Why have rice prices surged to record highs?

Why have rice prices surged to record highs?
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First Published: Fri, Apr 25 2008. 02 59 PM IST

Updated: Fri, Apr 25 2008. 02 59 PM IST
Asian rice prices have almost trebled this year and prices on the Chicago Board of Trade have risen more than 80% to hit successive record highs as export restrictions by leading suppliers fuel insecurity over food supplies.
With only 30 million tonnes traded annually, government supply curbs such as those from New Delhi and Hanoi have spooked importers such as the Philippines and Bangladesh, at a time when global stocks have halved since hitting a record high in 2001.
Export curbs
• October 2007: India, the second-largest rice exporter after Thailand, bans exports of non-basmati rice to rein in prices and control inflation, but later in the month eased the ban on some superior varieties of the grain.
• March 2008: India bans exports of non-basmati rice again as inflation hits a 14-month high, alarming policymakers.
• March 2008: Egypt bans rice exports from April 1 to October to hold down local prices. The country normally produces about 4.6 million tonnes a year of white rice, leaving a domestic surplus of about 1.4 million tonnes for export.
• April 2008: Vietnam, the third-largest exporter, extends a ban on rice sales until June to help stabilise domestic food prices as it tries to tame double-digit inflation. Prior to that, it had curtailed exports for March and April.
• April 2008: Brazil temporarily suspends rice exports to safeguard domestic supply and keep prices of the basic foodstuff stable. Brazil, which is not a major global rice supplier, exported 313,000 tonnes of rice last year.
• April 2008: Indonesia, Southeast Asia’s largest rice consumer, says it would curb medium-grade rice exports to combat inflation. Under Indonesia’s new rice export rules, state procurement agency Bulog is allowed to sell medium-grade rice overseas only when national stocks are above 3 million tonnes and domestic prices are below a government’s target price.
Scramble to build stocks
• January 2008:Bangladesh signs deals and starts importing 180,000 tonnes of white rice from neighbouring Myanmar. The Bangladeshi government and private traders started importing rice after crop losses caused by flooding last year.
• March 2008: The Philippines says it aims to import up to 2.2 million tonnes of rice this year to meet a domestic shortfall, in what could be the biggest overseas purchase of the staple in a decade. Local harvests have failed to keep up with expanding population, lifting inflation to a 16-month high.
• March 2008: Costa Rica expects its rice imports to jump 31% to 190,000 tonnes in the 2008/09 crop year, which begins in July, as farmers replace some rice fields with other crops such as sugar cane and pineapple. Bad weather in the remaining rice-growing areas also has cut yields.
• March 2008: Bangladesh says it would import 400,000 tonnes of rice from India to cushion the country’s dwindling stocks. The imports, allowed under a government-to-government deal, would not be subjected to the rise in rice export prices.
• April 2008: Singapore says it would allow rice importers to bring in more stock to meet increased demand amid consumer fears of a rice supply crunch and higher prices.
Falling world inventories
World inventories have fallen by nearly 50% from a record high of 147.1 million tonnes in 2000-01, although they have already recovered slightly from a low in 2004-05 (See table: Depleting rice stocks). They are expected to rise marginally by the end of this crop year.
Speculative buying
On the Chicago Board of Trade, financial speculators looking for the next big commodity play, have helped lift prices by about 80% this year to successive record highs. To a degree, hoarding by consumers has also fed the rise by spurring importers to seek supplies sooner.
Diversification of land use
In some countries such as the Philippines, production is failing to keep up with demand because paddy land is being overtaken for industrial development, or because farmers are seeking other trades. This is a longer-term issue that should contribute to supply tightness in the future.
Growing demand
In poor nations facing a doubling in wheat and corn prices, rice consumption is rising, but this is partly offset by falling per-capita consumption in big countries such as China. Data from the US Department of Agriculture shows consumption in China — which accounts for 30% of world consumption — has fallen by 3.9% over the past five years. But global consumption has risen by 2.7% over the same period, in places such as Nigeria, the Philippines and Bangladesh.
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First Published: Fri, Apr 25 2008. 02 59 PM IST
More Topics: Food | Rice | Asia | Inflation | Export curbs |