By: Our Correspondent

Britain’s Overseas Development Institute (ODI) has put out a disturbing report about the rising price of rice and its likely impact on the world’s poor, particularly in major rice importing countries in Africa.

But the ODI’s analysis seems dated and appears to be highly selective in its use of data. Is this, one might ask, just a question of being behind the times or of the inbuilt bias of development agencies towards crying wolf at every opportunity.

It posits "the end of cheap rice" claiming that prices since 2000 have more than doubled in real terms and that rising wages in China and India plus increased costs for inputs such as fertilizer and pesticides are underwriting a long-term upward trend in prices. It also sees the rises in Asian currency values against the US dollar, particularly the Chinese yuan and Thai baht as factors in rising prices by deterring Thai exports and encouraging Chinese imports.

The 2000 base price which ODI uses for comparative purposes was close to the modern all-time low reached in 2002, from which prices climbed to spike in 2008 when actual production shortfalls were greatly exaggerated by export bans — in the case of India — and unnecessary panic buying by the Philippines as a result of lousy statistics. Since then prices have declined as in a normal cycle. From US$206 a tonne in September 1993, prices fell to US$160 in 2001, spiked to US$1,000 in April 2008 and then fell back below US$600. Today it is around US$460 for Thai 5 percent broken and much less for lower grades.

Although prices do remain well above 2000 levels, the ODI itself recognizes that a major factor in the failure to fall further despite production rising faster than demand has been a large-scale rebuilding of stocks. Thus it quotes combined world stocks having risen from 75 million tonnes in 2006/7 to 105 million in 2011/12, with China, India and Thailand accounting for almost all the increase.

But why should countries continue to stockpile at this rate, knowing full well that rice in storage deteriorates? Recent months have seen the fallacy behind holding stocks off the market. China and to a lesser degree India may have built stocks for food security purposes. But that was never the case with Thailand, whose stockpiling is largely involuntary and the result of its rice pledging policy, by which the government bought rice at above world prices then held it off the market because of the losses which would be incurred.

That policy has proved bankrupt. The absence of Thai rice only very briefly pushed up the price. Instead, India stepped in and increased its exports dramatically, overtaking both Thailand and Vietnam to become the world’s major exporter. Although India remains susceptible to changes in the monsoon, and as many Indians have far from enough to eat, India’s presence as a major exporter seems assured.

Quoting, as the ODI does, the rise in real agricultural wages in India by about 20 percent over the past decade is on its own a meaningless statistic. What matters is land and manpower productivity, both of which in India have made progress and have the potential for continuing rapid gains even as prices fall back.

For China and Thailand, rice farming may be increasingly unattractive, at least if domestic prices are set at world levels. But the potential for major gains in lower-income Asia remains large. Myanmar is the most obvious case in point, where economic reform could have an even bigger impact on rice production than it did in Vietnam, which went from importer to major exporter within a few years.

China’s concern with rice security in the face of rising wages, water shortages and loss of land to urbanization seems likely if anything to cause it to subsidize production in one way or another, thus limiting its import needs.

For Asia more generally, population growth continues to fall everywhere and richer countries are seeing eating habits change, increasing demand for foods other than rice. Productivity advances are no longer of the magnitude seen during the Green Revolution of the 1970s and 1980s but the demand is not there either. Bangladesh and Pakistan have been roughly keeping rice production at or above population growth. In East Asia, the Philippines and Indonesia will likely remain periodic rice importers — but that has been the case for decades.

Conditions vary from year to year among the major producers. This year drought is hitting China but India has had a good monsoon and conditions in SE Asia have been mostly favorable. Chinese buying could keep a floor under prices but more likely in the short term only. Chinese imports are currently around 3 million tonnes a year but much of this may be due to access to cheaper Vietnamese rice creating arbitrage opportunities for traders than weak production.

For sure the price of rice will probably remain volatile on world markets but that is mainly because the percentage of production entering world trade is very small compared with wheat, corn and other staples. Only about 5 percent of global production enters international trade — though that number may be growing due to increased demand from Africa, the Middle East and Latin America and slowing growth in consumption in Asia. Cheap rice does of course pose a dilemma for several African countries where the urban poor have come to rely on it as an accessible and easily cooked food. Nigeria was the world’s largest importer last year, buying 2.5 million tonnes in 2012 though China may have recently overtaken it. Low prices discourage local production of rice and divert consumption from traditional foods such as cassava and millet to rice.

In the long term, rice production will face three hazards. One is water shortages for a naturally thirsty crop. Water issues are already constraining Australia’s production and should be doing the same in China if water was properly priced. A second is that rice is less amenable to mechanization than wheat or corn — which explains why Japan massively subsidizes it, and the US to a lesser degree. The effects of climate change on rice are also a potential threat.

Hence as incomes rise, rice farming becomes ever less attractive. But we are not there yet. The medium term case for prices in the global marketplace still looks more likely to be down than up.