Is The World Set for Another Rice Crisis?

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"This year, I will not have enough rice to eat for the whole year," says Kong Chanthorn, a rice farmer in Srayov Kharng Tbong village in Cambodia's Kompong Thom province. "I am afraid I cannot earn the money to buy rice to support my families because this year its price is too high."

Chanthorn is not alone. The global price of rice, a staple for half the world's population, is rising inexorably again, up more than 25 percent in recent months, stoked by Philippine and Indian import demand although not to the stratospheric levels of late 2007 and early 2008. At that time the price rose from about US$300 per metric ton to as much as US$1,100. Prices later fell back to about US$400 as government panic subsided across the region and bans on export were lifted, and as planting pushed up stocks.

Cambodia's rising prices were precipitated by the onset last September of Typhoon Ketsana. On Wednesday Pov Samy, the secretary general of Cambodia's National Committee for Disaster Management, said Ketsana had caused flooding in eight of the country's 24 provinces and damaged public and private buildings to the tune of US$153 million. A further US$131 million is needed to restore the buildings' hardware, he said.

But the cost to rice farmers suffering lower production yields and higher food prices remains unknown, not only in Cambodia but in other areas of Asia as well. The damage from the typhoon, plus the potential of falling stocks from a recurrence of the El Nino weather phenomenon, raises the risk of skyrocketing prices.

Chanthon, 33, says he lost half the annual yield from his rice paddy from Ketsana. And although villagers in his area have received seeds and food help from non-governmental organizations, they have not been enough. "Some villagers have to catch fish to earn some money to buy milled rice," he said. "My daughter's rice field is all gone and my son-in-law has had to fish."

"Flooding from Ketsana has pushed the price of rice up in our community," Chanthorn. "Last year during the same period rice only cost 9000 riel [$1.75] for a basket. Now the price is near 13,000 riel [$2.10]."

Food security has become a major political issue in Asia in recent years due to imbalances in the demand-supply chain and hoarding by national governments. In response to the problems, the World Food Program has initiated a number of emergency projects, and the International Rice Research Institute (IRRI) last month launched a US$300 million fund-raising campaign for the region.

"Rice is fundamental not just to Asian economies but also Asian culture," IRRI Director General Dr Robert Zeigler said in a statement at the launch of the fund. "There is no doubt that rice research can help. For four decades, rice production has steadily increased in Asia, pushed ahead by new varieties developed through research that has helped ensure enough rice for all Asians.

"What we need more than anything is to make the necessary investments, especially with the looming threat of climate change," he added. "After all, in Asia, rice is life."

New statistics released by HSBC show that rice production could fall 20 percent this season due to a rage of mainly weather-related factors such as typhoons, flooding and droughts. As a result, global rice prices have surged to US$610 per metric ton. Along with the anticipated return of El Nino in 2010, the drop in yield could spell trouble for a region increasingly important to world economic growth although there is some debate over stocks.

Typhoon Ondoy, as Ketsana was known in the Philippines, severely damaged Filipino rice production, resulting in record buys of 202 million tons to build adequate stockpiles for 2010. Reuters reported on Jan. 13 that Philippines unmilled rice output is expected to hit a record this year, however, and that the El Nino effect expected to be mild. Bloomberg, however, quoted Philippine Agriculture Undersecretary Emmanuel Paras as saying as much as 20 to 20 percent of the country's rice growing regions could be affected by the weather phenomenon.

Some 1.5 million people affected by food shortages are beneficiaries of a $56 million WFP project in the Philippines. Running through June 2010, the program will attempt to trigger recovery through agricultural projects and support. However, the Philippines program is facing a funding shortfall of $33 million. Further emergency donations are needed in Cambodia, where 25,000 households received 1,250 tons of rice for the month of September to avoid starvation, but have been left to fend for themselves since.

"Food assistance provided by [UN programs] during crises is aimed at saving lives and ensuring people do not exhaust their meager resources to survive the ordeal," said Mike Huggins, WFP spokesperson for Asia. "By supporting people during tough times, they are better able to recover their livelihoods and get back on their feet when conditions improve."

In his December report for HSBC, "What's Cooking with Rice?," economist Frederic Neumann noted that the US Department of Agriculture (USDA) forecasts that global rice production in 2010 will be below global demand for the first time in five years. At the same time, stocks among major exporters are running about 20 percent below normal, he said — adding that the numbers may even underestimate the problem.

In 2008, continually low stocks and steadily growing demand "set up the market for a price spike that ultimately became self-perpetuating," Neumann wrote. "In a major review of the episode, the USDA recently concluded that hoarding and emergency trade restrictions imposed by governments were the main driver for the run-up in rice prices."

None of these underlying agricultural problems have disappeared in the past year. Following its driest monsoon season for 37 years, the Indian government is expecting its summer-sown rice output to fall by some 18 percent, forcing it to become a net importer for the first time in nearly two decades in order to cope, the USDA said.

"Rising rice prices should generally be positive for rice farmers across the region as it raises their income," Neumann said in an email exchange. "However, lower income groups tend to be more negatively affected. In a sense, therefore, rising rice prices represent a redistribution of income."

After two devastating typhoons and some of the heaviest rains in almost 40 years, the Philippines is also suffering massive production shortages that are expected to increase the country's import demand by 25 percent. The government was forced to revise up its emergency operations budget to provide for an additional 44,628 metric tons of food aid and extend the emergency operations plan through June of 2010.

The problem of food security and pricing is expected to increase hoarding by individual countries that could put at risk the consumption driven economic recovery of the region. This would exacerbate an already precarious situation for developing countries weathering the global economic recession.