By Charles Wilson
June 12th, 2009
The price of rice has risen by a dramatically high rate recently, tripling so far this year, after a 70% rise in 2007, leading to food riots in many places in the Third World. This has led the world’s biggest exporter of rice, Thailand to approach neighbouring countries, Cambodia, Laos, Myanmar and Vietnam, to create an OPEC style rice cartel in order to bring some control over the World’s rice prices. The price of Thai rice rose from $380 in January to over $1000.
Vietnam has refuted this saying they have no plans to be a part of a cartel. Vietnam is considering reducing their exports by over 20% this year, but deny manipulating prices, claiming the reduction is to satisfy local demand.
The cartel plans have not met approval with the world’s biggest rice importer, the Philippines. Even Thailand’s own Rice Exporters Association has criticised the idea, stating that it’s an idea put forward by the Thai government without taking the farmers in consideration. Farming unlike oil, is a dynamic industry and cannot be turned on and off as with an oil well. There have been suggestions that there is more opportunistic politics in the rice supply than sound economics.
The present situation is due to multiple causes. Short term planning and not enough long term investment has resulted in low stockpiles, bad harvests due to weather, compounded by hoarding in expectation of higher prices and a rising demand from growing populations.
Governments have caused this situation by attempting to control food supplies for their own populations. This has led to the United Nations World Food Program (WFP) having difficulties sourcing cheap supplies. Even though the WFP has tried sourcing food supplies regionally, the governments struggling with both oil prices and food prices are finding they cannot afford to export basic food.
The food crisis appears to be in a self destructive political-economic spiral. Fortunately the food rioters across the third world are not as sophisticated in violence as Pakistani Jihadists or we would see even worse chaos from this crisis.
The change from producing grain for food to producing grain for fuel has exasperated the situation. The crop area in the United States alone, that has changed from producing food crops to producing for fuel production to reduce US dependence on foreign oil is in the last two years is in the region of 20 million acres, which could feed 250 million people.
According to the Earth Policy Institute in Washington, the world demand for grain is growing now by about 50 million tons per year, while 30 million tons of grain go for the production of ethanol.