Rice prices defy Asia's ingenuity

The intolerable surge in rice prices presents Asia with a rather unpleasant dilemma. Rough rice prices have doubled in the past year on the Chicago Board of Trade.

Nutritionally, it's the most important cereal for the Asian region, supplying between a quarter and 73 per cent of all calories consumed in China, India, Pakistan, Bangladesh, Indonesia, Thailand, Sri Lanka and Cambodia, according to the International Rice Research Institute in Manila.

It will be unconscionable for Asian governments to pass on the full international cost of rice to their people; that could end up driving to destitution the 600 million people in the region who live on less than $1 a day.

On the other hand, as governments in Asian rice-growing regions try to shield their urban poor through price controls or export bans, the risk is that the signal to farmers to boost production will either become weak or even be lost completely.

And that could prolong the shortage for everyone else because Asia is also the biggest exporter of the commodity.

Just four countries - Thailand, India, Vietnam and Pakistan - accounted for 70 per cent of the 30 million tonnes of the global trade in rice last year. With the exception of Thailand, the others have all decided to restrict exporters from supplying freely to the world market. Vietnam, however, has hinted at relaxing its export ban in anticipation of a good crop.

Policy makers in Asia are hoping that farmers will respond to $1,000-a-tonne rice and grow more of it; at the same time they can't let their own consumers pay anywhere close to that amount, for that would cause food riots and topple governments.

Taking the hit entirely on the government's budget isn't an option for most of these countries.

So how does public policy protect consumers and government finances from ruin and yet encourage farmers?

That's the challenge confronting the Asian nations.

Complicating matters, yields aren't rising quickly enough even to compensate for population growth.

"In the major rice-growing countries of Asia, yield growth over the past five to six years has been almost nil,'' says the Manila-based IRRI. "Globally, yields have risen by less than one per cent per year in recent years.''

In the absence of a significant pickup in yields, rice farming in Asia is fast becoming an unviable proposition.

It costs about Rs5,350 ($125) in seeds, fertilisers, labour and interest charges to grow one tonne of paddy, or unmilled rice, in the southern Indian state of Andhra Pradesh.

The government last year paid farmers $175 to $180 per tonne to buy their crop for the public distribution system. For such a puny profit, who would want to grow paddy?

That isn't all. Prices for phosphate-and potassium-based fertilisers have doubled this year, and with crude oil rising to more than $130 a barrel, an early respite isn't in sight. The cost of transporting rice from producing to consuming centres is also increasing.

Growing risks

Besides, with global warming, there's a growing risk of adverse weather conditions turning the farmer's small profit into a big loss. Access to crop insurance remains limited. And that makes farming an even riskier business than before.

Myanmar's rice-sowing season has already been disrupted by Cyclone Nargis, which has killed more than 77,000 people, according to the official death toll.

Paddy farmers in the southern Indian state of Kerala sold their output for a fraction of the open-market price after heavy rains in March damaged the crop, which was ready for harvest.

Unless farmers are allowed to receive a substantially higher price for their produce, they don't have much of an incentive to bring a bigger crop to the market.

With risks being so high and returns low, it makes little sense for a small farmer to rent land to grow rice. He would rather go looking for a wage labourer's job in the city.

This trend, which is seen in various degrees across Asia, is also borne out by India's census statistics. Out of the additional 50 million people who were engaged in farming in 2001, compared with 1991, as many as 41 million were women.

The men are leaving the farm, and they are doing so because agriculture doesn't pay.

The crisis in rice won't end without making farming more profitable in Asia. Much progress can be made toward that objective even as the world awaits a second Green Revolution, which may or may not happen.

For a start, improvements are needed in building up storage capabilities, especially in countries such as Cambodia that produce a surplus but don't have adequate warehousing capacity. Efficient land-lease markets will permit consolidation among small landowners, boosting economies of scale and profits.

A rice cartel in East Asia, an idea proposed by Thailand, was a harebrained plan. Thankfully, it has been dropped. Solutions needed to balance the interests of the vulnerable Asian consumer and the distressed rice farmer must be more inventive - and less fanciful.