Rice prices rock a buoyant economic boat

by Michael Richardson

SINGAPORE — Asia is leading the world economy out of recession. The region’s most populous nations — China, India and Indonesia — appear to doing particularly well, setting the pace for renewed growth in Northeast Asia, South Asia and Southeast Asia.

Yet amid the buoyancy are concerns over food security and rice prices. World Bank President Robert Zoellick warned Nov. 25 that the combination of low interest rates, volatile commodity markets and poor harvests in some parts of Asia could make 2010 “another dangerous year for food prices in poor countries.”

On the surface, the outlook for production of rice — Asia’s staple food — seems solid enough. In October, the U.N. Food and Agriculture Organization forecast world output of milled rice this year would be 446 million tons, the second-biggest since 2000. But on Nov. 10 the U.S. Department of Agriculture had issued a lower forecast, saying that global output for 2009-2010 was expected to fall by 3 percent from a year earlier to 432 million tons, nearly 5 million tons less than the minimum needed to meet demand.

Asia produces and consumes about 90 percent of the world’s rice. The amount of rice available and its price help determine progress in reducing poverty, since poor families spend as much as 40 percent of their income to buy the grain.

Access to affordable rice underpins social welfare and political stability. The record rice crop of 2008 helped reduce prices after they jumped to their highest level in 30 years in 2007-2008, triggering riots in several dozen countries and prompting a number of Asian countries to curb exports of the staple.

But Asia may be on the verge of another destabilizing rice price surge following weather-related crop losses in India, the Philippines and Australia.

India — which sustains almost 20 percent of the global population from 3 percent of world’s crop land — is set to become a net rice importer for the first time in two decades. It may need to buy 3 million tons. The Philippines wants a similar amount. Together, both countries’ planned rice purchases for 2010 amount to over one-fifth of the normal international trade in the grain.

Fortunately, Thailand and Vietnam, the top two rice exporters, have so far been able to meet demand from Asian importers, while Indonesia — the world’s third-biggest rice consumer after China and India — has had bumper harvests in the past few years and may be able to export a small amount.

However, as demand for rice outstrips anticipated supply, prices are starting to surge. The rice the Philippines plans to buy recently jumped to $465 per ton. In the five years to the end of 2007, when the food crisis started, the price of the same grade averaged $200. The International Rice Research Institute (IRRI) reckons that the only way to keep rice prices around $300 a ton — which allows poor rice farmers to make some profit while keeping rice affordable for poor rice consumers — is to produce more rice.

IRRI estimates that in each of the next 20 years, the world will need an additional 8 million to 10 million tons of rice annually. Yet, average rice yields — the amount produced per hectare — have been falling. The global rice-growing area is at an historic high, but yield has declined. In the past eight years, nearly half the production increase has been from area expansion.

A combination of better technology and management could lift rice output on existing rain-fed and irrigated land. China, the most efficient producer in developing Asia, has an average yield of nearly 6 1/2 tons per hectare, compared to less than 4 tons for the Philippines, India, Thailand and Cambodia.

Now in its 50th year, IRRI is distributing new high-yield rice varieties with built-in resistance to pests, diseases and the more extreme weather expected to come with climate change, including heat, flooding and drought. It says the salt-tolerant variety alone has the potential to lift rice production in the Philippines by up to 1 million tons a year if widely adopted on the 400,000 hectares of coastal rice-growing land affected by salinity.

IRRI, which is based in the Philippines, is also developing rice crop management strategies to make the most efficient use of available land, labor, water and energy. It is identifying ways to cut wastage and reduce post-harvest losses so that more rice reaches markets.

But agricultural extension needs money as well as cooperation from local communities and governments. With the backing of the Singapore government, IRRI launched a $300 million fund raising campaign in Singapore on Nov. 25.

A major aim is to persuade private-sector companies, which provided less than 2 percent of IRRI’s 2009 budget, to be more generous.

Michael Richardson is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.