2008 April 18 Friday
Rice Prices Quintupled From 2004 To 2008

In 2004 rice sold for $200 per ton. Pretty cheap. The price of rice has gone up by a factor of 5 in 4 years.

Rice exported from Thailand -- a global benchmark -- was trading at about $950 a ton Thursday, up from $360 a ton at the beginning of the year. Price offers at a Philippine auction Thursday topped $1,000 a ton. A few hours later, Chicago Board of Trade rice futures climbed to record levels.

Vichai Sriprasert, president of Thai exporter Riceland International, says Thai rice prices are nearly certain to hit $1,000 a ton. He adds: "The question is: How far will it rise beyond that?"

This has many causes. Population growth, the rise in oil prices, the growth in the use of food crops for biofuels, and bad weather in some parts of the world all contribute. Also, Asian industrialization boosts the demand for meat therefore more grain goes to feeding animals. In China yearly per capita meat consumption has risen from 20 kg in 180 to 50 kg per year in 2007.

That previous link shows Egypt as the biggest wheat importer. Egypt has curbed rice exports even as it buys lots of wheat abroad and sells it internally at below market prices.

The rise in oil prices boosts food prices in at least two ways. First off, higher energy costs boost the cost of producing inputs into farming such as fertilizer and tractor fuel. Second, the higher the price of oil the higher the price for biomass energy such as corn ethanol. So farm production costs and crop demand both rise with oil prices. Well, oil prices are going to go much higher as the oil production plateau continues and eventually world production starts falling.

International Monetary Fund Chief Economist Simon Johnson says rice is the biggest source of food for poor people.

The price of rice, the staple food for half the world, has doubled in the past year to an all-time high. Countries including Indonesia and Egypt have seen social unrest over high prices, and are attempting to restrain inflation and curb instability by limiting food exports or removing import duties on basic food staples.

``The implications are huge,'' Johnson said. ``In almost every corner of the world, poor people primarily eat rice these days, so the rice prices are clearly hurting people.''

Almost all the increase in world corn production since 2004 has gone to make corn ethanol in the United States.

According to the World Bank, global maize production increased by 51 million tonnes between 2004 and 2007. During that time, biofuels use in the US alone (mostly ethanol) rose by 50 million tonnes, soaking up almost the entire global increase.

Next year, the use of US corn for ethanol is forecast to rise to 114 million tonnes - nearly a third of the whole projected US crop. American cars now burn enough corn to cover all the import needs of the 82 nations classed by the UN's Food and Agriculture Organisation (FAO) as "low-income food-deficit countries". There could scarcely be a better way to starve the poor.

Biomass energy production is not just a US phenomenon. Brazil, Europe, Indonesia, and Malaysia are all getting into the act. The shift toward biomass energy production by big crop exporting countries bodes poorly for future food grain exports.

The United States is one of the few rice exporters that hasn't restricted exports.

The U.S. is seen as one of the last remaining reliable suppliers of rice in the world after Egypt, India, Vietnam and Indonesia curbed their exports to ensure adequate domestic supplies, industry members said. Some Asian countries also may shift their purchases to the U.S., although consumer preferences may limit the demand, they said.

I do not expect the demand for biomass fuel to go down even if politicians start taking a lot of heat for higher food prices because I expect oil prices to continue to rise. Also, China and some other Asian economies will continue to develop. Those with rapidly rising incomes will be able to afford the food price increases. Those with stagnant incomes are going to get hungrier. Some will starve.

Update: Some Ionia county Michigan farmers report costs are rising along with crop prices.

“Pretty much everybody I know, we're not going to plant any more corn than last year,” said Belding cash-crop farmer Joe Marhofer, who farms a few hundred acres of alfalfa and corn just off Krupp Rd. “Guys are really putting a pencil to it, they're looking to tighten their belts this year. With the input costs for corn so high, we decided not to break our normal crop rotation.”

Many farmers, state and nationwide, did adjust their crop rotation last year to take advantage of $4 corn, subtracting acreage that would have gone toward soybeans, wheat or alfalfa. But input prices - the costs a farmer takes on to plant, raise and harvest the crop - last year weren't as astronomical as they are now; cash-croppers say they've more than caught up.

This is important. If the crop price rise is driven by demand then we have the potential for supply to catch up and prices to drop. But if costs rise by as much as prices then high prices look like more of a long term condition. I'd like better insight into the cost side of farming. How fast are farm costs rising? Which costs are rising?

Share |      By Randall Parker at 2008 April 18 11:38 PM  Economics Food


Comments
HellKaiserRyo said at April 19, 2008 12:04 AM:

Do you think there will be a population crash in the 2010s in underdeveloped regions? I think it would be at least 500 million deaths in regions such as Asia, Africa, South America, and in some North American regions.

It seems like the perfect storm: global warming, raising commodity prices, peak oil, and the inability to switch to alternative energy due to lack of capacity and skill will cause a population decline. The human population seems to be a perfect bubble to "short" (using a metaphor in finance in the same way the John Paulson shorted the mortgage market.)

Kenelm Digby said at April 19, 2008 5:00 AM:

Perhaps, I'll get excoriated for this, bit if there area any Asians reading this, I pose the question "Why can't you simply switch to eating potatoes rather than rice?".
The humble potato yields more per hectare than most other carbohydrate crops and it is easy to grow.
Perhaps it's simply a culural thing - How bad do things need to get for an Asian to eat potatoes for dinner?

Aaron said at April 19, 2008 8:23 AM:

A big population crash in the 3rd world won't happen unless westerners feel significantly afraid of starvation themselves. Otherwise we'll just see normal-scale famines and 'heroic western relief.' When one of these relief missions coincides with western hunger, there'll be a big backlash and the new attitude will be 'let them starve'. I don't see that happening very soon.

The big run-up in food prices has caught me by surprise, but I don't see how first worlders will be starving without much greater change than has already occurred (eg- food price quintiples again, state failure of 1st world countries, large wars)

Robert Hume said at April 19, 2008 3:28 PM:

Is there an expert out there who can tell us how much of the increase in cost is due to the increase in price of fuel (oil) used to make fertilizer? I heard an interview of a Harvard prof of econ and he did not mention this as a possible cause.

mike said at April 19, 2008 3:28 PM:

Hopefully commercial biofuel trials will soon switch away from crops like corn and rapeseed in favour of crops like switchgrass and pine trees which can be grown on poor soils without irrigation.

Canada, Russia, New Zealand, Chile, Argentina and Scandinavia have large amounts of land on which to grow evergreen timber if the technology can be developed to produce biofuel from such sources.

As far as the third world goes, international agencies need to aggressively push population control programmes in those countries which are likely to be most affected by rising food prices. Hopefully this will be easier once George Bush is safely of the picture.

Remember though that rising food prices are actually good for most third world farmers and exporters, it's mainly the urban third world poor, and those in very arid countries, which are being negatively affected. Since the West has a stronger agricultural sector than the East, it also needs rising food prices to help pay for imported petrol and to compensate for de-industrialisation.


HellKaiserRyo said at April 19, 2008 3:37 PM:

"As far as the third world goes, international agencies need to aggressively push population control programmes in those countries which are likely to be most affected by rising food prices. Hopefully this will be easier once George Bush is safely of the picture"

Do you think Obama will support that agenda?

Bob Badour said at April 19, 2008 3:51 PM:

Kenelm,

I live in a major potato producing area. Crop yield isn't everything.

Dried rice is far less perishable than potatoes and is far easier to store and transport.

Without our long cool autumns, most of the potatoes would rot soon after being dug up. As it is, farmers lose a big chunk of their crop to various forms of rot during storage even when they spend tens of thousands on climate control systems.

I regularly buy basmati rice in 10kg bags that have lasted me for longer than a year. I don't even bother putting the bag in a cupboard most of the time. After cooking and re-hydrating, that 10kg bag of rice makes probably 40kg of cooked rice.

In Asia's hot climate, I just don't see how they could make potatoes work.

Randall Parker said at April 19, 2008 5:06 PM:

HellKaiserRyo,

Obama? You pay too much attention to the individual personalities of the elites. There's no savior. Rarely does an incredibly talented person get elected to high office. Rarely does such a person, once there, figure out what is important and act wisely in the public interest. Do not expect much from these people.

To put it another way: Look at every President since FDR and count how many really wise decisions they made that foresaw and did what was necessary.

These people sit inside of the box of acceptable mainstream opinion. They aren't going to, say, launch a massive effort to greatly reduce the birth rate in Africa. They aren't going to launch a massive energy research project. They'll just stumble from one event to another and not until the crisis is very severe will they possibly begin to take steps of sufficient magnitude that will help.

What you should be focused on instead: What are the big forces at work? What are the relative contributions of those forces? What responses are technologically feasible once financial incentives become large enough?

What is happening with rice prices and other food prices is an enormous event with implications for the future shape of human societies. Are we going to see big die-backs? Will the high prices be able to cause a large increase in production?

Will civil wars break out in response to hunger? Some governments (e.g. in Egypt and Jordan) have been keeping the peace for years by subsidizing food prices. But once Peak Oil and food shortages get worse these governments won't be able to afford to do this. So will we see revolutions and civil wars in some African and Middle Eastern countries?


Post a comment
Comments:
Name (not anon or anonymous):
Email Address:
URL:
Remember info?

      
 
Web parapundit.com
Go Read More Posts On ParaPundit
Site Traffic Info
The contents of this site are copyright ©