Agricultural and Food Policy
 Agri Outlook Radio
Number 163
Why are rice prices increasing? Is there a global rice shortage? (7:56 minutes)
Audio/Video Script:
Dr. Bobby Coats
Extension Economist and Professor
University of Arkansas, Division of Agriculture
Today, the world does not have a rice shortage. The current world’s rice
supply though tight exceeds the previous year’s supply. The primary cause of the
scattered global rice riots is not one of global rice supply.
The scattered global rice riots are primarily caused by the rising rice
prices due to the global inflationary economic setting, global hoarding and
profiteering impacts on both price and distribution, and lastly by simply fear
that supply or availability may not materialize. Governments around the world
must take appropriate actions to assure rice supply availability and limit price
gouging of their citizens and encourage markets to operate fairly and orderly.
The global economic setting
Strong global growth that emerged in the early part of the decade is
continuing to be maintained at a reasonable growth rate. From this amazing
growth a huge global consumer base has emerged. There are 3 billion plus consumers
outside the developed countries whose disposable income is growing rapidly not
to mention another 2 billion who will follow. This global consumer base has an
appetite for all commodities including rice that exceeds expectations.
From this economic setting a bull market in commodities has emerged. I expect
reasonable sustainable global growth to continue, therefore I expect the bull
market in commodities has long term sustainability. Commodities have broken out
of a previous 30 year channel where rice and other commodity prices would
revisit previous thirty year lows and highs.
Part of the problem with the almost unruly rice and commodity price strength
and cost of production follows: The explosive world economic growth of this
decade has come with an excessive inflationary cost. This inflationary cost in
part is due to financial stimulus needed to reenergize U.S. and global economic
activity in the early part of this decade and the financial stimulus that will
be required to maintain global growth due to the U.S. and world’s credit crisis
which started last year and will take a number of years to work through.
If one is bullish the global economy then expect rice production costs and
prices to stay at significantly higher levels than experienced in the past. It
is important to recognize that inflationary global growth has created real
economic hardship for many of the world’s poor due to the negatives in the
global economy. Credit problems, currency issues, and resulting inflation are
good examples. That said, I say there is more good than bad about the global
economy.
Global bull market in commodities
Global economic growth and momentum appears sustainable even with the
domestic and global credit crisis, so until proven otherwise I believe that we
are in a global bull market for commodities. This market started building in the
early part of this decade and may last into the latter part of the next decade
if not beyond, due to increasing demand from a growing global consumer base with
growing disposable income.
Global rice production and consumption
USDA’s April global rice ending stocks projection show ending stocks, though
tight, above the three previous marketing periods. In five of the previous
global marketing periods global rice consumption has exceeded global rice
production. It is important to note that global rice production is projected to
exceeded consumption in the current and 2 out of the current three marketing
periods. Supply exists so availability is key concern in some countries.
Concerns about global rice supply and availability
Presently my biggest concern is rice availability to the world’s poor at a
reasonable price. Secondly, I’m concerned about hoarding for profiteering
reasons in some global locations. Actually, I believe this problem will be short
lived since most governments are taking aggressive action to limit this problem.
Thirdly, a catastrophic weather event could magnify the supply and availability
issue, but a review of the global rice data shows amazing supply stability even
in bad years. Fourthly, all countries should be concerned about their food
security but increased food protectionism and reduced global food trade would be
a real negative for the global consumer. Fifthly, I worry about consumer fear
getting out of control in all countries, which is the primary reason that I’m
discussing this issue.
Rice prices and production costs
Prices are not as high as they seem when you consider U.S. rice production
costs. Much is and will be said about the current economic setting. When I look
at a rice farm, I see a producer with an operation that is going through
accelerated change. I see a producer who is experiencing the most total risk
exposure that they have experienced in a lifetime of farming. I see a producer
whose projected 2008 cost of production increase is up almost 100% since 2002.
If one is more bullish than bearish about the future of this global economy,
then a return to what most consider normal prices is very unlikely.
What does rice cost today’s consumer?
Generic brand long grain rice in store prices in Little Rock are as follows:
- A 2 pound bag was 4 cents per ounce or 64 cents per pound
- A 10 pound bag was 3.6 cents per ounce or 58 cents per pound
- A 20 pound bag was 3.1 cents per ounce 49.6 cents per pound
- A 50 pound bag at Sam’s Club was 2.6 cents per ounce or 41 cents per
pound
Now 1 pound of rice equals 2 cups of uncooked rice and this will yield 6 cups
of cooked rice, which produces 12 servings. Actual rice cost per serving then is
as follows:
- A 2 pound bag at 4 cents per ounce has a product serving cost of
5.32 cents
- A 10 pound bag at 3.6 cents per ounce has a product serving
cost of 4.8 cents
- A 20 pound bag at 3.1 cents per ounce has a product serving
cost of 4.1 cents
- A 50 pound bag at 2.6 cents per ounce has a product serving
cost of 3.5 cents
This has been Bobby Coats Extension Economist University of Arkansas Division
of Agriculture.
Why are rice prices increasing? Is there a global rice shortage?
Underlying factors impacting global rice prices, rice riots, and supply
- Global growth continues
- There is a huge growing global consumer base with increasing
disposable income
- Global demand for rice is growing
- Current global rice supply exceeds previous year’s supply
- Global rice stocks remain tight
- Emerging bull market in commodities
- Inflationary global economic setting
- Cost of production up dramatically since 2002
- Above mention factors causing rising commodity prices including
rice prices
- Rising global rice prices causing pockets of hoarding and
profiteering
- Rising global rice prices causes some stockpiling by
restaurants, distributors and individuals
- Rising global rice prices are impacting the ability of the
world’s poor to purchase rice, rice riots being one consequence
- Governments must take necessary action to assure consumers have
access to available supply and that price gouging does not occur.
- Global economic stimulus is bullish for rice market prices
- Global weather uncertainty is bullish for rice market prices
- Commodity speculators are bullish for rice market prices
- A weak dollar is bullish for rice prices
Back to Agricultural and
Food Policy Radio
|
