Price of Rice Soars

Oct 18, 2011

Thai rice policy sows worldwide uncertainty.

Photo: FAO

Subsistence farmers may even be hurt by the scheme, as it could push up input costs. The best way for governments to support smaller farmers was through programmes that did not link payment to production, said Mohanty, who researches rice policy and trade as head of IRRI’s social sciences division.

“That way you are not distorting the market, domestic or global,” he said, “and you still support the farmer.”

If there is a surplus

The higher price would likely lead to a surplus, as Thai farmers produce more and Thai people buy less, said Mohanty. “The impact on the global market depends on what they [Thai officials] do with this surplus.”

Thailand has two options: it can aggressively sell the surplus rice in foreign markets - at a loss. This would cost Thai taxpayers billions of dollars, he said, and likely drive global rice prices below what they would have been without the pledging scheme.

“Then basically the Thai government has decided to subsidize the rest of the world,” said David Dawe, a senior economist at the FAO in Bangkok. “Everybody’s happy except for the Thai taxpayer.”

Alternatively, Thailand can export the amount of surplus rice at a price to cover its costs, implementing cost-control measures and storing the remaining rice. This could lead to higher prices worldwide, Mohanty said. But they would not last long, because other countries would increase their rice exports in response, which could be good for long-term food security.

“On the bright side, this process could provide an opportunity for countries with abundant land and water, such as Cambodia, Myanmar and Brazil, to emerge as alternate suppliers to the global rice market,” Mohanty wrote in a recent IRRI article.

Food security questions

Global rice prices have risen by about 20 percent since May. The recent lifting of a government ban on rice exports in India, which frees up two million tons of rice for international trade, has helped temper the impact. But there is speculation that rice is being hoarded in anticipation of higher profits.

The countries most vulnerable to price increases are those that rely on imports and have limited local production: coastal countries in West Africa, Central America, Djibouti, Somalia and Haiti, according to USAID.

In response to the 2008 global food crisis, African countries have been investing in local rice production, measures that guard against outside volatility, Diagne said. Rice production has grown 9 percent each year across Africa.

But many countries still depend heavily on imports, with as much as 80 percent of rice consumed from foreign markets. “So any fluctuation in prices is felt right away,” Diagne said.

In Somalia, the new Thai rice policy is one of several factors expected to increase the number of people in crisis in 2012, said Tamara Nanitashvili, a food security technical manager at FAO Somalia. More than half the country depends on rice as a main food staple. Rice prices also act as a ceiling for cereals such as maize and sorghum.

In addition, rice comprised 9 percent of the World Food Programme’s 2010 food purchases, spokesman Marcus Prior said. Volatile food prices are a big challenge, he said, but forward-purchasing acts as a protective measure.

This article was first published in IRIN.