By Samarendu Mohanty
Global rice prices started moving upward in November 2009 after months of steadily declining since reaching their all-time high in May 2008. Supply problems in some major rice-producing countries, namely, India and the Philippines, have been the primary reason for this reversal of price trend. Two major typhoons hit the Philippines in late September and early October, causing damage to rice crops on the ground and also in storage to the tuneof one million tons. Similarly, the worst drought in India since 1972 is estimated to have reduced the 2009 kharif (wet-season)crop by at least 15 million tons from a total of 85 million tons in the previous kharif season.

The supply problem has been compounded by major floods caused by torrential rains in the southern statesof Andhra Pradesh and Karnataka.Unfortunately, Andhra Pradesh, one of the major rice-growing states in India, was affected first by drought and then by flood. According to the Hindu Business Online last 17 October 2009, the state government placed the current kharif crop at 4.8 million tons compared with 8.3 million tons in 2008.Three tenders from the Philippines amounting to 1.5 million tons and three small tenders from Indian state trading agencies amounting to 30,000 tons rattled the market in November 2009.

Although India later canceled these tenders, citing higher price as the reason,the fact that India is in the market to purchase rather than to sell is likely to have a large effect on the market. In response to these fresh tenders, global rice prices increased by 15–20 percent during November 2009, with the Thai 5% rice price rising by almost 18 percent.

Start trading in commodities from as low as $50. Join now

How high can the price rise? Will it reach the magic number, “US$1,000 per ton,” that was witnessed during the last crisis? Frankly speaking, it is difficult to predict future price movement, but one thing is very clear: current global rice stocks are much higher than in 2007. In the last two years, stocks have increased by more than 16 million tons, from 75 million tons in 2006 to 91.5 million tons in 2009, with China, India, Indonesia, and Thailand accounting for most of the increase. This may imply that the market should be more stable now than in 2007. Unfortunately, most of these additional stocks, with the exception of Thailand,will not be available to the market in case prices start to rise. Note, however, that even though Indian stocks are not available to the international market, these stocks provide much-needed relief to the market—Indians do not have to turn to imports, at least in the near term, because they have enough at their disposal.

Nevertheless, market sentiment is very upbeat right now. It is safe to say that the rice price is not going back to $300 per ton any time soon and is likely to remain around $600 per ton in the near term. Ultimately, the extent of the price rise will depend on how countries respond to market hype. In the larger interest of global food security, rice importing countries should refrain from making large purchases at one time and should import in smaller volumes as need arises. On the same note, rice-exporting countries should ensure a steady stream of supply to the market and refrain from using export restrictions or any other form of intervention to keep domestic supply out of the international market. The commentary presented above merely reflects my opinion—not any rigorous analysis.

Information such as this will continue to play a vital role in swinging the market one way or another. For rice, a staple source of nutrition for more than half of the world’s population and a source of livelihood for two billion people, the wild swing in prices is a serious concern for policymakers in developing countries. The recent rice crisis is an example. The tripling of rice prices between November 2007 and May 2008 pushed an additional 100 million people below the poverty level.We at the International Rice Research Institute (IRRI) are frequently asked about current crop conditions and how things are likely to pan out in the near future, as well as other market-related information.

Now, we do not have the analytical capability to provide information on rice supply, demand, and markets. However, as the premier rice research organization in the world, IRRI is uniquely positioned to provide unbiased and accurate information on the current and future conditions of the global rice market, policy impacts, and food security. IRRI also has the advantage of having field-level data and information on current crop conditions, disease problems, and other issues affecting the rice crop in various Asian countries that have implications for the global rice market.

More importantly, IRRI’s constant awareness of ongoing technological and varietal developments and their possible effects on future rice yield growth makes us a leader in this area.

Earlier this year, IRRI started a new initiative to develop a digital rice information gateway. This gateway aims to provide a real-time crop monitoring and forecasting platform by combining modern techniques such as satellitebased remote sensing with weather and crop modeling, and econometric modeling. The system will be capable of generating short- to medium-term projections of production, consumption, trade, and prices under different domestic and trade policy regimes and macro conditions. In addition, policy simulations and assessments of the impacts of technology interventions can also be conducted using the framework.

Expected impacts
Through this project, we hope to be able to provide real-time information on rice area and production that will Lead to a smooth functioning of the global rice alert policymakers against impending crises should we find supply levels unstable. Moreover, the regular updating of medium-term supply, demand, and price projections will assist government agencies, agribusiness, and others in their respective medium-term planning. As this initiative will ensure the timely availability of policy briefs, policymakers should be able to make more informed decisions Finally, it will also contribute to the capacity-building of national agricultural research and extension system partners for rice market outlook studies and policy analysis.

Progress so far
The initial phase of the work has involved developing a structural econometric model of the global rice market. We intend to continue expanding the econometric model and also expect to start working on other components of the rice information system, GIS, and remote sensing and crop growth models, as soon as funds are secured. Our target is to make the complete system operational by mid-2011. In the meantime, we will be using the econometric model to develop medium-term market outlook and policy analyses.

A snapshot of our recent preliminary medium-term outlook suggests that rice prices will continue to rise as production fails to keep pace with demand growth because of low yield growth and limited area expansion. The deficit will be met by drawing down buffer stocks. This is different from what happened in the past, wherein yield growth lagged behind consumption growth and area expansion supplemented production to meet global seeds. Since area expansion has slowed down significantly in recent years and current global rice area is at an all-time high, it is logical to assume that rice area will remain at this level or even decline in the future because of water scarcity and competition from other agricultural and nonagricultural uses such as industrialization and urbanization. This reaffirms our long-time argument that productivity growth needs to be revitalized
to keep rice affordable in the future.

(Mr Mohanty is Head, IRRI Social Sciences Division. Courtesy Rice Today Jan-March 2010 issue)

Post your comment  (0)

Connect:

Post to Twitter

Post to Facebook