What’s Behind the Surge in Global Rice Prices?
Nathan
Childs
James Kiawu
U.S. and global rice prices surged
to record highs this spring. Thailand’s high-quality
long-grain rice—a benchmark for global trading
prices—exceeded $1,000 per ton in late April
2008, double its price in early February and triple
prices of a year earlier. U.S. prices soared as
well, with long-grain milled rice quoted at $950
per ton, up $410 from early February and more than
double the price of a year earlier. The global
market has a big impact on U.S. prices, as the
U.S. exports about half its crop each year. Global
prices have declined about 25 percent since late
April; U.S. prices have dropped about 13 percent.
The rapid price increases were
not due to poor harvests, a surge in demand, or
a tight global supply situation. Global rice production
in 2007-08 was the largest on record, and the 2008-09
crop is forecast to be even larger. Global ending
stocks actually increased in 2007-08, and are projected
to rise this year, as well. Instead, factors not
directly related to rice market fundamentals accounted
for the surge in prices.
Export bans, restrictions, and
taxes implemented by several major suppliers were
the most important factors behind the price surge.
In fall 2007, Vietnam and India, the second- and
third-largest global exporters of rice, placed
partial bans or restrictions on new sales. Then,
in December 2007, China announced an export tax.
The bans, restrictions, and taxes were imposed
to ensure affordable domestic prices for rice,
a key food staple in Asia, in an environment where
rising fuel and commodity prices
are eroding the purchasing power of low-income
Vietnamese, Indian, and Chinese consumers. However,
by insulating and stabilizing rice prices in domestic
markets, these actions reduced the availability
of rice on global markets, and world rice prices
began to rise.
The price increases accelerated
in March 2008 when India and Vietnam reimposed
their bans, and two smaller exporters, Egypt and
Cambodia, announced temporary bans as well. Prices
were further boosted when the Philippines—the
world’s largest rice importer—attempted
to purchase large amounts of rice to ensure adequate
supplies and limit food price increases. Finally,
in late April 2008, Pakistan announced minimum
export prices for various grades of rice. By early
May, among top global exporters, only Thailand
and the U.S. were not restricting sales.
Three other factors also contributed
to the surge in global rice prices. First, prices
for fuel and fertilizer—major farm inputs—reached
record levels. Second, prices for most other agricultural
commodities, such as wheat, corn, and soybeans,
were at or near-record highs. And finally, the
weak U.S. dollar boosted global prices since most
rice is traded in dollars.
|
This
finding is drawn from . . . |
| Rice
Outlook, by Nathan Childs, RCS-08g,
USDA, Economic Research Service, July 2008.
|
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