Crises are often years in the making. But there’s typically one event that stands out as the flashpoint when the panic really began. For the global financial crisis, it was the collapse of Lehman Brothers. For the 2007-08 food crisis, the trigger was Vietnam imposing an export ban on rice. Importers panicked and, in a matter of days, rice prices doubled. Food riots soon followed from Dakar to Bangladesh.The world is once again facing a critical juncture in food prices. Russia’s invasion of Ukraine has upended one of the world’s most important breadbaskets, pushing the cost of wheat to an all-time high. Vegetable oil and corn prices are also surging. Food-importing nations are understandably worried. Thankfully, there’s enough rice this time around for prices to remain subdued.
Rice matters because it’s the staple diet for half the world’s population, including about a billion undernourished people living in Asia and West Africa. The worst food riots during the 2007-08 crisis weren’t about the price of bread, but the cost of a bowl of rice. Right now, rice is all that’s standing between us and a full-blown food crisis.The world can’t avoid a huge bout of food inflation, which will be extremely painful for food-importing nations such as Egypt, Turkey and Indonesia. Hunger will increase. Even developed countries will see sharp rises in supermarket prices. According to the United Nations Food and Agriculture Organisation, food prices have already jumped to a nominal all-time high. Even in real terms, adjusted for inflation, the FAO food index is just a whisker below the all-time high set in 1974. In the past year, wheat prices in Europe have surged nearly 65% in dollar terms, corn is up almost 38% and palm oil has risen nearly 55%. Yet, benchmark rice prices are down almost 20% during the same period.
The steady depletion of the world’s rice stockpile put the world in a precarious situation more than a decade ago. Each year from 2000-01, the world consumed more rice that it produced, with bad weather hurting crop yields. By 2006-07, stockpiles had fallen to the lowest in 20 years. Without a buffer, it was a question of when, rather than if, prices would shoot up.
The world is in a better place today because Asian governments learnt the lesson of the previous price spike and have spent the last decade and a half supporting domestic rice cultivation. Global production has outstripped demand each and every year since 2007, leading to a huge increase in the world’s stockpiles of the grain. According to the U.S. Department of Agriculture, global rice inventories will rise in the 2021-22 crop season to a record 190.5 million metric tons, up by more than 150% from 75.4 million tons just before the previous crisis.
Rice is a thinly traded commodity – so small changes in exports and imports have an outsize impact on prices. While global rice production in the last crop season was 509.6 million tons, global trade totaled just 9.9% of that amount, or about 50.6 million tons. By contrast, more than 25% of world wheat output was traded last year. When Vietnam, typically the world’s second-largest rice exporter, imposed its export ban in 2008, others including India, China and Cambodia quickly followed, effectively shutting down the entire market. Panic followed: In four months, the Philippines bought as much rice as it usually imports in a full calendar year. Saudi rice imports shot up 90% as the kingdom built up its reserves. The result was the most dramatic price increase the rice market had ever seen, with prices soaring to about $1,100 per ton from about $480 in just eight weeks. Rice currently changes hands at about $405 per ton, down from $410 before Russia invaded Ukraine almost a month ago. If the world is to avoid a full-blown food emergency, rice prices need to stay where they are.Plentiful global stockpiles should help, but three factors can still send prices higher. The first is beyond anyone’s control: bad weather, particularly a poor Asian monsoon. For now, initial forecasts suggest the 2022 wet season in India could be normal.
Policymakers can shape the other two components — and it’s extremely important they do. They need to support Asian farmers as they face record high fertilizer and fuel prices. That means subsidies, which multilateral development banks can and should help with. And, more importantly, they need to keep the market open. If major rice exporters, above all India and Vietnam, were to restrict rice exports this year, that could trigger a panic. New Delhi and Hanoi should avoid the temptation. There’s a lot at stake.
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Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. He previously was commodities editor at the Financial Times and is the coauthor of “The World for Sale: Money, Power, and the Traders Who Barter the Earth’s Resources.”
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