Food Crisis Not as Bad as 2008 Because of Rice Price, OECD Says

Source: Bloomberg
By Rudy Ruitenberg - Mar 2, 2011

A global food crisis on the scale of what happened three years ago isn’t recurring because a jump in the cost of rice, a staple for half the world, has lagged behind that for other grains, according to the OECD.

Rice futures traded on the Chicago Board of Trade rose 3 percent in the last 12 months, compared with 60 percent for wheat and 93 percent for corn. World milled-rice output will rise 2.4 percent to a record 451.7 million metric tons in 2010-2011, the U.S. Department of Agriculture forecasts, helping keep stockpiles near the highest in seven years.

Rice prices almost tripled in the 20 months to April 2008, contributing to a worsening in world hunger that meant a record 1.02 billion people were deemed by the United Nations to be undernourished in 2009. That figure fell to 925 million people last year, the first decline in 15 years, as food costs dropped and economic growth lifted incomes.

“The scale of the problem is not as bad for large parts of the world as it was in 2008,” said Ken Ash, the trade and agriculture director at the Organization for Economic Cooperation and Development in Paris. “With two-thirds of the world’s hungry largely reliant on rice as a staple, rice prices have not increased and supplies are relatively strong.”

Rice added to the previous peak in food costs in 2008, with prices climbing 33 percent in 2007 and another 11 percent the next year, after export bans by producers including Cambodia, Vietnam, India and Egypt. Rice, which jumped as high as $25.07 for 100 pounds in Chicago in April 2008, traded at $14.26 on the Chicago Board of Trade at 11:19 a.m. Paris time.

Toppled Leaders

Global food prices rose 28 percent in the past 12 months and reached a record in January, according to the UN’s Food and Agriculture Organization. That’s fueled riots across North Africa and the Middle East that have already toppled leaders in Tunisia and Egypt. More than 60 food riots occurred worldwide from 2007 to 2009, according to the U.S. State Department.

World prices for rice “are well below what they were back then,” Ash said Feb. 24 in his office at the OECD headquarters in Paris. “In developing countries the impact should not be as negative. That’s not to say there’s no problem.”

Global food prices are expected to rise in the first half of the 21st century after falling in the second half of the previous century because of a rising population and higher incomes, slower crop-yield growth and the effect of climate change, Ross Garnaut, the Australian government’s climate-change adviser, said today.

‘Good Seasons’

Rice planting in the U.S., the world’s third-largest exporter, may drop 25 percent this year because growers can earn more from corn and soybeans, according to the median in a Bloomberg survey of nine analysts and farmers in January.

“Good seasons” in parts of Africa and Asia have helped build up grain supplies there to levels above those of 2007-08, reducing the impact of rising world prices, Ash said. “Local grain supplies in parts of Africa and Asia are very good.”

Higher food prices have pushed 44 million people into “extreme” poverty in developing countries since June, the World Bank said Feb. 15.

Wheat prices climbed in the past six months after Russia banned grain exports in August following a crop-damaging drought, while rising U.S. ethanol production has lifted demand for the feedstock corn.

Rice is the most important food crop in the developing world and a staple for more than half of the global population, according to the International Rice Research Institute.

Food Inflation

World rice stocks are forecast to slip 0.7 percent to 93.9 million tons at the end of 2010-2011, after climbing in the previous three years on rising production in China and Thailand, USDA data shows.

OECD countries may see more inflation from food compared with 2007-08 because of rising meat prices, a “significant” part of the diet in developed economies, Ash said.

The effect of higher food costs on OECD inflation “was relatively modest and relatively short-lived” in 2007-08, Ash said. For consumers in developed economies, “the fact that wheat is a bit more expensive is not a life or death matter.”

The OECD expects the supply response to higher grain prices to mainly come from developed countries, with planting up “quite significantly,” Ash said. That could “quickly” push grain prices down “by the summer, early fall” in the Northern Hemisphere, he said.

‘Tend to Forget’

While public focus is on the impact of expensive food on poor consumers, the OECD is trying to focus attention on the “fundamental” problem that “the international community may tend to forget a little bit about,” Ash said.

“The problem is poverty,” Ash said. “At relatively low prices a decade ago there were still 800 million people hungry. What high prices, economic crises and various natural disasters do is, for some period of time, increase that number.”

Policy makers should focus on helping developing countries raise crop output and their purchasing power, he said.

“There’s a self interest in a world that’s stable and secure, and where growth is more inclusive,” Ash said. “People who are well-fed are more productive.”

To address food security, the OECD is studying the idea of food stocks in regions prone to supply shortages, Ash said. The alternative is to “pre-position” cash, he said.

“There is no costless way to do this,” Ash said. “One of the advantages of cash as opposed to physical food aid is that you don’t have the same kind of negative disruption on local markets. You get the food, plus the producer benefits.”