Shock in the rice bowl

Published : May 23, 2008 00:00 IST

In Greater East Asia, home to the worlds leading exporters of rice, the overall price situation remains unstable.

in Singapore

PRECISELY when many in the developed bloc were frantically counting their money at the height of a surreal shock over subprime rate, the globalising world was jolted by a potential crisis of subsistence that would hit the poor and other vulnerable sections very hard. Is there a link, therefore, between the slippery subprime banking rate and the soaring prices of rice and other staples?

While this question is best left to the economists with a clear conscience for fair play and justice, the politics of the new food crisis is just as poignant as the current uncertainties and the widely perceived fears of a future shock relating to several staple diets are. In Greater East Asia, home to the worlds leading exporters of rice as also some of its big consumers, the overall situation at the end of April remained unstable and critical.

Public protests flared up in some pockets of South-East Asia, such as Indonesia and Cambodia and the Philippines, especially over the skyrocketing prices of rice and other food items and over fears of scarcity. As this report is written, such demonstrations of public anger have not spun out of control, thereby lulling the authorities into believing that they would be able to prevent or ride out the gathering storm. At another level, panic buying, particularly in countries with rice surpluses such as Thailand and Vietnam, raised concerns about chain reactions that might make it impossible to stave off a full-blown crisis.

It was under these circumstances that the Manila-based Asian Development Bank (ADB) took the line that the cheap food era was now a thing of the past but there was also no cause to fear a scarcity situation.

Not downplaying the storm signals, though, Rajat M. Nag, Managing Director-General of ADB, said in Singapore on April 22 that we just have to accept that the era of cheap food is over, if the era of cheap oil [for fuel] is [also] over. In the banks assessment, he said, the rice stocks across Asia are the lowest in decades, but there was no room for a doomsday picture of huge scarcity.

Suggesting that rice exporters like India and Thailand should desist from imposing export bans or resorting to price controls, Nag said such measures would, in the banks view, produce a counter-productive effect on the micro-decisions of farmers. The avoidance of such measures would be good economic policy and earn the exporting countries political or moral dividend in their neighbourhoods.

The ADBs advice to the developed bloc was to rethink the biofuels programme, including the whole issue of subsidies that was designed to boost the diversion of farming from its age-old focus on food to the new and supposedly eco-friendly focus on fuel. Nag said actions by the developed countries to bring about an early and successful conclusion of the Doha round of global trade talks would also give a very major boost to the developing Asias farmers.

Some highlights of the ADBs perceptions and prescriptions deserve mention at length. The rice price increases have already produced a very, very serious impact on nearly 1.2 billion people. Roughly 600 million people in these socially vulnerable sections have an average earning of less than $1 a day, while a similar number has a marginally higher income quotient above $1 a day. Before the latest rise in food prices, these people were spending almost 40 per cent to 50 per cent of their meagre incomes on daily necessities. By the fourth week of April, the same index rose as high as 80 per cent, particularly in some South Asian countries.

While worldwide, prices of all food items have gone up by over 80 per cent in the past three years, the situation with regard to rice in Asia is more acute. In the past year alone, a threefold rise in rice prices was registered, and buyers have had to pay almost twice as much in the first few months of this year. The vagaries of the weather apart, the latest price trends are seen by institutions such as the ADB as the inevitable result of rising production costs. The space-age velocity that drives up the prices of oil-for-fuel is recognised as the overall factor behind the rising costs of production in the agriculture sector as well. Some other cyclical factors, such as the weather in countries such as Australia and elsewhere in the Asia-Pacific region, are also conspicuous. Of equal or greater importance are the structural issues on the farm front, such as inadequate irrigation facilities and rural finance. In the ADBs reckoning, farm-related infrastructure in the developing countries should be enlarged through greater investments. The bank itself, for instance, extended $1 billion to India towards its rural finance requirements last year.

Another structural issue that has caused a supply shock, not amounting to a doomsday picture though, is that in some growing economies across Asia traditional rice farms are being put to other productive purposes. In Vietnam alone, according to the ADB estimates, about 40,000 hectares a year are being taken away from rice production to make way for industrial plants, special economic zones or other urban infrastructure. In Thailand, the area under rice cultivation declined by 13 per cent in the decade ending 2005. Significantly, in the Asian and global contexts, Thailand is the worlds largest rice exporter, followed by Vietnam.

Yet another structural factor that is causing worry is that the cropping intensity in Asia has not gone up in real terms from what it was in the 1980s. One related reason has been identified as the slackening attitudes of the emerging economies towards investment in irrigation systems. So, most of the area under agriculture in Asia still remains rain-fed, says the ADB.

These structural factors have led to a negative spin-off in the form of rice productivity losses. The ADB studies indicate that the growth in the yields has started to taper off, in the classical sense of the law of diminishing returns. Gone are the sumptuous yields of the era of Green Revolution.

Acquiring added importance, in the context of these supply constraints, is the rise in demand for rice and other food items, caused by the growth in incomes. China, India and Vietnam are seen to top the list of countries that have begun to display not only an increase in consumption of rice but also an increase in the consumption of grain-intensive food.

It is in this macro-level situation that Commerce and Industry Minister Kamal Nath, who held talks with Thai leaders in Bangkok on April 27 and 28, said India would support Thailands leadership for the convening of a rice summit to consider steps to try and prevent the crisis on the commodity front. Thailand, Vietnam and India, he pointed out, had roles to fulfil, from the suppliers point of view, in the search for an effective solution.

Besides the obvious relevance of Thailand and Vietnam to any search for answers, India and China are known to be the other key players. Given such a complex farm scene, Kamal Nath called upon the developed bloc to make tangible proposals on agriculture and other issues and break the current impasse in global trade talks.

Until the end of April, Thailand was busy affirming its resolve to refrain from imposing a ban on rice export. The assurance did enhance Bangkoks credentials to preside over a possible rice summit, especially given the concerns in some quarters over the actions by India and Vietnam to curb their independent exports of rice in some select ways. However, Thailand remained under some negative light too as importers were not amused at the way the Thai rice prices peaked above the $1,000-mark for every metric tonne.

In Vietnam, the leaders were eager to prevent the people from pressing the panic button. However, a particular spree of panic-buying did occur, thanks to the fears of hoarding by wholesalers in anticipation of long-term price rises on the export front.

The Philippines, which depends considerably on rice imports, found itself caught in a web of popular anxieties and political assurances. President Gloria Macapagal Arroyo, never really free from a siege on the political front at home for reasons related to her alleged usurpation of power, sought to endear herself to the people on an issue close to their hearts. Promising severe punishment to hoarders and ordering actions against some errant traders, she maintained that the supply or rice is secure for the foreseeable future.

Malaysia, another key importer of rice, announced new plans to enlarge the area under rice cultivation and boost domestic supplies. However, the new political landscape in that country, dominated by the unprecedented emergence of a vibrant opposition coalition on the national scene, could yet turn into a theatre of tussle over the rice issue as well.

With China preoccupied with issues concerning the holding of the forthcoming Beijing Olympics, Japan announced plans for over a $100-million emergency aid to help poor countries tide over their additional costs of importing rice. Tokyo promised to make food security a prime agenda for the Group of Eight summit to be hosted by Japan this year.

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