This is the story of a crisis that affects 4 billion people. Half of the world’s population. They are those who have rice as the basis of their daily diet. The seed is through the roof in the markets.
While food prices closed 2023 lower, according to FAO international indices, rice, in countertrend, became more expensive by more than 20% and up to 30% in some varieties. Measured in dollars per ton, rice is trading at the highest levels in the last fifteen years. An appreciation that is a ticking time bomb for the social and political stability of many emerging economies.
“Nowadays, the prices of rice and spices have risen so much that poor people cannot afford to eat,” Mohammad Ilyas, a cook in Karachi, Pakistan, complained to Reuters. Some companies are dealing with cost pressures by reducing portion sizes. The Nigerian consulting firm SBM Intelligence has created the jollof rice index – the country’s most popular dish – recording every month since 2015, in thirteen markets across the country, the prices of the dozen ingredients necessary to make it. According to the latest installment of the index, published on November 23, the cost of this culinary specialty has more than tripled in eight years.
There is a long-standing supply problem. World production has progressed on average each year by only 0.9% between 2011 and 2021, according to the UN. This is explained by climate changes. Crops suffer from the heat and there are studies that suggest that a rise of one degree in temperature can cause a drop in production of 3.3%. The drought and the El Niño warming phenomenon are affecting the rice fields of Thailand and Japan, although the upward turn began after the floods in Pakistan in the second part of 2022.
Southeast Asia accounts for 58% of production and 80% of exports and is the region on the planet that suffers the most from this adverse climatic phenomenology. The total crop area on Earth, some 165 million hectares, is as large as Iran. As the Asian Development Bank indicated, we are facing a fish eating its own tail, because rice fields are responsible for 12% of methane emissions and 1.5% of greenhouse gases.
Likewise, irrigation of these crops consumes half of the continent’s water resources and 13% of all fertilizers. To produce one kilo of this cereal, between 3,000 and 5,000 liters of water are needed. Rice is a victim of climate change, but it is also partly its cause.
As the world’s population increases, demand for rice increases and does so at a faster rate than harvests: 1.1% per year between now and 2030, according to an estimate by the World Economic Forum.
They seem more like structural reasons. But then there are more circumstantial reasons. Shirley Mustafa, FAO economist, from Rome explains that behind the price increase we must also consider the increase in costs (energy and fertilizers). This caused some farms to stop exploiting the rice fields.
But the most influential factor may be India’s protectionism. The country has turned off the tap. With the aim of containing domestic inflation, this summer Prime Minister Modi (with an eye on the general elections in his country scheduled this year) has imposed a 20% tariff on certain varieties of rice and has limited foreign sales of the white rice (except basmati).
The most affected by these policies are the neighbors, which are already vulnerable (Nepal or Bangladesh, Malaysia) and some African countries that depend on Indian rice, such as Madagascar, Nigeria (where the cost of rice has skyrocketed by 61% between September and November) or Benin. In general, many emerging countries are left without the base of their food pyramid.
When a country that represents 40% of the world’s rice trade stops exporting half of its crop and imposes a tax on the other half, it leaves a hole that is difficult to fill. And this inevitably strains the market.
“I don’t think there has been much speculation with rice,” Joseph Glauber, a researcher at IFPRI, International Food Policy Research Institute, told this newspaper. “Small disruptions in exports can have a global impact on prices, although world trade in this cereal is even lower than wheat,” he points out.
The case of India shows how economic patriotism does a lot of harm to those who depend on this food. Because after Delhi’s decisions, a contagion or rather imitation effect is occurring. Myanmar also closed its rice trade for a month and a half last year while the Philippines has capped prices, blaming the rise on “smugglers, hoarders and speculators.”
Furthermore, according to the FAO, after the Indian veto, several countries (Indonesia, Iraq, Kenya, Saudi Arabia) stockpiled rice, with purchases dictated by panic over shortages and with the aim of increasing reserves, which ultimately has had an impact on prices.
In this context, the future represents an unknown full of dangers, not only economic, but also social. “Prices will remain high throughout 2024, if we assume that India maintains restrictions and the El Niño climate phenomenon remains moderate,” the World Bank predicts. Arif Husain, of the World Food Programme, warned that this crisis could end in a “megacrisis if governments, overwhelmed by climate change, decide to close their borders and turn their backs on the markets.”
In 2010, when the price was slightly above current levels, the revolt movements of the so-called Arab Spring took place, with social revolts that overthrew regimes. This time it could be worse, if we take into account that since then the population has grown by more than 1,000 million people and the risks of famine or shortages increase.
For Joseph Glauber of IFPRI, it is difficult to see revolts of this type again, because more than a decade ago the countries that imposed a veto on exports were much more numerous: India, Pakistan, Vietnam and Thailand. It was when prices tripled in a few months. “The problem with rice is not its availability, but its affordability. Markets are resilient and have proven to be flexible in the event of supply shocks. It is in the hands of governments not to create market or trade distortions,” he believes.
Shirley Mustafa agrees that rice production is sufficient and that we are not heading towards a shortage. “What happens is that the supply is very concentrated. It would be appropriate for countries to diversify their suppliers,” she indicates.
And, perhaps, that the populations also managed to diversify their diets as much as possible. And thus reduce economic, food and strategic dependencies. Before the rice is passed.
