This is a fungus called Rice False Smut that affects the pannicle of the rice. The disease is caused by a fungus Ustilaginoidea virens
U. virens produces a toxin, known as Ustiloxin. The toxins cause mycotoxicosis and inhibit the polymerization of brain tubulin at micromolar concentrations. It is known that the presence of the fungus reduces rice yields but I havent seen how (or if) the toxin can be removed.
Here is a nice fact sheet http://www.rkmp.co.in/sites/default/f...
And below some text from a report of the Government of Cambodia
"Rice False Smut
Recognize the problem
Outbreaks of false smut generally occur during periods of high humidity. Normally only a few grains in a panicle are affected and the attack usually takes place when the grains are mature. The fungus transforms individual rice grains into large spherical balls containing spores. These spore balls are initially orange, then change to yellowish-green and turn greenish-black when mature. In most cases, not all spikelets of a panicle are affected, but spikelet’s neighboring smut balls are often unfilled.
The disease can occur in areas with high relative humidity (>90%) and temperature ranging from 25-35°C. Rain and high humidity, and soils with high nitrogen content also favor disease development. Wind can spread the fungal spores from plant to plant. False smut is visible only after panicle initiations. It can also infect the plant during flowering stage.
Keep the field clean.
Remove infected seeds, panicles, and plant debris after harvest.
Cultivate unflooded rice (e.g. furrow irrigation) to reduce the disease
Where possible, perform conservation tillage
Use moderate rates of nitrogen
Use certified seeds. (get from reliable suppliers)
Treat seeds at 52°C for 10 min.
For fields with high incidence of false smut spray or dust with recommended fungicides a few days before heading.
When using a pesticide, always wear protective clothing and follow the instructions on the product label, such as dosage, timing of application, and pre-harvest interval."