Asia’s rice crisis

Daily Mirror
Monday, April 21, 2008

By Brian McCartan

The rising price of rice is part of a global trend in rising food costs, with wheat leading the way, up more than 180 percent on the year, soybeans up 82 percent, soybean meal up 67 percent. But it is rice, with its fundamental place on the plates of Asia’s consumers, that is worrying governments.

Philippine officials have been raiding rice warehouses near Manila where unscrupulous traders have been repackaging government-subsidized rice intended for poor areas and reselling it as high-grade commercial rice at twice the price.

Hopefully, rising prices will encourage governments all over the world to boost production.''


Even in wealthy Korea, consumers went into a near panic in early March when the cost of ramen, an instant noodle made from wheat that is a staple of the Korean diet, spiked in price. Housewives emptied grocery shelves for days to snap up supplies before the increase went into effect.

Higher fuel costs, with crude soaring above US$100 a barrel and threatening to stay that way, have partly been blamed for making fertilizer more expensive, raising the cost of growing rice as well as increasing transport costs. In Southeast Asia, disease, pests and a 45-day unprecedented cold snap from China down all the way to Vietnam in January and February that hurt harvests has also been blamed. Flooding in the Philippines and Vietnam has also contributed to the growing crisis.

Part of the problem, however, has been caused by ill-advised government programs.
Economically disastrous subsidized biofuel programs intended to ease global warming in the United States and Europe have caused a precipitous decline in the amount of agricultural lands planted for other food sources such as wheat and soybeans. .

Low government rice stockpiles have also created an environment in which supply disruptions can result in rapid price swings. World rice stocks have shrunk from a peak of 130 million tonnes in 2000-2001 to 72 million tonnes in 2007-2008, according to US Department of Agriculture figures, the lowest level since 1983-84. That is estimated to meet only 17 percent of global consumption. Nearly half of the world's 6.6 billion people are dependent on rice and are already eating more than is harvested yearly.

In order to curb rising domestic prices, the governments of Vietnam, India and Cambodia have taken steps to lower rice exports. Vietnam reduced its rice exports by almost a quarter last week, ordering authorities to not sign any more rice export contracts and capping exports at 3.5 million tonnes for this year, down from 4.5 million in 2007. On the same day as Vietnam's announcement, India raised the minimum sale price of rice exports by more than 50 percent.


The move effectively ended overseas rice sales except for only the highest grades of rice. Cambodia, suffering from spiraling costs, also announced a two-month ban on rice exports last week. Indonesia, traditionally a rice importing nation, is also reportedly considering a ban on exports to secure its domestic stocks.

Rising rice prices have governments worried about domestic supplies as farmers become increasingly interested in selling to the export market in order to make larger profits.


Governments fear not having enough rice for local consumption and having to spend more on imports driving the price of rice up. Domestically it means that farmers are forced to sell at artificially low rates because they are denied export markets for their crop.

However, in an increasingly interconnected world where farmers and businessmen are well aware of international prices, they are much less willing to sell on the domestic market at prices that are often controlled by the government and are much lower than international rates. This has resulted in the kind of hoarding and speculation that Philippine authorities are trying to fight and that can subvert export bans.

The Indian government, while saying that there is no shortage in the country, is reportedly also concerned about domestic supplies amid fears of higher exports brought on by the scarcity on the global market. India was thought to possibly surpass Vietnam as the second largest rice exporter in the world this year.

In the Philippines, where there is not enough arable land to grow enough rice to feed its population, rice stocks are already low. Government officials have requested that the public save leftover rice and have even requested that fast food restaurants reduce the portion of rice sold with meals.

Thailand is trying to keep domestic prices down through government distribution from its own stocks. Bids from millers will be accepted only if they pack the rice in 5 kilogram bags for the domestic market. Thailand's government stockpile is estimated to be good for only three months, then it will have to buy on the local market to replenish stocks.

While this move may appease consumers, Thailand's rice producers are not happy with the government's current cap on domestic prices. The Thai Rice Packer's Association has demanded that the Ministry of Commerce increase the retail price of rice by 10 percent in April. The association claims the step is necessary due to increasing production costs.

The volatile rice prices have not been a boon to exporters. The common practice is for rice exporters to sell forward at fixed prices and then buy rice on the common market to meet orders. This has resulted in problems across the region as rapidly rising prices leave exporters losing money due to having to buy rice at prices that are much higher than what their export contracts were agreed for when signed several months ago. Exporters who insist on the previous price are finding it difficult to source enough rice to meet orders, forcing delays or even defaults on orders.

For Vietnamese exporters, the problem is compounded because their contracts were signed in dollars.

Thailand's exporters have the same trouble. Indonesia and Iran are expected to want orders for 1.5 million and 1 million tonnes of rice respectively filled in the next three to four months, but exporters are unsure of their ability to meet the demand. The default on international orders could cause up to $5 billion worth of damages.

Courtesy Asia Sentinel