Rice prices rise amid rising food inflation and export bans
The cobweb rice fields in Flores, Indonesia. The Food Price Index from the Food and Agriculture Organization of the United Nations shows that international rice prices rose for the fifth consecutive month to reach a 12-month high, according to the latest May data released last month. last week.
Food prices have increased in recent months. And rice, a staple in much of Asia, could be next, industry watchers have said.
Prices of many foods, from wheat and other grains to meat and oils, have soared. This is due to a host of factors including the rising cost of fertilizer and energy over the past year as well as the Russian-Ukrainian war.
Food export bans or severe disruptions have included those of India (wheat), Ukraine (wheat, oats and sugar, among others) and Indonesia (palm oil).
Rice could be next. The Food and Agriculture Organization of the United Nations’ food price index already indicates international rice prices crawling for fifth straight month to hit a 12-month highaccording to the latest May data released last week.
Certainly, rice production is still plentiful, experts said. But rising wheat prices and generally higher costs of farming would make rice prices worth watching next.
“We need to watch rice prices in the future, as rising wheat prices may lead to some substitution for rice, increase in demand and decline in existing stocks,” said Sonal Varma, chief economist of Japanese bank Nomura.
Risk of protectionism
Protectionist measures “actually add to price pressures globally for a variety of reasons,” she told CNBC.Street Signs Asia.” The costs of animal feed and fertilizer for farming are already rising, and energy prices are driving up transportation costs, she added.
“So there is a risk that we will see more protectionism from countries,” Varma said.
Nonetheless, she maintained that the risks for rice are still low as global rice stocks are plentiful and harvests in India are expected to be good this summer.
“Right now, I will be much more worried about India imposing a rice export ban in the coming weeks – as they were thinking after wheat and sugar,” lead researcher David Laborde told CNBC. at the International Food Policy Research Institute. .
India and China are the world’s two largest producers of rice, accounting for more than half of the global total, according to the World Economic Forum. Vietnam is the fifth largest, while Thailand ranks sixth.
India imposed export bans on wheat in May, citing the need to “manage the country’s overall food security”. He also imposed restrictions on sugar just days after the wheat ban.
Are price increases better?
Laborde said a price increase would be far preferable to any export ban.
“We should really differentiate between a price hike that offsets higher costs and will benefit farmers (and help them produce) and an export ban” that raises prices in world markets but lowers prices in domestic markets, he said.
Nafees Meah, regional representative for South Asia at the International Rice Research Institute, added that energy costs, which have been rising globally, account for a large portion of rice production costs.
“So there is an argument to say…if the market is indicating a price increase, why shouldn’t farmers benefit from a price increase? Nafees told CNBC “Squawk Box Asia.”
But a rise in rice prices would seriously affect many people in Asia, which is the biggest consumer of the staple.
“So in the Southeast Asia-Pacific region, countries like East Timor, Laos, Cambodia and of course places like Indonesia, which [has a] huge population, many of whom are food insecure, will be hit very hard if prices continue to rise and remain at these very high levels,” Nafees said.
The UN food price index showed prices are now 75% higher than pre-pandemic levels, said Frédérique Carrier, managing director and head of investment strategy at RBC Wealth Management. .
“Pandemic-related labor shortages and Russia’s invasion of Ukraine have exacerbated the situation by both reducing food supplies and further driving up energy prices,” she wrote in a June report.
About a third of food production costs are energy-related, Carrier said. Fertilizers, in particular, are very energy intensive to produce and prices have skyrocketed since last year.