Food Economics | The surge in rice price defies Asia’s ingenuity

Food Economics | The surge in rice price defies Asia’s ingenuity
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First Published: Thu, May 22 2008. 11 19 PM IST
Updated: Thu, May 22 2008. 11 19 PM IST
The intolerable surge in rice prices presents Asia with a rather unpleasant dilemma. Rough rice prices have doubled in the past year on the Chicago Board of Trade.
Nutritionally, it’s the most important cereal for Asia, supplying between a quarter and 73% of all calories consumed in China, India, Pakistan, Bangladesh, Indonesia, Thailand, Sri Lanka and Cambodia, according to the International Rice Research Institute (IRRI) in Manila.
It will be unconscionable for Asian governments to pass on the full international cost of rice to their people; that could end up driving to destitution the 600 million people in the region who live on less than $1 (roughly Rs43) a day.
However, as governments in Asian rice-growing regions try to shield their urban poor through price controls or export bans, the risk is that the signal to farmers to boost production will either become weak or even be lost completely. And that could prolong the shortage for everyone else because Asia is also the biggest exporter of the commodity.
Just four countries—Thailand, India, Vietnam and Pakistan—accounted for 70% of the 30 million tonnes of the global trade in rice last year. With the exception of Thailand, the others have all decided to restrict exports.
Policymakers in Asia are hoping that farmers will respond to $1,000-a-tonne rice and grow more of it; at the same time, they can’t let their own consumers pay anywhere close to that amount. Taking the hit entirely on the government’s budget isn’t an option for most of them. So how does public policy protect consumers and government finances from ruin and yet encourage farmers? That’s the challenge confronting Asian nations. Complicating matters, yields aren’t rising quickly enough even to compensate for population growth. “In the major rice-growing countries of Asia, yield growth over the past five to six years has been almost nil,” says IRRI. “Globally, yields have risen by less than 1% per year in recent years.”
In the absence of a significant pickup in yields, rice farming in Asia is fast becoming an unviable proposition. It costs about Rs5,350 in seeds, fertilizers, labour and interest charges to grow one tonne of paddy in Andhra Pradesh. The government last year paid farmers Rs7,500-7,700 per tonne to buy their crop for the public distribution system. For such a puny profit, who would want to grow paddy?
That isn’t all. Prices for phosphate- and potassium-based fertilizers have doubled this year, and with crude oil rising to more than $130 a barrel, an early respite isn’t in sight.
Besides, with global warming, there’s a growing risk of adverse weather conditions turning the farmer’s small profit into a big loss. Access to crop insurance remains limited. And that makes farming an even riskier business. Myanmar’s rice-sowing season has already been disrupted by Cyclone Nargis.
Unless farmers are allowed to receive a substantially higher price for their produce, they don’t have much of an incentive to bring a bigger crop to the market. With risks being so high and returns low, it makes little sense for a small farmer to rent land to grow rice. He would rather go looking for a wage labourer’s job in the city.
The crisis in rice won’t end without making farming more profitable in Asia. For a start, improvements are needed in building up storage capabilities. Efficient land-lease markets will permit consolidation among small landowners, boosting economies of scale and profits.
A rice cartel in East Asia, an idea proposed by Thailand, was a harebrained plan. Thankfully, it has been dropped. Solutions needed to balance the interests of the vulnerable Asian consumer and the distressed rice farmer must be more inventive—and less fanciful.
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First Published: Thu, May 22 2008. 11 19 PM IST
More Topics: Rice | Price | Asia | Money Matters | Equities |