Global Rice Crisis

[Henry]

Dear Friends,

Since we all eat rice - this recent article in BusinessWeek helps to explain the global rice crisis:


Global April 28, 2008, 7:41AM EST

Understanding the Global Rice Crisis

What's behind the current food shortages: Is the increase in ethanol production to blame or is hoarding the problem?

Farmers harvest rice in Thailand, the world's biggest rice exporter. Unlike other exporters like India and Vietnam, Thailand has not announced curbs on rice sales. SAEED KHAN/AFP/Getty Images
by Frederik Balfour

As world rice prices set new records daily, the World Bank has warned that the crisis could further impoverish 100 million people (BusinessWeek.com, 4/25/08). What's behind the current food crisis and what can the world do to dig itself out from the problems? Here are a few of the key issues to consider.

Has the increase in corn cultivation for producing ethanol in the U.S. and Europe affected the price of rice?

Yes, indirectly. As farmers in the U.S. and Europe plant more corn in place of wheat to produce ethanol, the price of wheat has risen as supplies have tightened. Faced with higher wheat prices, people are substituting rice in their diets, particularly so in Africa. And, of course, the demand for ethanol as an alternative fuel is linked directly to the soaring price of oil. Moreover, the cost of rice production has increased significantly because fertilizer, transportation, and processing costs have shot up along with skyrocketing oil prices

And how did that spill over to Asia?

India and Vietnam, the world's second- and third-largest rice exporters, saw the prices of soybeans, wheat, and corn skyrocket. In an attempt to keep a lid on domestic inflation, in late March both countries announced export restrictions. The idea was to ensure plenty of domestic stock of rice so prices wouldn't rise. But it backfired, because as soon as international prices shot up domestic traders jacked prices up at home anyway, leading to panic buying and hoarding.

But is there a worldwide shortage of rice?

No, there is an artificial shortage because of measures taken by governments of rice-exporting nations.

Who is doing the hoarding?

It's happening at several levels throughout the supply chain by traders, millers, wholesalers, and retailers. The appeal of rice for speculators is that it is easy to store and transport. However, this kind of speculation is extremely risky because the futures market in rice is not very liquid, so it it's difficult to hedge one's bets. There are 15 different benchmark prices for rice depending on quality, and the market is far from transparent.

How is Thailand, the world's biggest rice exporter, faring in all this?

At first blush, Thailand appears to be sitting pretty. The spot price of Thai fragrant rice is about $1,100 per ton, compared with about $320 at the end of last year. However, exporters make their contracts several months in advance of delivery, and Thai Rice Exporters Assn. President Chookiat Ophaswongse says several exporters face huge losses because they are buying rice from traders at today's prices but delivering that rice to buyers at prices from early in the year, before the latest price spiral started. Some exporters have renegotiated, others have defaulted on their deliveries. Chookiat says higher prices will cause exports to fall 20%-25% in the second quarter, to about 780,000 tons per month, compared with the first three months of the year.

If this is mostly speculation and government interference in trade, will prices fall eventually?

Up to a point. Once the price spikes, speculators and hoarders will try to unload their stocks, pushing prices down, but there is a lot of pent-up demand from major importers such as Iran and Indonesia that have not purchased any international rice in 2008.

Why don't farmers just plant more rice?

Because they can't. The majority of rice farmers consume most of what they grow already and plant rice on every available acre of land. What's more, rapid urbanization and, in China, desertification has led to a decrease in the available supply of farmland. The increase in biofuels has encouraged palm oil plantations instead of rice paddies. Also, as incomes rise in the region, people substitute more meat for rice in their diet, which requires more land to raise livestock and produce the same amount of calories.

Is a second "green revolution" possible?

In theory, yes, but it will take time. International Rice Research Institute director general Robert Zeigler says the time lag between new biotech discoveries and implementation on the farm is about 15 years. He also notes there has been underinvestment in rice research by multinational companies because it's primarily grown by poor farmers in developing countries.

Can't planting genetically modified rice help increase supply?

Yes, many varieties are readily available, but the problem is convincing the farmers to buy the seeds. Because rice is self-pollinating, farmers are accustomed to keeping their own seeds. Although hybrid rice is also self-seeding, each succeeding generation is less productive, and many farmers would rather save their cash than buy new seeds every year. "[Genetically modified seed] should be an important part of our toolbox, but it isn't a silver bullet," Zeigler says.

Who is getting hurt the most by soaring food costs?

The poorest populations in the world, for whom rice is a staple and spend the greatest percentage of their incomes on food. The World Bank estimates that 100 million people are at risk. Sub-Saharan African nations are particularly vulnerable because they import 40%-50% of their rice needs. But only 8% of the world's rice output is traded, so most rice-consuming countries actually feed themselves.

What about relief agencies. Can they obtain the food they need?
In theory, yes, the supply is available since much of relief food is actually sourced locally, so the drop in rice available for export has no direct impact. But since prices have risen so much, their budgets are stretched to the limit. On May 1, the World Food Program in Cambodia will stop buying locally produced rice, which it had been using to provide breakfast to 450,000 needy school children. It's abandoning the program because of spiraling prices. And the government of the Philippines, which is the world's largest rice importer, has only been able to buy part of the rice it imports because exporters have not responded to its tenders in full.

What short-term methods could boost supply?

More investment in irrigation. Better storage methods and low-cost devices such as moisture meters, which could help farmers avoid wastage. Also, greater use of hermetically sealed bags would prevent infestation.

Balfour is Asia Correspondent for BusinessWeek based in Hong Kong

[helen]

pretty sad for Asians.- the rice has double in price, currently $NZ56 here. My husband, a rice eating man, says he'll have to eat potatoes.

[Henry]

Below is another BusinessWeek article


Henry

Agriculture April 25, 2008, 12:01AM EST

Behind the Run on Rice

Despite bumper crops in Vietnam and India, export limits and bans have created a global shortage and driven up prices

by Pallavi Gogoi

At the Costco in San Francisco, rice is all the rage. Not long after the 10 a.m. opening on Apr. 24, the warehouse club was well on its way to selling out the day's supply of Thai jasmine rice. Within an hour, customers cleared three pallets loaded with 50-lb. bags of Super Lucky Elephant brand jasmine rice from Thailand. Real estate broker Mary Jane Galviso snapped up two bags—the limit imposed by this particular store. "This is very frightening," says Galviso, who hails from Orosi, a rural community in California's Central Valley, more than 200 miles southeast of San Francisco. Her local grocery, which specializes in Filipino foods, has run out of Thai jasmine.

In a dramatic development for U.S. consumers this month, shoppers and Asian and Indian restaurant owners started panic-buying two of the highest-premium varieties of rice—Thai jasmine and Indian basmati. That led many grocers to run out of the rice, and warehouse clubs including Costco and Sam's Club imposed limits on how much rice shoppers can buy.

The restrictions placed by Issaquah (Wash.)-based Costco (COST) vary across the country, while Sam's Club, a division of Wal-Mart Stores (WMT), limited its customers to four 20-lb. bags of rice. "We've heard of cases where restaurant owners are hoarding three weeks' supply of rice in their basement, which is obviously more than they currently need, which makes the situation even worse," says Richard Galanti, Costco's chief financial officer.

Record High Prices for Rice

In a statement Apr. 24, Sam's Club said its rice limits "are designed to prevent large distributors or wholesalers from depleting our stock. We believe limiting rice purchases to four bags per visit is consistent with the needs of the majority of our members, including many restaurants…. We will continue to work with our suppliers to manage inventories to meet demand."

The rice rationing in the U.S. comes as the torrid pace of commodity price increases has led to violence over food supplies and costs in several nations. Globally, rice prices are starting to hit record highs, following a host of other commodities. However, experts are clear: There's currently no shortage of rice. "Vietnam and Thailand have had record rice crops in the past year, and India too has had bumper crops," says Nathan Childs, a senior economist who follows the global rice market at the Economic Research Service of the U.S. Agriculture Dept.

Instead, what's driving the price of rice so high are widespread worries about food inflation in many rice-growing nations. "In poorer nations, a large share of people's earnings is spent on food, and big price increases in other kinds of food are harming consumers," Childs says. So to protect their supplies of rice—a staple food in much of the world—several countries have imposed export bans or sharp limits. That has led to a sharp reduction of rice available for trade in the global market. In 2007, India and Vietnam, two of the world's biggest rice exporters, reduced their rice shipments. Since then, Cambodia, Egypt, and Brazil have all halted rice exports. And many observers worry that Thailand, the world's largest rice exporter, might jump on the bandwagon.

Lots of Action in Rice Futures

Prices have soared to eye-popping levels in recent weeks: U.S. long grain rice has doubled, to $800 per ton. Indian basmati rice prices are up 182%, to $2,400 a ton, so far in April, compared to $850 per ton a year ago, while Thai jasmine has more than doubled in price since last year, from $559 per ton to $1,125.

The runup has been especially sharp since January, when Thai jasmine rice was trading at $625 and basmati at $1,300 per ton, respectively. At the Chicago Board of Trade, rice futures have historically been one of the most thinly traded contracts. However, with rice futures gaining 80% in the past year to $24 per hundredweight, the contract is seeing a lot of trading lately. (A hundredweight is the equivalent of 112 lb.) "I've never seen a rice market until this year in my three decades of trading grains," says a shocked Tim Hannagan, senior grain analyst at Alaron Trading in Chicago.

Allegations of Global Rice Hoarding

The outlook appears grim, especially for nations that are net importers of the grain and that have large rice-consuming populations, such as the Philippines and Iran. A recent international auction offers one glimpse into how tight the global rice market has gotten this year. On Apr. 15, according to the Agriculture Dept.'s Childs, the Philippine government tried to buy 500,000 tons of rice in the global market but managed to get only 320,000 tons, leading several rice trade groups to contend that producers are hoarding rice to see how much higher prices will rise. That news sent a jolt through wholesale marketers around the world.

Restaurants and consumers in the U.S. followed suit last week and started buying up their own future rice requirements. The Philippine government has announced that it plans to enter the rice market for another 100,000 to 600,000 tons. If it can't find the rice it wants to buy, that could signal a true crisis for the staple at a time when the world is already gripped by concerns about food prices and supplies of other staple products such as wheat and meat.

Aromatic Rice's Recent Gain in Popularity

Jasmine and basmati are both known as aromatic rice, because of the special aroma they emit while cooking, an attribute that has proven difficult to duplicate when grown in countries other than their origin. Because of this quality, they have always commanded substantially higher prices than other varieties of rice. Basmati is grown in India and Pakistan, while jasmine rice comes from Thailand. Their consumption in the U.S. has grown exponentially in the past decade, while overall rice consumption has kept pace with U.S. population growth, rising a mere 2% or so annually in the past decade.

Imports of jasmine rice from Thailand grew 78% in the last 10 years, to 394,000 metric tons in 2007, while basmati imports in the same period grew 112%, to 71,000 metric tons in 2007, according to the USDA. While both types are sold in India and Thailand, these highest-premium varieties are rarely consumed in their native countries and are produced mostly for export to Britain, the Middle East, Hong Kong, Canada, the U.S., and Singapore.

Clearly, consumers like California's Galviso prefer Thai jasmine rice. Her family eats rice at three meals daily and prefers the jasmine variety, calling it "the prized one, because of its smell." On Thursday, Galviso was willing to detour into Costco despite her several-hour commute into San Francisco, where she works. Still, to keep costs in check, she has resorted to mixing jasmine with other, less expensive varieties.

San Francisco's Costco sells 50-lb. bags of jasmine rice for $21.99, while other stores sell the same rice for about twice that. The company is trying to satisfy customers' demand for rice while keeping prices in check. It's anyone's guess how long the company can continue walking that fine line. "With every single truckload, the price goes up," says John Booth, a regional operations manager, who adds that he hasn't seen such great demand for rice in his nearly 22 years with the company. "We're seeing prices increase daily."

Gogoi is a contributing writer for BusinessWeek.com.

[helen]

www.nzherald.co.nz/section/1/story.cfm?c_id=1&objectid=10508401

Auckland is facing a specialty rice crisis, say local rice merchants as wholesalers like Gilmours and Thai Rice Wholesalers start setting limits to how much rice customers can buy.

While rice types such as long and medium grain are still readily available in supermarket shelves, stocks of varieties such as jasmine and basmati, which are preferred by South-east Asians, Filipinos, Indians and most Chinese, are running out fast.

"We are so short of rice, it is not funny, and people are in a panic mode," said Ursula Lawrence, owner of Thai Rice Wholesalers, whose store was down to its last 25kg sack of rice when the Herald went there yesterday.

"Some customers are literally begging to buy more, saying they just had a baby and needed rice so that the new mother will be able to generate breast milk," she said.

Some Asians believe that eating rice would give a breast-feeding mother more milk.

"But in the light of what is happening and the uncertainty, we have to be firm with the limits we have set, and we have to be fair to everyone."

Since last month, walk-in shoppers at Thai Rice Wholesalers, which imports rice from Thailand, have been limited to one bag per purchase, and businesses such as restaurants have a two 25-kg sack limit per order.

Wholesalers Gilmours too have placed a two-bag restriction on certain varieties of rice to prevent retailers from "stockpiling".

"We don't want a situation where retailers hoard rice now, only to start selling at an astronomical price when that happens,"said a spokesman for Gilmours. Although there is no shortage of rice in New Zealand now, at the way things are happening, there could be one looming."

The decision by India, Vietnam, Egypt, Cambodia, Brazil and China to curtail exports to protect prices at home have been blamed as the main reason for the global price hikes and the recent rice panic.

Last Friday, Thailand proposed an Opec-style cartel with major rice exporting countries Myanmar, Cambodia, Vietnam and Laos to give them more control over international rice prices.

But skyrocketing prices and media reports of a global rice shortage are driving many New Zealanders, especially Asian and Indian immigrants, to stockpile - as their once inexpensive staple continues to scale record-high prices.

In Auckland, the price of rice has tripled since Christmas - and a 25kg sack, which used to cost about $25 six months ago now costs up to $65. One shopper Jessie Lee said: "Rice is our staple, so whatever the price, we have no choice."

[Henry]

A recent update from BusinessWeek on this rice crisis:

Technology May 14, 2008, 5:22PM EST

IBM's Answer to the Food Crisis

Big Blue's World Community Grid and a University of Washington team are using PCs globally to develop better strains of rice

by Steve Hamm


While the world food crisis demands both quick fixes and long-range solutions, time is of the essence. With food costs soaring, more than one billion people could find themselves at risk of starvation or severe malnutrition in the coming years. So a project announced May 15 by University of Washington researchers and IBM's (IBM) World Community Grid to speed development of better rice may be just what's needed.

By tapping a cluster of nearly 1 million PCs scattered around the world, the researchers hope to develop more nutritious, robust strains of rice sooner by completing complex genetic calculations in just one or two years. Those calculations might have taken 200 years if left to the school's computers. "We can make things happen much faster. We should be able to get new strains to farmers within five years," says Ram Samudrala, associate professor of computational biology at the University of Washington in Seattle.

No Time Wasted

Samudrala heads a research project called Nutritious Rice for the World. The goal is to take genetic information about rice and use mathematical algorithms and three-dimensional computer modeling to discover exactly how the proteins within the rice interact with each other. Samudrala's team provides the information to organizations that crossbreed different strains of rice, creating hybrids that taste good, resist drought and pests, and are more nutritious. By using detailed computer models, researchers can avoid time-consuming and expensive trial and error.

The World Community Grid, launched by IBM in 2004 as part of its corporate social responsibility program, is essentially a dispersed supercomputer that relies on individuals to donate their spare computing power when they're not using their PCs. In addition to coordinating the effort, IBM supplies software that links the computers—be they Windows, Linux, or Macintosh—and schedules computational work.

People who volunteer to have their computers used this way download the software and leave their machines on when they're not being used. The networking software does the rest. When the PC sits idle, the software requests work from a central server. When the PC completes the computation, it sends back the results, and the software requests another assignment.

Breakthroughs in Rice Genetics

The Grid now has such tremendous computational power that it's ranked as the No. 3 supercomputer in the world. Organizations that want to tap in have to prove themselves worthy. So far, there are seven projects underway, including research into AIDS, cancer, muscular dystrophy, and climate change in Africa. Joseph M. Jasinski, who runs the Healthcare and Life Sciences Institute at IBM Research, says Samudrala's team is tackling an important challenge, as rice genetics are a relatively new area of study. "Until you know what the genes are and what the proteins actually do, you don't know enough to make a difference," he says.

The rice project began shortly after The Beijing Genomics Institute in 2000 achieved the crucial breakthrough of mapping the entire rice genome. Samudrala received a grant from the National Science Foundation to study and "annotate" the results. He and his 30 researchers essentially create maps of how rice cells work. He bought 400 PCs and linked them in a cluster, but quickly ran into limitations in the computing power of those machines.

Samudrala learned of the World Community Grid because one of his research colleagues was working with IBM on another Grid project. At first, Samudrala was skeptical that a widely scattered collection of PCs could do the job for him, but he came around. Stan Litow, IBM's vice-president for corporate citizenship, praises people who volunteer their computers for the Grid, and urges others to get involved. "Some people write checks for social causes. Others contribute time. Here's something that doesn't cost you anything," he says.

Hamm is a senior writer for BusinessWeek in New York.