise.”




Pushan Sharma said that high rainfall in July 2023 in key producing regions of Maharashtra and Karnataka damaged the stored onion crop. (AFP/File)

The imposition of a high export duty is not unprecedented. India took similar actions to stabilize the domestic price of wheat by banning exports in 2022, restricting rice shipments in July this year, and lowering import duties on edible cooking oils.

“Sudden supply shortages are not new, especially in the agricultural and food sector,” said Manur. “A recent example is the global wheat shortage when Russia invaded Ukraine.

“Despite the fear, countries around the world coped. Some had to dig into their reserves, while other countries expanded their production to meet the demand. Something similar will happen here as well. Other producing nations will respond to the higher prices and increase their supplies.”

Given that New Delhi has said the export duty will be applied only until the end of this year, the hope is that any price hikes will be temporary.

“The increase in onion prices is expected to be short lived,” said Sharma of CRISIL Market Intelligence and Analytics. “Consumers are expected to bear the brunt of higher prices (in the absence of export curbs) only during the lean period (until the end of September or early October).

“From October onward, when kharif (monsoon or autumn season) and late kharif supplies will come into the market, prices are expected to trickle down to their regular levels.”

However, abrupt changes in export policies could result in importers looking elsewhere for more reliable sources.




The imposition of a high export duty is not unprecedented. India restricted rice shipments in July this year. (AFP)

As far as wider economic relations between India and GCC countries are concerned, “this move is not going to affect trade dynamics because it is only a short-term measure,” Ajeet Kumar Sahoo, assistant professor at the Center for International Trade and Development at Jawaharlal Nehru University in New Delhi, told Arab News.

“I don’t see that onions can impact the balance of payment with other countries. But there is no doubt that the consumers of other countries will be having a limited supply of onions, so that prices of onions will be higher, but that would be for the short term.”

Muddassir Quamar, also an associate professor at Jawaharlal Nehru University, similarly believes trade relations between India and the GCC bloc will continue to grow in strength regardless of the onion crisis.

“In the short term it might increase the food import bill for the GCC countries but might not affect long-term trade relations as food imports fluctuate and are dependent on agricultural production and market-control policies of individual countries,” he told Arab News.

Food security is a concern for Arab countries and so the current situation with onion imports raises important questions about the reliability of supply chains. But any temporary shortage of onions is not expected to cause any major problems.

“This will not have an impact on food security, per se, as onion is a flavoring agent rather than a purely nutritional one,” said Manur. “So, citizens of the GCC may experience blander food but will not see a threat to food security.”




An Indian worker uproots onions at a farm at Vasna Keliya village near Dholka, some 35 kms from Ahmedabad on December 4, 2018. (AFP)

Nevertheless, major importing nations in the Arab world might need to start considering strategies to diversify the sourcing of onions, or even bolster domestic cultivation, to mitigate the possible effects of this vulnerability in future.

“Every country has to take this issue very seriously, especially with the likes of food items, lifesaving drugs, and petroleum products,” said Sahoo.

“They have to find alternatives, otherwise the future will be very difficult. Every country has to have self-sufficiency, especially in food, water and energy.”

Fortunately, the Kingdom and the other GCC countries appear to be doing just that by developing strategies to protect their supply chains from disruption.

“Saudi Arabia has recently initiated a food security authority to deal with such incidents and I expect something similar happening in the rest of the GCC countries,” Talat Hafiz, a Saudi economist and financial analyst, told Arab News.




Talat Hafiz, a Saudi economist and financial analyst.

A number of additional measures could be available for GCC governments to mitigate the effects of the export duty, including subsidies for consumers and widening the global pool of onion suppliers. Simply shifting to other suppliers might not be a viable long-term solution, however.

“It can be expected that the other exporting countries — Pakistan, China and Egypt — will hike their onion export prices in response, given their limited surpluses for exports and the sudden supply gap,” said Manur.

“In the short run, a supply crunch can be expected but increased prices could lead to higher production in the next agricultural cycle.”

 


Global AI Summit in Riyadh to host top-level discussions on AI impact 

Global AI Summit in Riyadh to host top-level discussions on AI impact 
Updated 21 July 2024
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Global AI Summit in Riyadh to host top-level discussions on AI impact 

Global AI Summit in Riyadh to host top-level discussions on AI impact 
  • The event, organized by the Saudi Data and AI Authority, will focus on one of today’s most pressing global issues — AI technology

RIYADH: Saudi Arabia will welcome economic policymakers, major technology and artificial intelligence companies, international thought leaders, and heads of international organizations to Riyadh this September as the Global AI Summit returns for its third edition.

The event, organized by the Saudi Data and AI Authority, will focus on one of today’s most pressing global issues — AI technology — and will attempt to find solutions that “maximize the potential of these transformative technologies for the benefit of humanity,” a statement released Sunday said.

The third edition of the event will be held at the King Abdulaziz International Conference Center from Sept. 10 to 12 under the patronage of Saudi Crown Prince Mohammed bin Salman in his capacity as chairman of the board of directors at SDAIA, the statement added.

The GAIN Summit will take place amid increasing concerns about the impact of AI technologies and will reaffirm the Kingdom’s commitment to supporting international efforts aimed at enhancing human welfare in the face of the challenges associated with developing technology.

GAIN 2024 will focus more on AI than its previous editions in 2020 and 2022, with topics including innovation in the sector, key developments shaping a better future for AI, and fostering a supportive environment for human resources in the field.

Other topics include AI at local and global levels, the complementary relationship between humans and AI, business leaders in AI, the relationship between data and applications, GenAI, AI ethics, AI processors and infrastructure, and AI and smart cities.


Saudi industry minister to visit Brazil, Chile to explore lithium production

Saudi industry minister to visit Brazil, Chile to explore lithium production
Updated 21 July 2024
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Saudi industry minister to visit Brazil, Chile to explore lithium production

Saudi industry minister to visit Brazil, Chile to explore lithium production
  • Alkhorayaf will land in Brazil on Monday and leave for Chile, the world’s second-largest producer of lithium, next Sunday

RIYADH: Bandar Alkhorayaf, Saudi Arabia’s mining and industry minister, will visit Brazil and Chile this week, the ministry said on Sunday.

In Brazil, he will hold meetings with officials to discuss expanding the Kingdom’s mining capacity, food processing, and aviation, while in Chile he will explore lithium production, needed for electric vehicle batteries.

“This aligns with the Kingdom’s direction towards expanding the production of EVs,” a Saudi government statement said. 

Alkhorayaf will land in Brazil on Monday and leave for Chile, the world’s second-largest producer of lithium, next Sunday.

On the first leg of the tour in Brazil, Alkhorayaf will meet agricultural and industrial groups, including Minerva Foods, JBS, and BRF SA, as well as the Brazilian Mining Association and mining company Vale.

Brazil’s Energy Minister Alexandre Silveira said last month that Saudi Arabia’s Public Investment Fund plans to invest $15 billion in Brazil in areas such as green hydrogen, infrastructure, and renewable energy.

In Chile, the minister will meet his counterpart Aurora Williams, as well as mining companies Antofagasta, and Codelco, a state-run company tasked with bringing the Chilean government into the lithium industry.

Saudi Arabia’s sovereign wealth fund, the PIF, and the Kingdom’s mining company, known as Ma’aden, which is 67 percent owned by the PIF, formed a joint venture called Manara Minerals to invest in mining assets abroad.


Closing Bell: Saudi main index closes in green at 12,195  

Closing Bell: Saudi main index closes in green at 12,195  
Updated 21 July 2024
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Closing Bell: Saudi main index closes in green at 12,195  

Closing Bell: Saudi main index closes in green at 12,195  

RIYADH: Saudi Arabia’s Tadawul All Share Index rose on Sunday, gaining 6.73 points, or 0.06 percent, to close at 12,195.05.   

The total trading turnover of the benchmark index was SR6.12 billion ($1.63 billion), as 74 of the listed stocks advanced, while 154 retreated.   

The MSCI Tadawul Index also closed in green, gaining 2.46 points, or 0.16 percent, to close at 1,529.46.   

The Kingdom’s parallel market Nomu rose 67.8 points, or 0.26 percent, to close at 25,770.14. This comes as 27 of the listed stocks advanced while as many as 34 retreated.   

The best-performing stock of the day was Saudi Manpower Solutions Co., whose share price surged 9.88 percent to SR10.34. 

Other top performers include Maharah Human Resources Co. as well as Al-Baha Investment and Development Co., whose share prices soared by 8.35 percent and 8.33 percent, to stand at SR6.88 and SR0.13, respectively.   

The worst performer was Electrical Industries Co., whose share price dropped by 5.51 percent to SR6.00.    

Other notable declines included Alinma Hospitality REIT Fund and The Mediterranean and Gulf Insurance and Reinsurance Co., with share prices falling 3.38 percent to SR8.29 and 3.25 percent to SR29.80, respectively. 

On the announcement front, Saudi Tadawul Holding Co. reported a profit increase to SR146 million for the second quarter of 2024, reflecting a 55 percent rise from SR105.2 million in the same period last year.  

The company attributed this growth to a 50.3 percent increase in operating revenues, which reached SR741.1 million in the first half of 2024, up from SR493.0 million in the corresponding period of the previous year. 

According to a release on the bourse, Saudi Arabian Amiantit Co. reported a net profit of SR5.11 million for the second quarter of 2024, reversing a net loss of SR10.08 million from the same quarter last year, marking a 150.7 percent improvement.  

This positive shift was attributed to a 17.4 percent increase in revenue due to expanded sales and a higher volume of new orders. 

Kingdom Holding Co., Sumou Holding Co., and Jeddah Economic Co. have signed an agreement to establish a new SR6.8 billion fund to acquire the Alinma Jeddah Economic Fund, currently fully owned by Jeddah Economic Co. Kingdom Holding Co. will hold a 40 percent stake in the new fund. 


Saudi Arabia’s US treasury bond possession increases 22.46% year-on-year to $136.3bn

Saudi Arabia’s US treasury bond possession increases 22.46% year-on-year to $136.3bn
Updated 21 July 2024
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Saudi Arabia’s US treasury bond possession increases 22.46% year-on-year to $136.3bn

Saudi Arabia’s US treasury bond possession increases 22.46% year-on-year to $136.3bn

RIYADH: Saudi Arabia’s possession of US treasury bonds increased to $136.3 billion in May, compared to $111.3 billion for the same month in 2023.

The figures mark a 22.46 percent year-on-year increase.

Data released by the US Treasury Department placed Saudi Arabia in 17th spot among the largest investors in such financial instruments in May.

The report revealed that the Kingdom held bonds valued at $135.4 billion in April, compared to $135.9 billion and $131.1 billion in March and February, respectively.

The figures illustrate Saudi Arabia’s growing influence in international financial markets, highlighting a keen understanding of leveraging sovereign wealth to secure and strengthen the Kingdom’s global economic position.

Moreover, Saudi Arabia is the only Arab and Middle Eastern country among the top 20 major holders of US Treasury securities.

A report published in January by the Saudi Central Bank, also known as SAMA, revealed that its investments in foreign securities stood at $1 trillion at the end of December 2023.

SAMA also has $361.75 billion as deposits with banks abroad, the report added.

The data analysis also revealed that Japan emerged as the largest investor in US bonds in May, with holdings totaling $1.128 trillion. China and the UK followed, with portfolios valued at $768.3 billion and $723.4 billion, respectively. 

Luxembourg claimed the fourth spot with assets valued at $385.4 billion, while Canada and the Cayman Islands secured the fifth and sixth positions with treasury portfolios worth $354.5 billion and $336.5 billion, respectively. 

Ireland attained seventh spot with treasury reserves worth $317.7 billion, followed by Belgium and Switzerland, with assets amounting to $313 billion and $290.4 billion, respectively.

France held the 10th position with treasury assets amounting to $283 billion, while Taiwan and India occupied 11th and 12th places with portfolios worth $263.3 billion and $237.8 billion, respectively.

The data collected is primarily from US-based custodians and broker-dealers. Since American securities held in overseas accounts may not be attributed to the actual owners, the department said, the data may not provide a precise accounting of individual country ownership of treasury securities.


Saudi capital market systems prove resilient during global tech outage

Saudi capital market systems prove resilient during global tech outage
Updated 21 July 2024
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Saudi capital market systems prove resilient during global tech outage

Saudi capital market systems prove resilient during global tech outage

RIYADH: Saudi Arabia’s capital market systems proved resilient during the global technical outage on July 19, which disrupted flights, broadcasting services, and essential services worldwide. 

The Saudi Capital Market Authority stated that it promptly coordinated with market stakeholders to mitigate the effects of the interruption, ensuring that operations remained unaffected.  

According to the CMA, its systems were fully operational and prepared to support investors during the trading sessions on July 21.

The outage, triggered by a software update from cybersecurity firm CrowdStrike, caused widespread disruptions across various sectors. 

In response, the CMA directed listed companies on the Saudi capital market to disclose any significant developments related to the incident. The market regulator emphasized that its technical teams are monitoring systems around the clock to ensure ongoing stability and business continuity. 

The Saudi Exchange also reassured investors of its system’s reliability and readiness to provide continuous service. 

On July 20, Saudi Arabia’s National Cybersecurity Authority stated that the impact of the outage on the Kingdom was limited. The authority also noted that it has implemented exceptional measures to monitor threats and cyber risks and to respond to any incidents. 

The Saudi Central Bank confirmed that its payment and banking infrastructure remained unaffected by the outage, emphasizing its adherence to international cybersecurity and operational standards.  

The apex bank also highlighted its commitment to regularly updating precautionary measures to ensure effective business continuity and the resilience of its banking and payment systems. 

The Saudi Data and Artificial Intelligence Authority also stated that its systems and those it hosts in the Kingdom were not impacted by the global technical failure. 

“SDAIA confirms that its systems and the national systems hosted by it in the Kingdom are not affected by the technical failure that struck most countries of the world today,” it stated in a statement posted on X. 

The incident has sparked renewed discussions about the importance of cybersecurity and resilience in critical infrastructure, with many organizations reassessing their strategies and safeguards to prevent future disruptions.

The Kingdom’s Vision 2030 underscores a robust commitment to advancing cybersecurity, with strategic investments aimed at enhancing digital infrastructure and safeguarding national assets against emerging cyber threats.