This is the story of a crisis that affects 4,000 million people. Half of the world’s population. They are the ones who have rice as the basis of their daily diet. The seed is in the clouds in the markets.
While food prices closed 2023 down, according to FAO international indices, rice, in a 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.
“Today, the prices of rice and spices have risen so much that poor people cannot afford to eat,” complained Mohammad Ilyas, a cook in Karachi, Pakistan, to Reuters. Some companies are struggling with cost pressures by reducing portion sizes. The Nigerian consultancy SBM Intelligence has created the jollof rice index – the country’s most popular dish – in which it records every month since 2015, in thirteen markets across the country, the prices of the dozen ingredients needed to elaborate 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 supply problem that comes from afar. Global production has grown on average by just 0.9% each year between 2011 and 2021, according to the UN. This is explained by climate changes. Crops suffer from the heat and there are studies that indicate that a rise of one degree in temperature can cause a drop in production of 3.3%. Drought and the El Niño warming phenomenon are affecting rice paddies in Thailand and Japan, although the upturn began after the floods in Pakistan in the second half of 2022.
Southeast Asia has 58% of production and 80% of exports, and is the region of the planet that suffers the most from this adverse climate phenomenon. The total area of ??crops on Earth, about 165 million hectares, is as large as Iran. As the Asian Development Bank indicated, we are dealing with a fish biting its tail, because rice paddies are responsible for 12% of methane emissions and 1.5% of greenhouse gases .
Likewise, the irrigation of these crops consumes half of the continent’s water resources and 13% of all fertilisers. 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 the cause.
As the world’s population increases, demand for rice is increasing at a faster rate than yields: 1.1% per year between now and 2030, according to an estimate by the World Economic Forum.
They seem to be rather structural reasons. But then there are more circumstantial reasons. Shirley Mustafa, FAO economist, explains from Rome that behind the price increase it is also necessary to consider the rise in costs (energy and fertilisers). This caused some farms to stop exploiting the rice paddies.
But the most influential factor may be India’s protectionism. The country has turned off the tap. Aiming to contain domestic inflation, this summer Prime Minister Modi (with an eye on his country’s general elections due this year) imposed a 20% tariff on certain varieties of rice and limited foreign sales of white rice (other than basmati).
The most affected by these policies are the neighbors, who are already vulnerable in themselves (Nepal or Bangladesh, Malaysia) and some African countries that depend on Indian rice, such as Madagascar, Nigeria (where the cost of rice it shot up 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 accounts for 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”, says Joseph Glauber, researcher at the Ifpri (International Food Policy Research Institute), in statements to this newspaper. “Small disruptions in exports can have a global impact on prices, even though the world trade of 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 the decisions in Delhi there is a contagion effect or rather an imitation effect. Burma also closed its rice trade for a month and a half last year, while the Philippines has put a price cap, blaming the rise on “smugglers, hoarders and speculators”.
In addition, according to the FAO, after the Indian veto, several countries (Indonesia, Iraq, Kenya, Saudi Arabia) stockpiled rice, with purchases dictated by the panic of the shortage and with the aim of increasing reserves, which has ultimately had an impact on prices.
In this context, the future represents an unknown full of dangers not only economic, but social. “Prices will remain high throughout 2024, if we assume that India maintains the restrictions and the moderate El Niño climate phenomenon”, predicts the World Bank. Arif Hussain, of the World Food Programme, warned that this crisis could end in a “megacrisis if governments, overwhelmed by climate change, decide to close borders and turn their backs on 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 you take into account that since then the population has grown by more than 1,000 million people and the risks of famine or famine are increasing.
For Joseph Glauber, of Ifpri, it is difficult to see revolts of this kind again, because more than a decade ago the countries that imposed a veto on exports were much more numerous: India, Pakistan, Vietnam and Thailand That’s when prices tripled in a few months. “The problem with rice is not its availability, but affordability. Markets are resilient and have proven to be flexible in the event of a supply crisis. It is in the hands of governments not to create distortions in the market or trade”, he opines.
Shirley Mustafa agrees that rice production is sufficient and that we are not heading for a shortage. “What happens is that the offer is very concentrated. It would be appropriate for countries to diversify their suppliers”, he says.
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.
