Asia rice panic likely to subside as farmers rush crops

(REUTERS)   



A global rush for rice that has heightened food security anxiety across Asia should slow in coming months, as consumer nations replenish lowly stocks, extra crops boost supplies and a sense of panic subsides.

 

Rice output is set to rise this year as major producers plant additional crops, likely slowing or halting a rally that has caused prices to more than double since January and added a new element of political risk to policymakers' inflation headache caused by the surge in global food prices.

 

Even before those fresh crops hit the market rice analysts and traders expected the frenzy of recent purchases to ebb as importers grow more confident on future supplies.

 

"Governments are desperate to build supplies before things worsen. They are now better positioned. This increases the likelihood that a crisis can be averted," Abah Ofon, a soft commodities analyst at Standard Chartered Bank, told Reuters.

 

The growing unease over rice supplies reached fever pitch in recent weeks as surging food inflation prompted some of the world's top suppliers to curb exports, hoping to tame prices at home while goading them higher abroad.

 

Benchmark Thai 100 per cent parboiled rice soared from $500 a tonne in late February to a record of nearly $925 a tonne this week, even though prices normally start coming down as harvests peak from April to July.

 

There's a good argument for higher prices. Global stocks have fallen by half since their early 1980s peak as demand expanded faster than production, but benchmark prices had hovered around $400 a tonne or lower since the start of this decade.

 

Other grain prices have also doubled, or more than doubled, as competition for cropland intensifies, demand from increasingly wealthy emerging economies grows and biofuels suck up supplies.

 

But now, encouraged by high prices and strong demand, farmers in the world's two biggest exporting countries, Thailand and Vietnam – which account for about half of world rice exports – are working feverishly to plant more. The results of that effort should materialise more quickly than for other grains.

 

That in turn should help soothe the jangled nerves of politicians hyper-sensitive to any shortage of the staple food for Asia's 3 billion people, and already reeling from gains in the price of crude, metals and other commodities.

 

"When the market is this sensitive, fundamentals take a back seat. We will see the supply response coming in terms of increased yield and production, but it will take at least 12 months," Ofon said.

 

The Food and Agriculture Organisation said this month that although global rice trade would fall by a marginal 3.5 per cent this year due to export restrictions, production is expected to grow by 1.8 per cent, assuming normal weather.

 

Only about 5 per cent of the world's rice is freely traded, with huge consumers like China, Japan and India self-sufficient.

 

QUICK RESPONSE

 

Unlike many other crops that take a year or more to show the results of expansion, rice farmers can fit a third crop into their normal two-cycle year, and paddy fields often don't compete for arable land in the same way that corn, soy and wheat do.

 

On Tuesday the US Department of Agriculture revised up its rice output estimate for the 2007/08 marketing year ending in May to 425.29 million tonnes, from an estimate of 422.94 million one month ago.

 

It also revised up the closing stocks estimate for 2007/08 to 77.09 million tonnes, from 75.17 million, reflecting a stock build in the Philippines and Indonesia.

 

But the effort to build up stocks drove up prices and stoked fears of a shortage, causing Vietnam to clamp down on fresh export contracts, India to ban all rice sales and top importer the Philippines to seek a government promise from Hanoi.

 

Analysts and traders said those measures only added to the market's panic, sending prices even higher and leading to hoarding, cancellations and defaults –  despite the fact that rice was still widely available, albeit at a higher price.

 

"For the Philippine market there is no shortage. For this year, there have been two biddings already in January and March and there are so many cargoes coming in from Vietnam and Thailand," said a Philippine trader.

 

The Philippines has said it could buy up to 2.2 million tonnes this year in what would be its biggest overseas purchase of the grain in a decade, and President Gloria Macapagal Arroyo has taken a personal interest in rice supplies – although she may be stoking a sense of scarcity at odds with market realities.

 

"To be honest, it kind of aggravates the situation," said a Manila trader. "If you are an ordinary Filipino, from the surface it seems like something is wrong, like we are running out. They are kind of fanning the fire."

 

Governments across Asia are likely to remain anxious for a while still given the importance of rice in the region.

 

Food accounts for almost 50 per cent of the total expenditure for an average Indonesian citizen, while it's only 10 per cent in developed countries such as the United States, Standard Chartered bank said in a reasearch paper.

 

"We will see these measures on rice staying for a longer time," said Sunil Patwari, general manager at Singapore-based grains traders Adani Global Pte Ltd. "Governments don't want to leave anything to chance." (Reuters)


In Depth



Comments

Comments