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Why are rice prices so high?
By Lamar James
Extension Communications Specialist
U of A Division of Agriculture
Little Rock, Arkansas (June 19,2008) –
The recent rapid rise in global rice prices can be blamed on stockpiling,
hoarding and/or profiteering. This was triggered by tight, but adequate,
global supplies, rising oil and grain commodity prices and speculators
bidding the price of rice up, says Dr. Bobby Coats, extension agricultural
policy analyst with the University of Arkansas Division of Agriculture.
It has created global supply availability and
distribution problems, and some major U.S. retailers have limited rice
purchases to maintain their supply pipeline.
“These high rice prices are a catastrophic financial
problem for many of the world’s population who live, at best, in dignified
poverty,” Coats says.
Coats says the hoarding and stockpiling is unusual
because there is not a global shortage of rice.
“The USDA estimates that global rice consumption has
exceeded global rice production in four of the current eight marketing
periods, but in the current four marketing periods, global rice production
has exceeded consumption,” he says.
However, he notes, many rice analysts have been
concerned that global supplies were not adequate to deal with a catastrophic
global weather or other disruptive event.
 Coats
expects global rice prices to continually move higher for several reasons.
The global economy is operating in an inflationary economic setting. Rice
and commodity producers’ cost of production are rapidly rising, and farm
market rice prices must rise fast enough to encourage more rice production.
The cost for producing rice in 2008 will be 100 percent
higher than the 2002 rice cost, according to Coats. U.S. and global rice
prices must reach a level that guarantees adequate global rice production.
“U.S. rice producers will plant rice if the market
signals a market price that covers their cost of production: otherwise, they
won’t plant rice. Few, if any, U.S. rice producers will be planting for the
government in the future,” Coats said.
He says governments must assess their rice situation and
act in their countries’ and citizens’ best interest.
For many of the world’s subsistence population living in
poverty, he says, it’s a necessity for governments to intervene with
subsidies and needed controls to ensure economic and political stability and
minimize global hunger and starvation.
“The economic impact even here in the U.S. from
inflationary food prices and the inflationary setting in general has the
potential to move this country toward increasing protectionism policies,” he
notes. This, he adds, would be devastating, not only to the U.S. economy but
also to the global economy
While all countries protect their food sectors to some extent, the biggest
danger to the world, Coats believes, is for country after country to become
more protectionist. “There is no option but to allow rice and other
food commodity prices to reach levels that will guarantee adequate
production,” he says. Higher prices are difficult for people, but
protectionism and a deflationary global economy would be a total economic
nightmare for most of the world’s population.
Hear Bobby Coats’ podcasts on the global economy
at
www.uaex.edu or at
www.aragriculture.org/agfoodpolicy/radio/default.htm.
The Cooperative Extension Service is part of the U
of A Division of Agriculture.
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