Rice Hoarding Pressures Supplies

BANGKOK -- As rice prices hit new highs, farmers across Asia are hoarding their crops, raising the prospect of a shortage in Asia and Africa that could lead to widespread unrest.

Rice prices in Asia have doubled since the beginning of the year, driven higher by rising demand, a steady depletion of government stockpiles and a pest outbreak in Vietnam, the world's second-largest exporter after Thailand.

On Thursday, medium-grade rice exported from Thailand -- a de facto market benchmark -- reached $760 a metric ton, up from $360 a ton at the end of last year.

Governments around the region are curbing exports to safeguard their domestic supply, putting further upward pressure on prices.

On Friday, India provided a new target for the market: It set $1,000 a ton as the minimum price for rice exports, to encourage dealers to sell to the domestic market instead of waiting for prices to track higher. But farmers in Thailand and elsewhere appear to be willing to wait for higher prices, and to default on contracts if necessary.

Holding Onto Crops

Chookiat Ophaswongse, president of the Thai Rice Exporters Association, says farmers and millers are already holding onto their crops as prices continue to rise. Exporters who had entered supply deals with foreign buyers are now trying to find a way to compensate their customers because they can't physically get hold of the rice, he says.

The problem worsened after Thai Commerce Minister Mingkwan Saengsuwan predicted last week that rice would soon hit $1,000 a ton and encouraged local farmers to make the most of the situation.

Robert Zeigler, director-general at the International Rice Research Institute in the Philippines, says it could be months before the market gets a clear sense of how high prices could go. Worse, he said, "The whole market could become paralyzed. Who's going to sell rice at $750 a ton when they think it's going to hit $1,000?"

Markets such as the U.S. that grow most of the rice they consume are little affected by the surge in Asian export prices.

But big importers including Indonesia and Iran may struggle to secure orders three to four months from now, when they are expected to seek as much as one million tons each.

Protests have broken out in several countries, including Guinea, Egypt and the Philippines, as prices of basic foodstuffs soar. The situation is exacerbated by higher fuel costs, which add to the cost of shipping food, as well as dwindling government stockpiles. The U.S. Department of Agriculture predicts global rice stocks will fall to their lowest level in 25 years in 2008.

Frozen Prices

In China, the government said it will pay farmers more for rice and wheat and has frozen the retail prices of rice, cooking oil and other goods in an effort to rein in food costs that jumped 23.3% in February from a year earlier.

In the Philippines, the world's biggest importer of rice, President Gloria Macapagal-Arroyo is considering a moratorium on converting agricultural land for building housing developments or golf courses. Her cabinet ministers are urging fast-food restaurants to offer half-portions of rice in order to cut down on the country's rice bill.

Rice prices trundled along at a relatively low level earlier in the decade after global rice inventories hit 150 million tons in 2000. Rice traded at under $300 a ton until 2006. The price increases began accelerating in the fourth quarter last year when widespread flooding in Vietnam and the Philippines stoked demand when inventories were falling.

Continuing growth in China, India and other parts of the developing world has placed an additional strain on the world's food supplies as their increasingly wealthy populations increase their food intake.

Urbanization has encouraged much wider consumption of rice, too, because it is easier to store, more nutritious and easier to prepare than many other staple foods. Many countries in sub-Saharan Africa have begun switching to rice over the past 20 years, taking up a greater portion of the rice exported from Thailand and Vietnam.

Mr. Zeigler at the IRRI in the Philippines recalls a colleague from Kenya describing how when she was a girl her family only ate rice at Christmas. "Now she says everyday is Christmas Day," Mr. Zeigler said.

As the scramble to secure rice supplies intensifies, African nations -- some importing as much as 40% of their rice -- may find themselves losing to larger countries with deeper political and historical ties to the big exporters.

On Friday, for instance, the Philippines secured a 1.5 million ton supply guarantee from Vietnam as part of a government-to-government deal. Philippine Agriculture Secretary Arthur Yap said Vietnam cut its export quota to other countries in order to supply the Philippines, a close neighbor and fellow member of the Association of Southeast Asian Nations. "They want to guarantee the supply for us," Mr. Yap said.