The problems with rice

Why is there a problem now? The price of rice has reached record highs in recent months, moving from $327 a ton a year ago to $1 000 a ton last week. Yet there is no serious shortage of rice — global production and consumption are roughly in balance.

Supply has been affected by floods in Bangladesh that forced it to buy more on the global markets than normal, and the cyclone in Burma will probably force it to do the same, but the United Nations’s Food and Agriculture Organisation (FAO) says rice producers generally have not been hit by large-scale climate shocks and supply and demand is not the main cause.

Instead the cost of producing rice and transporting it has gone up as oil prices have risen and this oil-driven inflation seems to be the underlying factor in the recent rice crisis.

Rice differs from other agricultural commodities such as corn, wheat and soya, in that little is traded internationally. Just 7% of the global harvest, about 30-million tons a year, goes on to the world market, but precisely because the market is so thin, small shocks can lead to great volatility.

Half the world’s population, more than three billion people, depend on rice as their staple food and it is one of the most politically sensitive of agricultural commodities.

Several governments, worried by the political fallout from domestic inflation — in fuel, utility prices, and rent, not just food — have tried to mitigate against the effects by imposing controls on rice exports. In October 2007, India imposed price controls and then a full ban on its rice exports to try to keep prices of food and overall inflation down at home.

Several other rice exporters followed, including Vietnam, Egypt, Pakistan and Cambodia. That led other countries that are big importers, such as the Philippines and Indonesia, to panic buy, driving up prices. Between January and April 2008, they surged by more than 70%.

Who has been hit?

The major rice-importing countries are in Africa, Asia and Central America. Africa accounts for 30% of the global rice imports and Asia 45%.

Among the hardest hit are West African countries such as Senegal, Nigeria, Côte d’Ivoire and Cameroon, where the population has shifted as it urbanises from the traditional staples of millet and cassava to eating rice. These countries became significant importers of rice and more dependent on food imports generally when they liberalised their agricultural markets as a condition of International Monetary Fund/World Bank loans from the late 1970s onwards.

Haiti, Mexico and Honduras, whose own agricultural markets and production have been undercut by subsidised United States crops dumped when prices were low, are also suffering from the high prices. Senegal, Cameroon, Haiti and Mexico have all seen food riots.

The Philippines and Indonesia are big producers of rice but as their populations have grown and yields stagnated they needed to make up shortfalls with imports. Other big importers of rice include Iran, Iraq and Saudi Arabia, but since they also benefit from rising oil prices, rising food prices have not had such an effect.

What will happen now?

The FAO predicts good harvests this year, which should bring prices down in the short term but not immediately — since some exporting countries still have bans in place until the summer or autumn.

Experts are waiting to see what impact the Chinese earthquake has on its capacity to produce rice. In the long term they expect growing populations and growing economic demand to keep prices relatively high. — Â

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