The Run on Rice

Abstract

This year has brought vivid television images of food riots in poor countries and unpleasant surprises at the supermarket checkout counter in rich ones. Is the era of cheap food really over? By mid 2008, U.S. dollar prices for food grains had more than doubled compared with just two years ago. Over half of the increase occurred in the first six months of this year. The price of rice a staple food for half the world s population jumped to $907 per ton in April, almost triple November 2007 levels. In response, major grain exporting countries introduced export bans, sending importers nervously searching world markets to secure supplies. Food prices are still only around half what they were during the worst of the great world food crisis of 1973-74 in inflation-adjusted terms, and no more than their average during the 1960s (according to our calculations that measure food prices relative to an index of global manufactured export prices). But this will hardly be of comfort to the hundreds of millions of poor people with less to eat today, who are experiencing a sharp fall in their already meager living standards. So what are the causes of the present surge in world food prices, in particular for rice? And what can be done about it? Many explanations have been put forward for the hike in food prices, some better supported than others. One popular notion is that prices are rising because of rapid income growth and rising food demand in Asia, particularly in China and India. But this idea which, incidentally, neatly puts the blame for rising prices on developing countries does not square too well with the facts. Growth in Asian rice consumption has been slowing for decades despite rapid economic growth, falling from 2-3 percent a year in the 1970s and 1980s to only 0.9 percent a year so far in the 2000s. (Annual growth in overall world consumption so far this decade is roughly 1 percent.) A variant of this argument is that Asians are upgrading their diets and eating more meat, which is indirectly boosting demand for animal feed. This certainly appears to be true for oilseeds like soybean meal, demand for which has been rising rapidly in China's poultry and livestock industry. But it is much less clear that it has been boosting grain demand. Rice is not widely used for this purpose. And growth in Asian demand for other grains for feedstuff has been falling not rising due to improved efficiency in use. Such growth fell from a staggering 12-13 percent a year in the