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Why are rice prices so high?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 biding 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 assure 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. 6/30/08 Date: 6/25/08
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