Investment to keep rice prices low in the long-run
By Jon Fernquest |
Food prices have gone up and down like a roller coaster over the last year.
One year ago in October 2007 rice sold for $336 per tonne.
After reaching a peak in May 2008 at slightly more than $1,000 per tonne, the price of rice fell by 36 percent (See graph below of rice price rise).
Last week it stood at $664 per tonne, still a lot more than last year but a lot less than the peak this year.
What caused the increase in the price of rice?
Four immediate causes for the sudden increase in rice prices were identified at the time:
* Poor harvests resulting from extreme weather
* A rise in demand in some rice-importing countries, where populations and incomes are growing
* The expectation of further price increases - resulting in hoarding
* Low stockpiles
* A long term lack of agricultural investment
(Source: BBC, 11-03-08, link)
The last item in the list, under-investment in the rice sector, is the likely cause of a general long-term trend of increasing rice prices.
The price of rice has risen steadily since 2000 due to such a lack of investment, according to Robert Zeigler director-general of the International Rice Research Institute (IRRI) in Los Banos, Phillipines (See previous interview).
Although the spike in rice prices earlier this year had a positive effect on investment, the recent collapse in prices has made it difficult to sustain these investments, observes Zeigler:
The financial crisis suggests we may not turn those investments around and that leads me to the inescapable conclusion that upward pressure on prices will continue.
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Furthermore, the recent credit crunch will also likely lead to cuts in agricultural investments:
If fertilizer remains expensive and importers are unable to get credit to buy it, that has an immediate impact on production...If credit is not available for infrastructure, such as maintaining irrigation, the long-term impact is very negative.
This means that rice will likely follow the upwards trend in food prices predicted in the OECD-FAO Agricultural Outlook 2008-2017 earlier this year (See previous article)
Rice Action Plan to counter trend of under-investment
Last week Asean ministers unanimously backed a seven-point rice action plan developed earlier this year by IRRI:
Measures under IRRI's seven-point action plan include reducing the gap of 1-2 tonnes per hectare between actual and potential yield in most ricefields in Asia, accelerating delivery of new post-harvest technologies, introduction of higher-yielding rice varieties and providing suitable policy reforms (Source: Strait Times).
An additional US$15 million per year in funding over the next 10 years will be needed to support the rice action plan
(Read the IRRI's strategic plan downloadable for free online: link)
What caused the sudden decrease in the price of rice?
Decreased in demand due to the global economic downturn is one obvious
factor behind the sudden decrease in rice prices.
Oversupply is another likely reason. Rice supplies increased in producing countries such as Thailand when farmers planted more in response to rising prices.
(Source #1: Bangkok Post, general news, 29-10-08, Bloomberg, link)
Vocabulary:
The Green Revolution - applied agricultural research in the 1960s that resulted in high yielding varieites of maize, wheat, and rice that allowed food production to keep pace with worldwide population growth (See Wikipedia)
International Rice Research Institute (IRRI) - rice research institute established in 1960 by the Ford and Rockefeller Foundations in cooperation with the Government of Philippine government, developed new breeds of rice and played an important role in starting the Green revolution (See website and Wikipedia)
roller coaster - a popular ride in amusement parks, a small railroad with tracks that rise very high and fall suddenly, riders sit in multiple cars, sometimes the tracks turn the cars briefly upside down (See Wikipedia)
a spike in rice prices - a sudden increase to a peak and then a decrease, (so the price graph looks like a spike or nail)
hoarding - save valuable things secretly so other cannot get them
stockpiles - store large quantities for future use (See glossary)
sustain investments - continue investments over a long period, keep doing investments, not stopping
turn investments around - gain from the investment, make a profit from the investment
the conclusion - what you decide is true after considering all the facts and arguments
the inescapable conclusion that... - the conclusion that we must make is...
credit crunch - when businesses and households can't get loans anymore, banks suddenly stop lending and bond market liquidity disappear after investors and holders of capital seek to avoid risk (See glossary)
unanimously backed - everyone in a group supported and backed it
yield - profit or income from an investment
actual - what happened
potential - what could happen, in the best of all worlds
gap between actual and potential yield -
post-harvest technologies (PHT) - technologies to maintain the quality of agricultural products after they are harvested, reduce loss, and maintain food safety, technologies include packing, cooling, and storage (See UC Davis and resource site)
policy - a set of plans and ideas used as the basis for making decisions (in business and government)
suitable - fit the situation, appropriate
reforms - improvements
suitable policy reforms - improvements in policy that fit the situation
