Rice prices rise amid rising food inflation, export ban

Spider web rice fields in Flores, Indonesia. The Food and Agriculture Organization of the United Nations’ Food Price Index showed international rice prices rising for the fifth consecutive month to hit a 12-month high, according to the latest May data released last week.

Tanutkij Wangsittidej

Food prices have increased over the past few months. And rice, a staple food in much of Asia, could be next, industry watchers say.

The prices of many foods, from wheat and other grains to meat and oil, have skyrocketed. This is driven by a range of factors, including the high cost of fertilizers and energy over the past year as well as the Russia-Ukraine war.

Food export bans or severe disruptions include India (wheat), Ukraine (wheat, oats and sugar, etc.) and Indonesia (palm oil).

Rice may be next in line. The Food Price Index of the Food and Agriculture Organization of the United Nations has shown the international price of rice rose for the fifth month in a row to hit a 12-month highaccording to the latest May data released last week.

To be sure, rice production remains plentiful, experts say. But rising wheat prices, and generally higher farming costs, should make rice prices worth watching next.

So, there is an argument to be made that… if the market shows rising prices, why don’t farmers benefit from the price increases?

Nafees Meah

International Rice Research Institute

Sonal Varma, chief economist at Japanese bank Nomura, said: “We need to keep an eye on rice prices going forward, as a rise in wheat prices could lead to rice substitutions, increasing demand and reducing inventories. existing storage”.

Danger of protectionism

She told CNBC “Asian street signs.“The cost of feed and fertilizer for farming has gone up, and energy prices are adding to the cost of transportation,” she added.

“So there is a risk that we will see more protectionism from countries,” Mr. Varma said.

However, she said the risk to rice remains low given that global rice stocks are plentiful and the harvest in India is expected to be positive this summer.

David Laborde, senior research fellow at the International Food Policy Research Institute, told CNBC: “I would be much more worried right now when India imposes a rice export ban in the coming weeks – as they were thinking after wheat and sugar. .

India and China are the two leading rice producers in the world, accounting for more than half of the total global rice production, according to the World Economic Forum. Vietnam is the fifth largest, while Thailand is sixth.

India imposed an export ban on wheat in May, citing the need to “manage the country’s overall food security.” It also imposed restrictions on sugar just days after the wheat ban.

Is the price increase appropriate?

Laborde says a price increase would be much better than any export ban.

“We really should distinguish between price increases that offset higher costs and benefit farmers (and help them produce), rather than an export ban” that pushes prices up on world markets, he said. but pushed prices down in the domestic market.

Nafees Meah, regional representative for South Asia at the International Rice Research Institute, added that rising energy costs globally are a large part of the cost of rice production.

“So there’s an argument to be made that … if the market shows rising prices why aren’t farmers benefiting from higher prices?” Nafees told CNBC’s “Squawk Box Asia.

But rising rice prices will hurt many people in Asia, the largest consumer of the staple food.

“So in the Southeast Asia Pacific region, countries like East Timor, Laos, Cambodia and of course, places like Indonesia, [has a] Nafees said.

Above pre-pandemic levels

The United Nations Food Price Index shows prices are now 75% above pre-pandemic levels, said Frederique Carrier, managing director and head of investment strategy at RBC Wealth Management.

“Pandemic-related labor shortages and Russia’s invasion of Ukraine have exacerbated the situation by both cutting food supplies and pushing up energy prices,” she wrote in a June report. the amount is even higher”.

About a third of the cost of food production is energy-related, Carrier said. Fertilizers in particular are energy-intensive to produce and prices have skyrocketed since last year.

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