April 13, 2008

Rice shortage - Switching to other food will be helpful

Lately I have been reading lot of articles and concerns about rising inflation in poor countries in Asia, Africa and Latin America. It has always been mentioned that cost of food has gone up. Rice is the staple food in most of these countries. In the news and articles when it came to poorer countries I always saw Rice being mentioned. Wheat hardly being mentioned in similar context. For other food items like edible oil and vegetables which were mentioned at times background was always developed countries or larger economies like China and India.
I thought of trying to really understand what is happening as I have normally seen that there is always a lot of hue and cry and media attention on few things causes more and more attention to it and circle continues and then it fades out all of a sudden once the public is saturated. People don't really understand and human pysche is wired to best run in herd mentality. Anyways, I started looking for historical prices of various staple food items. I found some very useful information. I just believe that my interpretation of the data is correct I managed to extract free of cost on the web.

Historical Rice price. Choose the year from the drop down below the chart.
Historical Wheat price. Choose the year from the drop down below the chart.
Historical Soyabean meal price. Choose the year from the drop down below the chart.
You can choose and look at the other food items historical price as well. There are links below on these pages.

There is no doubt that food prices have increased. But this is an healthy increase as per normal inflation rate and economic cycle. World had seen rapid economic expansion is last 3 to 4 years. Only exception is Rice whose price over last 2 or 3 months that has really shot up. Fundmental supply-demand economics could be at play. Supply seems to have been chocked by natural and artificial reasons. There have been many other articles in the media that land acreage for food production has come down significantly over last 2 to 3 years. How ever I have not read how of this switch has been from Rice producing land acerage. I believe it must have been proportional reduction from all crops and not just Rice. Given this the conundrum is why has Rice price shot up so much over last 3 to 4 months. Another economically detrimental pratice may be the reason for chocking the supply of Rice. Plausibly Hedge Funds trying to make profit and getting more and more involved in commodity market after their profitable run in stock and real estate market. Rice stocks world wide are not maintained deep unlike other food crops like wheat, corn, edible oil. Here stock maintenance by countries I am referring to is not in tonnage but reserves/tonnage production & consuption. This ration seems to be low. This could have lead Hedge Funds and PEs to calculate that it is easiet to manipulate and make profit by trading in Rice.
Two solutions are coming to my mind to help poorer nations and impacted communities :-
1) Diversify the food habit of the population to include other food items like Wheat, Corn and Soyabean. This will reduce the dependency on the Rice and this could help. When the food pool becomes bigger then it would be as much difficult for HFs and PEs to manipulate the market for Rice. Powerful nations and their regulators will come in to stop HFs and PEs.
2) Develop commodity exchange in the region instead of depending on US and London commodity exchanges. This is long term solution and with great economic benefits. With this goverment together can control and regulate economically detrimental trends.
Getting the land acerage back to be devoted to Rice and other food articles from bio diesel is not the long term solution as the set of poor countries facing the Rice price manipulation also bleed because of crude oil cost. Crude oil cost has gone up approximately 3 times in last 5 years since IRAQ invasion. This will only help to stop media outcry as a household without light does not draw as much attention as a house hold with hungry stomach. In reality the house hold and community is infact bleeding more because of hydrocarbon prices in search of a better living condition.

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