Wheat and corn are the most actively traded grains in financial markets. But they can’t damage the global economy like rice. Wall Street largely ignores the staple for half the world, but it’s the one commodity that matters for global food security.
Asia and African nations had been on the defensive for the last three years: A dangerous mix of bad weather, protectionism, and panic buying fueled an inflationary spike. Many feared worse was still to come — a full-blown crisis accompanied by violence. It didn’t come to pass, though, and now that the weather is starting to improve, it's becoming clear the rice price scare is all but over. Food inflation, particularly in Asia, is starting to ease.
In any commodity market, government policies are important. But in rice they’re crucial. Critical as the crop is, not much rice crosses borders; most is consumed domestically. Only about 10% of the world’s rice crop trades internationally. By contrast, more than 25% of wheat and 40% of soybean output are traded, respectively. As such, small changes in exports and imports have an outsize impact on world prices.
Asian governments are now reconsidering the subsidies and restrictions that sent prices spiraling. In India, seasonal monsoon rains have restrictions that send prices spiraling. In India, seasonal monsoon rains have arrived this year on time, and rainfall is about average, spurring a nearly 20% year-on-year increase in rice planting. Several of its neighbors are already lobbying Prime Minister Narendra Modi to act soon.
Other than in parts of China, southern Vietnam, and the Philippines, weather conditions are “generally favorable” for the rice harvest, the United Nations Food and Agriculture Organization said recently.
As a result, global rice production in 2024-25 is expected to reach a record high of 528.2 million tons, according to the US Department of Agriculture. That would exceed global consumption, estimated for 2024-25 at 523.5 million tons. Thus, inventories will rebuild after three years of decline.
First, Asian governments need to do more to support farmers, particularly to ensure resilience against droughts. Irrigation is key. Advances in agricultural genetics, which can create seeds that tolerate both less rainfall and flooding, should be encouraged, not banned. Chinese scientists have completed trials of new genetically modified rice varieties that offer much hope. African nations, too, need to reduce their import dependence.
Third, it’s clear that some large importers, particularly in West Africa and the Middle East, need to build national reserves Recently, Isabella Weber, an economist who ignited controversy in 2023 blaming corporate greed for the surge in inflation, has published a new paper suggesting that grain buffer stocks could be released during emergencies – much as Washington opens the taps of its Strategic Petroleum Reserve. I don’t agree with every bit of her paper, but a limited version of her proposal, at the very least, merits consideration. If it works for oil, why not for rice?
Source: India Times