Business | Features
Sellers hold the cards as hunger spreads
Rice consumers had the upper hand for 40 years. Now the old paradigm no longer holds true.
- By Javier Blas, Financial Times
- Published: 00:15 April 17, 2008
- Image Credit: Illustration: Seyyed dela Llata/Gulf News
Rice consumers had the upper hand for 40 years. Now the old paradigm no longer holds true.
For the past 40 years, consumers have had the upper-hand in the global rice market, which has witnessed a steady decline in prices, interrupted only by the brief spike in 1973-74 triggered by the first oil crisis.
The structural decline in prices was the result of the Green Revolution, the agronomics movement that spread the use of irrigation, fertiliser and high-yielding varieties of rice in Asia in the late 1960s and led to bumper crops.
Rice production per hectare jumped in developing countries from 1.7 tonnes in 1961 to 4 tonnes in 2006. This "buyers' market", however, has flipped abruptly this year into a "sellers' market" because of a fundamental change in the balance between supply and demand.
This is likely to keep prices in the medium-term well above historical levels, analysts and traders say.
The price of Thai medium-quality rice, a global benchmark, traded yesterday at a record high of $854 a tonne, according to Thailand's rice export association. It has more than doubled since the end of last year.
The World Bank yesterday said that average rice prices would rise further in 2009 and 2010, although the increase would be much less steeper than the current jump.
Vichai Sriprasert, president of Riceland International, a leading Thai exporter in Bangkok, says that sellers determine the market. "It is very clear that farmers, millers and traders have the upper hand now," Sriprasert says. A combination of factors have led to prices rising.
Consumption in Asia, the Middle East and West Africa is booming, thanks to rising per capita income (which allows more people to enjoy three meals a day instead of just one or two); poor supplies due to a reduction in acreage devoted to the crop; rising costs of fuel and fertilisers; and the exhaustion of technological advances that contributed to a surge in rice yields in the past.
Water shortages in southeast Asia, Central America and West Africa have also contributed to a slowdown in production growth, while higher labour cost in countries such as Vietnam as more people move to cities have increased production cost significantly, experts say.
Demand has outstripped production in six of the past eight years and global rice stocks have fallen to their lowest level since 1976.
Key factor
Concepción Calpe, a rice specialist at the Food and Agriculture Organisation in Rome, says that a key factor behind the fall in stocks is the fact that rice productivity growth has stagnated in the past few years.
"We need a second Green Revolution," he says. "Some small changes, such as adjusting the time of the planting, could yield higher production."
The recent jump in rice prices not only signals that the trend of declining prices over the past 40 years has come to a halt, but also could have a more profound impact on the development of the international rice market.
The market for rice is opaque and lacks a futures market similar of those in Chicago for wheat or corn. This means that the sharp rise in prices has come as a complete surprise to policymakers.
Rice is traded over the counter, through bilateral contracts, by a relatively small number of leading exporters, brokers and importers.
The market is broken down into more than 50 varieties, making it even more difficult to track prices.
As rice is the staple for more than half the world's population, governments are alarmed by the sharp rise in prices and there has been an increase in government intervention, pushing prices up further.
Leading exporters such as Vietnam, India, Egypt and Cambodia have implemented export bans, while importers, such as Thailand, have sought government to government supply agreements, to protect rice supplies for the local populace. This marks a dramatic policy U-turn.
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