Rice Emissions Are Driving Climate Transitions for the Sector

Powerful market shifts to cut rice emissions are an opportunity to achieve greater physical and financial resiliency for forward-thinking investors and companies.

Rice is a staple grain for up to three billion of the world’s population, and rice cultivation is the livelihood of hundreds of millions of farmers. However, traditional rice cultivation practices are unsustainable in a world rapidly striving to respond to climate change. Rice represents nearly 10% of global agricultural greenhouse gas emissions. Mitigating these emissions is becoming a higher priority for governments and market stakeholders with climate goals.  New technology innovations that cost-effectively reduce rice emissions are emerging to meet their demand. These forces create significant financial risks for rice producers and other value chain actors today. 

However, these transitions are also an opportunity to unlock new market advantages, enhance food security, and safeguard the livelihoods of millions. Innovative technologies that are cutting emissions from production are also increasing efficiency and impacting market competitiveness. Successfully navigating the intricate dynamics of climate transitions can fortify the sustainability of the global rice sector and producers’ physical resilience to climate impacts, bolstering food security and economic well-being for rice-dependent communities globally. The time to act for stakeholders in the rice value chain is now.

Legal and Policy Reactions to Rice Emissions

Shifts in agriculture production policies have significantly affected rice cultivation, a major source of methane emissions. Initiatives like the Global Methane Pledge signed by 158 countries, aiming to reduce methane emissions from agriculture and other sectors by at least 30 percent from 2020 levels by 2030, have spurred action across rice-producing nations. There are three major policy channels for addressing rice emissions:

• Carbon pricing: Policies that aim to decrease carbon emissions through penalties or fees, such as carbon pricing, could raise production costs for rice farmers and processors, potentially leading to higher consumer prices and decreased competitiveness for rice-exporting countries in the global market. 
• Direct regulation on producers: Regulations to curb greenhouse gas emissions from rice production necessitate the adoption of new practices or technologies by farmers, potentially increasing operational costs. 
• Trade measures: Changes in global policies, such as trade agreements or tariffs aimed at promoting low-carbon agriculture, could further alter the competitiveness and trade dynamics of the global rice industry.

The primary policy mechanisms enacted to date have been targeted regulations, but other policy approaches that support rice producers are emerging. For example, the United States has launched the U.S. Methane Emissions Reduction Action Plan, incorporating strategies to address emissions from rice cultivation. Vietnam, a major rice exporter, is adapting its intensive farming practices to meet emission reduction targets, emphasizing improved irrigation, refined tillage, advanced seed varieties, precise fertilization and farmer training programs to boost yields sustainably. These efforts also involve altering cropping patterns and introducing crop rotation to mitigate the impact of saline water intrusion.

China is actively deploying initiatives such as the System of Rice Intensification (SRI) and drought-resistant rice cultivation. As part of its emissions reduction strategy, methane emissions from rice paddies are a targeted focus, although specific measures targeting rice emissions are still evolving.

Climate transitions therefore present pivotal motivation opportunities for policymakers to embrace sustainable agricultural practices through targeted policy interventions. By adopting more favorable green policies, including targeted financial assistance, training programs to help farmers transition to more sustainable practices, and the development of market incentives that encourage environmentally friendly farming methods, policymakers can ensure that the transition to a low-carbon agricultural sector is sustainable, benefiting both the environment and vulnerable farming communities.

Technological Transformations Driving Down Rice Emissions

Embracing new technologies that overhaul traditional practices would help the industry actively improve environmental sustainability. surge in investment from governments, international development institutions and private entities toward innovating and implementing sustainable rice farming techniques could mark a pivotal moment in the industry’s journey toward climate transition.

These technological advancements point to a transformative shift toward more sustainable and climate-resilient rice cultivation practices, fostering a greener and more environmentally conscious industry. Mechanization, for instance, not only improves efficiency but also reduces the industry’s carbon footprint by optimizing resource utilization. The development of improved rice varieties through advanced breeding techniques enhances resilience to changing climatic conditions, reinforcing the industry’s adaptability. Additionally, techniques such as alternate wetting and drying, drip irrigation and crop rotations play a dual role in conserving water and mitigating greenhouse gas emissions. SRI further contributes to resource efficiency by optimizing plant spacing and water management.

By leveraging public-private partnerships, finance, and next-generation knowledge management for rice and agricultural systems, organizations can drive sustainability across rice value chains. Initiatives like the Sustainable Rice Landscapes Initiative, a key partnership involving the Food and Agriculture Organization (FAO) of the United Nations, the German Agency for International Cooperation (GIZ), the International Rice Research Institute (IRRI), the Sustainable Rice Platform (SRP), the United Nations Environment Programme (UNEP) and the World Business Council for Sustainable Development (WBCSD), aim to scale capacity for landscape-based food system transformation. 

Market Dynamics and Strategic Adaptations

The industry is expected to face significant market transition risks if rice market participants change with sufficient urgency. The additional costs arising from climate transitions, such as those resulting from carbon prices and regulation restrictions, could push low-efficient rice farmers to switch to less carbon-intensive production, posing a potential shortage in the rice market. For instance, in Vietnam’s Mekong Delta region, farmers are shifting to mango production. This transition also presents an opportunity for highly efficient farmers who promptly and efficiently adopt sustainable methods for rice production. By maintaining their focus on rice cultivation and implementing sustainable practices, they could achieve higher yields and lower emissions while commanding premium prices in the face of tightening supplies.

Some consumers are willing to pay a premium for environmentally friendly and climate-resilient rice varieties due to rice’s inherent inelasticity – rice typically sees robust demand even amid price escalations, especially in rice-dependent countries. However, in high-income per capita countries heavily reliant on rice, the risk of market shifts, like price changes or consumer preference changes, is significant due to the availability of substitute choices and observed trends toward alternative staples. Japan’s notable dietary shift away from rice toward bread over the past few decades exemplifies this trend with consumption halving from 1962 to 2020.

Rice Emissions and Impacts On Reputation

The rice industry’s heavy reliance on conventional farming methods that prioritize short-term yields over sustainability could pose a reputational hazard. Conventional cultivation practices make rice emissions one of the largest pools of greenhouse gas from the food and agriculture sector. As concern over climate change grows, the industry’s perceived lack of commitment to sustainable agriculture could tarnish its image among eco-conscious consumers and investors.

However, these risks also present an opportunity for the rice industry to enhance its reputation by embracing sustainable and climate-resilient practices. By adopting low-emission farming techniques, optimizing resource efficiency, and prioritizing environmental stewardship, the industry can position itself as a leader in sustainable food production. Consumers are increasingly discerning and are willing to pay more for products developed through environmentally friendly and socially responsible means. Rice traders and producers who proactively transition to sustainable practices can differentiate their offerings, commanding premium pricing and cultivating a positive brand image among eco-conscious consumers. This strategic shift toward sustainability can mitigate reputational risks while also unlocking new market opportunities, investor confidence, and long-term profitability in an era of heightened environmental awareness.

Physical Climate Hazards Spur Climate Transitions

Rice is highly dependent on conditions like specific temperature ranges, adequate water supply, and suitable land characteristics. This makes rice production profoundly vulnerable to physical climate risks. This vulnerability creates a cycle between physical climate risks and transition risks for industry players. Elevated physical risks, including rising temperatures, increased droughts, floods and intensified typhoons, significantly impact rice farms and farmers’ livelihoods. Consequently, these challenges prompt policy action, technological innovation and shifts in market sentiment to address climate change effectively. Projections indicate a potential 15 percent reduction in rice yields by 2050 due to climate change, posing significant food security concerns, particularly for vulnerable households.

Climate change has also introduced uncertainty into rice trade policies, prompting several countries to impose export restrictions. For instance, India’s ban on non-basmati white rice exports, announced in July 2023, raised concerns about destabilizing rice supplies in specific regions and triggered panic buying. This move also influenced the rice trade policies of other countries, with Myanmar subsequently imposing a 45-day restriction on rice exports to stabilize domestic prices, impacting local farmers and exporters. The policy effects are further intensified by geographical risks, as major rice-producing countries are situated in Southeast Asia. The interconnectedness of these regions implies that extreme weather events, exacerbated by climate change, can disrupt the entire rice supply chain. For example, the El Niño weather pattern can induce drier conditions in South and Southeast Asia, potentially resulting in declines in rice production of up to 30 percent.

Moreover, in addition to extra climate transition costs stemming from high carbon prices and regulation restrictions, the declining supply due to worsening climate conditions and reduced yields exacerbates market transition risks by prompting farmers to transition to cultivate alternative crops. In India, for example, there has been a noticeable shift toward less water-intensive crops such as coarse grains, pulses, and oilseeds.

Unlocking Opportunities By Addressing Rice Emissions

The rice industry stands at a crossroads: continue with business as usual and face escalating risks, or embrace sustainable transitions to unlock unprecedented opportunities. Stakeholders who act swiftly can mitigate climate risks, strengthen resilience, and reap the rewards of a low-carbon future. Those who position themselves at the forefront of climate transitions can mitigate future potential market volatility and capitalize on new opportunities for profitability from more sustainable practices.