Rising Grain Prices Panic Developing World

By Ariana Eunjung Cha
Washington Post Foreign Service
Friday, April 4, 2008

SHANGHAI -- A spike in the price of rice and other food staples is triggering consumer panic, including food riots in Yemen and Morocco, and hoarding in Hong Kong.

Governments around the world have taken radical measures in recent weeks to control their countries' supplies of rice. Egypt last week said it would ban all rice exports for six months. Cambodia has stopped all private-sector exports of rice, and India and Vietnam also have imposed restrictions.

The price of grains -- corn, wheat, and rice -- has been rising since 2005 under pressure from farmers who would rather plant crops for biofuels than for food, the lack of technological breakthroughs in crop yields, and drought and disease. The sharpest increase has been this year, with the price of Thai rice, a world benchmark, nearly doubling since January, to $760 per metric ton. Some analysts expect that price to reach $1,000 in the next three months.

Tang Min, a former chief economist for the Asian Development Bank, said the price increase is the inevitable consequence of supply and demand. "The world population is increasing, but the increase in the planting of rice has not been as fast," he said.

Despite efforts by governments to increase public-sector wages and introduce food subsidies, price increases and shortages have led to violent clashes along supply lines, in food distribution centers and at supermarkets.

"Rice shortages and unrest are not necessarily linked, until you think about the poor. Rice is of high importance in these people's daily lives," said Tang, deputy secretary general for the China Development Research Foundation, a Beijing-based research group.

Nowhere is that more true than in Asia, where a meal isn't a meal without rice.

Wang Qing, an economist for Morgan Stanley in Hong Kong, said U.S. laws encouraging the development of biofuels are the origin of the problem in Asia and elsewhere. This "directly led to the reduction of foodstuff planting," he said. "Without the oil price increasing substantially, the corn price will not increase. Without corn prices increasing quickly, the rice price will not rise."

To encourage farmers to go back to planting food, China, Indonesia and other countries are increasing their minimum compensation to farmers who grow grains for human consumption.

But as food-growing countries move to increase production and curb exports, they are under pressure from rice-importing neighbors seeking their help. Bangladesh has announced that it will import 400,000 tons of rice and sell it below cost. The Philippines, where demonstrators have taken to the streets to criticize the government for not doing enough to control inflation, is appealing to other countries for emergency supplies.

Cambodian Finance Minister Keat Chhon last week called for people to be calm. He urged them "not to stock up on foods, which could make the situation even harder."

Some experts say that building reserves to protect against future shortages only makes the problem worse.

"Of course, if every country, or individual consumer, acts the same way, the hoarding causes a panic and extreme shortage in markets, leading to rapidly rising prices," said Peter Timmer, a visiting professor at Stanford University's program on food security and the environment.

For example, he said, "the newly elected populist government in Thailand did not want consumer prices for rice to go up, so they started talking about export restrictions from Thailand, the world's largest rice exporter. . . . So last Friday, rice prices in Thailand jumped $75 per metric ton. This is the stuff of panics."

"Rice is a political crop, and the goal of most governments is to stabilize the rice price. And in stabilizing the rice price, you result in shifting the fluctuations into the world market," said Randolph Barker, head of the social sciences division of the International Rice Research Institute, near Manila.

The battle against food inflation has been as much psychological as practical.

In the Middle Eastern states of Bahrain, Jordan and the United Arab Emirates, workers have mounted demonstrations out of frustration that their purchasing power has diminished. In Morocco, state media reported that dozens of people have been sentenced to prison for rioting, and in Yemen at least a dozen people have been killed since late last year in clashes related to food prices.

In China, the government is concerned that inflation -- which contributed to the 1989 Tiananmen Square protests -- is already leading to worrisome incidents. In August 2007, a supermarket in the inland city of Chengdu decreased the price of an egg from more than 4 yuan to 3.2 yuan -- about 46 cents -- to entice shoppers. Thousands of people showed up at the front door, and four were injured during what the domestic media called "scare buying."

In October, a Shanghai-based chain supermarket put five-liter bottles of cooking oil up for sale at the discount price of 30.8 yuan -- $4.39, about $2.85 lower than the usual price. Five minutes after the store opened, 19 people were hurt in the rush to buy.

In Hong Kong last weekend, store shelves were stripped bare of rice on rumors that its price would increase further. Hong Kong's Consumer Council told shoppers that they were overreacting even as the territory's Federation of Restaurants and Related Trades said restaurants may immediately increase prices for a bowl of steamed rice by one to two Hong Kong dollars, or 20 to 40 percent.

The jump in food prices has had a much bigger effect on developing countries than in developed ones like the United States because food accounts for a much larger percentage of overall consumption. In China, it is almost 30 percent, while in Vietnam it is 40 percent and in India 50 percent. In the United States, it is closer to 7 percent.

To calm increasingly concerned Chinese consumers -- for whom prices rose 8.7 percent in February from a year earlier, the biggest increase in 12 years -- the government froze the prices of some grains, meat and eggs. Premier Wen Jiabao announced this week that China is largely self-sufficient in rice production and has stockpiled 40 to 50 million tons of rice.

The Chinese government also has run picture after picture in local newspapers of its "strategic reserves" of frozen meat, sacks of grain and barrels of cooking oil.

That is of little comfort to Jiang Caijun, 35, whose food costs have soared to the point where he can no longer buy anything within the city limits of Shanghai, where he lives. Jiang, who runs a shop in a shack in which he makes copies of keys and repairs bicycles, said he must travel for several hours into the countryside to buy his family's food.

The worst part, Jiang said, is the feeling that because of inflation he has no control over whether he can make ends meet: "I can do nothing about this."

Tan Qingning, 37, who works at a pharmaceutical factory in Guangxi province in southern China, said that in the past he and his wife were able to save some money, but that today they can barely meet expenses. Even a few months ago, they ate rice noodles for breakfast at a restaurant every day. Now, because the price of noodles has gone up by a third, they must boil cheaper ones at home -- saving a meager but much-needed 14 cents a day.

"We work as hard as before, but we gain much less," Tan said.

Researcher Crissie Ding contributed to this report.

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