April 03, 2008

Global Rice Prices Hit Record Highs on Supply Fears

10:09 04/03 (CEP News) London – The price of rice soared in intraday trading on Thursday as fears of demand outstripping supply gripped investors after several Asian governments imposed curbs on exports of the staple food.

At 8:26 a.m. EDT on Thursday, the Rough Rice Contract for May delivery rose by nearly 2.4% to hit a record of $20.26 per 100 lb on the Chicago Board of Trade, according to a spokesperson. The price rise was fanned as restrictions were placed on exporters based in China, Vietnam and Egypt by their respective governments earlier in the week.

India followed suit on Wednesday night and banned the export of “non-basmati,” a lower non-aromatic quality of rice, to help control soaring domestic food costs. Subsequently, the price for exports of aromatic “basmati” rice was also raised on Thursday to $1,200 per tonne to discourage exports, according to news channel NDTV.

Both the World Bank and the Rome-based United Nations Food and Agriculture Organization (FAO) have expressed disappointment at the spiking price of rice, thought to be the staple food of half of the world's population. FAO believes rice prices have risen by 20% over the first quarter of 2008 alone and other soft commodities have recorded similar price spikes.

The UN agency expects rice production to rise by 1.8% or 12 million tonnes, but it may not be enough in the face of soaring demand. The figure is based on the assumption of "normal" weather conditions in Bangladesh, China, India, Indonesia, Myanmar, Philippines and Thailand, where supply and demand are currently quite stretched.

Concepcion Calpe, senior economist at FAO, said, "The international rice market is currently facing a particularly difficult situation with demand outstripping supply and substantial price increases."

She added that higher rice production in 2008 could reduce the pressure, but short-term volatility will probably continue, given the very limited supplies available from stocks. "This implies that the market may react very strongly to any good or bad news about crops or policies," Calpe added.

FAO also hopes that production may rise in Africa, Latin America and the European Union, while it may contract in Japan, one of the few countries where producer prices fell last year. Meanwhile, the forecast for Australia is "dismal," in light of extremely low water availability. A decrease is also expected in the U.S., owing to competition from more profitable crops.

Looking ahead, FAO believes prices are not likely to rise further in the coming months, with the arrival of new rice harvests in Brazil or Uruguay, as well as in Bangladesh, India, Indonesia, Thailand and Vietnam. "So far, prospects regarding these crops are positive," Calpe said.

Darren Cooper, senior economist at the International Grains Council (IGC) in London, agrees with the FAO's assessment of the situation. In the IGC World Grains Summary Report for March, he said that despite escalating prices, world rice trade is still expected to increase in 2008 but trade restrictions were unhelpful in respect of cooling the prices.

"In contrast to other markets, Asian rice prices registered steep increases (over the first quarter) on concerns about tightening supplies and new export measures, including a ban on fresh sales (until May) by Vietnam and the recent doubling of India’s minimum export price for 'non-basmati' rice," Cooper wrote.

Meanwhile, the World Bank believes that energy price rises, coupled with the rapid rise in prices of soft commodities, especially wheat, rice and corn, was a worrying prospect.

Robert Zoellick, president of World Bank said, "nearly 33 countries around the world face potential social unrest because of the acute hike in food and energy prices. For these countries there is no margin for survival."

In a statement, he urged world leaders to reach an agreement on the WTO Doha Round of negotiations which have been in the balance since November 2001.

"The poor need lower food prices now. But the world's agricultural trading system is stuck in the past. If ever there was a time to cut distorting agricultural subsidies and open markets for food imports it must be now," Zoellick said.

By Gaurav Sharma, gsharma@economicnews.ca, edited by Cristina Markham, cmarkham@economicnews.ca

(END) ©CEP Newswires - ©CEP News Ltd. 2008. All Rights Reserved. www.economicnews.ca

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