A Sleepy Rice Market: The Calm before the Storm?

• Stable rice prices amidst the crisis. While prices of field crops like wheat and maize have gone up by 50-150% from June 2010 to February 2011, rice prices have remained relatively stable, with only a 17% rise during the same period.
• Pressure on food prices. The main reason behind the rise in crop prices can be traced back to supply losses caused by extreme weather conditions in different parts of the world. This is coupled by the rising demand for grains both for food and fuel.
• Support for grain prices. Recent food price increases could have been higher had countries failed to increase their grain inventory. Rice and wheat stocks have risen significantly and this has provided support for grain prices during the tight production situation.
• Rice market’s temporary stability. The rice market has been relatively stable during the food price turmoil due to the past wet season’s good harvest. Many countries have also pursued self-sufficiency goals through trade restrictions; however, experts say they have likely contributed to the market instability in the last few years.
• Toppling rice stability. The stability of the rice market could easily be shaken by several factors: 

o   Weather uncertainty. The drought in China and abnormal monsoon rains could provide another grain price escalation. This could further tighten the wheat market and eventually make the rice price tick upward.

o   Crop switching. Higher prices for competing crops could influence farmers to switch from rice to other crops such as wheat and maize. A massive, unexpected shift could provide pressure to rice supply.

o   Rising oil and fertilizer prices. Increasing international oil and fertilizer prices have started to trickle down to domestic retail prices. In addition, a combination of lower rice prices and higher input prices may force farmers to scale back rice production by planting to less area and/or applying less fertilizer.

• Reaction to the rice situation. Many governments in rice-growing countries are likely to take measures, including raising the level of the guaranteed producer price for rice and providing greater input subsidies to prevent rice production from falling through either lower area or lower yield.
• Reaction to rising food prices. Rising food prices are likely to force governments to protect and reinforce the domestic supply by taking appropriate measures such as imposing export bans and increasing import levels. Such panic reactions may tilt the market and possibly repeat of the 2008 food crisis.

Source:

Mohanty, Samarendu, “A Sleepy Rice Market: The Calm before the Storm?” Rice Today Vol. 10, No. 2 (April-June 2011), pp. 44-45.