Last Updated : 02 January 2009 at 12:50 IST
Why global rice production is plunging
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Compared with the prices of other cereals such as wheat and maize, rice prices were relatively subdued for much of 2007. In late 2007, however, prices began to zoom upward to levels not witnessed in more than three decades. Between November 2007 and May 2008, export prices almost tripled.
Since then, prices have softened but remain high. Several factors such as adverse weather in key producing countries, high oil prices, and pro-ethanol policies combined with speculative trading and government trade interventions to control domestic prices contributed to the recent spike.
Despite media and public attention to the recent price surge, a steady increase in rice prices from 2000 went largely unnoticed. From 2001 to 2007, rice prices nearly doubled primarily because of a drawing down of stocks to meet the deficit arising out of deceleration in yield growth.
Current global rice stocks have declined from a 135-day supply to a 70-day supply in the last 7 years—a44% drop from 147 million tons in 2001 to 82 million tons in 2008.
Rice crisis aftermath
The 2008-09 rice market is likely to remain tight even with projected record global production of 432 million tons1 (milled rice)—a 1% increase over last year’s 428 million tons. Production in 2007-08, nearly 2% higher than the 2006-07 level of 420 million tons, was also a record. The projected increase in global production is based primarily on increased area with average projected yield nearly unchanged from the previous year.
According to the United States Department of Agriculture (USDA), rice area is projected to increase by almost 1 million hectares from 154.4 million hectares in 2007-08 to 155.3 million hectares in 2008-09. India will account for more than half of the total increase.
Despite higher prices, rice consumption is expected to remain strong because of substitution away from more expensive food such as fruits, vegetables, and livestock products. Global consumption in 2008-09 is projected to be around 426 million tons, an increase of around 1% from the previous year.
After reaching a record low of 73 million tons in 2004-05, global rice stocks have been steadily rising and are projected to reach 82 million tons in 2008-09, compared with 78.5 million tons in 2007-08.
Despite expectations that global stocks will continue to increase in the coming year, prices are likely to remain high partly in response to export restrictions imposed by key rice-producing countries. Making matters worse, already depleted stocks in the U.S.—one of the few countries that resisted imposing export restrictions during the recent crisis—are projected to decline further, further destabilizing the market in the coming months.
Despite some reassuring supply numbers for 2008-09, there are huge uncertainties regarding the source of future growth in global rice production. The annual rice yield growth rate has dropped to less than 1% in recent years, compared with 2–3% during the Green Revolution period of 1967-90.
Declining investments in all areas of rice research and infrastructure development (including irrigation) have been largely responsible for such dramatic slowing in yield growth. The same is not true for many other field crops such as maize, soybeans, and cotton, for which increased investment in the development of improved varieties and infrastructure has resulted in impressive yield growth.
Increasing rice production through area expansion is also unlikely in most parts of the world because of water scarcity and competition for land from nonagricultural uses such as industrialization and urbanization. World rice area has fluctuated between 145 and 155 million hectares over the past two decades, with the current level very close to the historic high. It would be prudent to assume that world rice area will remain in or even fall below this range in the next 10 to 15 years.
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