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Twenty-year high in rice prices sparks fears

By Javier Blas in Vienna and Raphael Minder in Hong Kong

Published: March 4 2008 00:19 | Last updated: March 4 2008 02:41

Rice prices have surged to a 20-year high in the latest sign of global food inflation, creating policy headaches in Asia, where more than 2.5bn people depend on cheap and abundant supplies of the grain.

Thai rice prices, a global benchmark, surged last week above the level of $500 a tonne for the first time since at least 1989, according to the United Nations Food and Agriculture Organisation, prompting importing countries to seek assurances on supplies.

Robert Zeigler, director at the International Rice Research Institute in Manila, said policymakers should be concerned. “If history is any indicator, we should be worried because rice shortages have in the past led to civil unrest,” he said.

US rice in Chicago, the benchmark for the world’s fourth-largest exporter of the grain, jumped on Monday to a record $18.10 per hundredweight ($400 per tonne) – up about 75 per cent in the past year.

High prices and extremely tight supplies have prompted leading rice suppliers – including Vietnam, India and Egypt – to restrict exports in recent months in an attempt to keep local markets well-supplied and domestic prices under control. The Philippines and Vietnam are in discussions about rice supply security after President Gloria Macapagal Arroyo for the first time asked her Vietnamese counterpart to guarantee an undisclosed amount of rice for the 2008/09 season. The Philippines is the world’s largest buyer of the grain.

Analysts have attributed the surge in rice prices to bad weather that has hit supply; urbanisation that has cut the acreage given over to cultivating the grain; and strong demand on the back of rapid income growth in China, India and other Asian countries.

In spite of a record crop of about 420m tonnes in the current season, global rice supplies are lagging behind demand, which has risen to 423m tonnes, leading to a further decline in global rice inventories, according to the US Department of Agriculture.

Rice stocks have fallen this season to about 70m tonnes, the lowest level for 25 years and less than half the 150m tonnes held in global inventories in 2000.

Vichai Sriprasert, honorary chairman of Riceland International, a leading Thai rice trading company, said he expected the price of rice to rise “much, much more”.

Some traders said Thai exporters were defaulting on contracts as they were being offered better prices locally.

The next Vietnamese crop, to be harvested in the next few weeks, was unlikely to bring down prices, said Alex Waugh of the industry-backed UK Rice Association. “It may provide some short-term relief and restraint on prices rising even further.”

Asia has not known famines since the 1970s, and recent price rises for rice and other basic foodstuffs have sparked unrest.