Speculation feeds rice price crisis
Across Asia, sudden stratospheric increases in rice prices have prompted countries to ban exports amid fears that shortages could provoke food riots following street protests in Jakarta, capital of Indonesia. World prices for rice, the staple food of about 2.5 billion Asian people, have almost doubled since the beginning of the year, joining those of wheat, corn and other agricultural commodities which have surged since the end of 2006.
Governments of producing countries are restricting exports to ensure their own populations get enough to eat at a price they can afford, but the result is to raise prices further. Last week, Cambodia banned all exports for two months to ensure "food security", following the lead of Egypt, a major exporter. Vietnam, which ships 5m tonnes abroad each year, on Friday declared a 20% cut in exports. Global demand outstripped supply by nearly 2m tonnes last year. The predicted shortfall this year is more than 3m tonnes of the 424m tonnes required.
The World Food Programme has raised the alarm on potential mass starvation. "There are hundreds of millions living at, or just below, the poverty line of $1-a-day, spending 70% of their day-labour wages on food. If food costs double they've no opportunity to increase their earnings and no alternative but to reduce what they and their families eat."
Global food prices, based on United Nations records, rose 35% in the year to the end of January, markedly accelerating an upturn that began, gently at first, in 2002. Since then, prices have risen 65%. Analysts attribute rising food prices to many causes: spiralling oil prices, the key input to all production; extra demand for biofuels to offset rising oil prices which reduces available food stocks; a rapidly growing population; the shift to an increasing consumption of meat as incomes rise for some in rapidly developing Asian countries - meat production needs a vastly greater amount of land; neglect of irrigation and research; and changing weather patterns throughout the world which have adversely affected production.
With global rice stocks at their lowest level since 1976, prices are expected to continue to rise until the end of next year, at least. Some analysts predict rice could hit $1,000 (£500) a tonne before farmers plant more crops and increase supplies – a response which will take years to come into effect.
Severe weather across Asia has certainly damaged production. Record icy temperatures were recorded in China and Vietnam, which also suffered a pest outbreak. Bangladesh endured a devastating cyclone while Australia suffered a prolonged and devastating drought. "It's been described as a 'perfect storm' of factors that have pushed prices to their highest levels since the 1970s," said Adam Barclay, of the International Rice Research Institute.
But even this ‘perfect storm’ explanation omits a surely more obvious source of the sudden inflation in food – speculation and profiteering. As credit markets remain closed, property values and stock markets are declining, and recession deepening, investors are seeking new homes for their capital – and fast. Andrew Lynch, a portfolio manager at global asset management company Schroders inadvertently lifted the lid:
"The food retailers, the Tescos and Carrefours of the world ... can manage to disguise quite effectively to the average person on the street food inflation by special offers here and discounts there, and get a lot of prominence while quietly pushing up the price of a loaf of bread by 10% in three months. That's why I own much more [shares] in food retail."
1 April 2008