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Thailand's New Rice Policy Could Lead To International Food Price Crisis, Analysts Warn

Food Crisis

Posted: 09/20/11 01:39 PM ET

A program sponsored by the United States Agency for International Development (USAID) is warning of a possible spike in international rice prices, a development that the program's analysts say could have grave implications for countries where access to food is already limited. The analysts are reluctant to make specific predictions about how high the price could rise, but they say they worry that the increase could be significant.

In Somalia, where the cost of food is already high, the effects of even a modest increase could considerably worsen the severe famine that has been ravaging the country for months. Analysts listed Somalia, Djibouti, Haiti and countries in West Africa and, to a lesser extent, Central America as places that stand to be seriously affected by such an increase. To varying degrees, all of these countries depend on imports of rice to make up for limited local harvests of grain.

The report was issued by the Famine Early Warning Systems Network, or FEWS NET, a USAID-funded program that gathers information about food prices, the climate and other factors in food supply and analyzes the potential impact on what famine researchers refer to as "food-insecure" regions. Analysts for the program first became concerned about the possibility of a food crisis last summer, when the prices of maize and wheat started to go up.

In July, the international price of rice began to rise as well, intensifying their concerns. They traced the origins of the increase to Thailand, where the government recently announced a plan to buy rice from the country's farmers at above-market prices -- a scheme that at least one government member described as a strategy aimed at winning votes. The government enacted the policy earlier this month and says it will begin the buying stage in October.

Thailand occupies a key position in the complex web of dependencies that make up the global food economy. It supplies 30 percent of the world's rice exports, more than any other country. The dependence on Thai rice is particularly heavy in West Africa, where most countries consume more rice than they produce.

The rest of Africa would likely be less vulnerable to the effects of a spike, with the exceptions of Djibouti and Somalia. Somalia imports most of its rice from Pakistan, yet a price spike stemming from Thailand could lead to similar price increases in exports from other countries. And though the poor in Somalia consume more wheat and sorghum than rice, a bump in rice prices could prompt traders of those grains to raise their prices, too.

John Scicchitano, the program manager for FEWS NET, noted that the increasing interdependence of the world's economies has led to a sharpened awareness among famine experts that a policy intended to help the poor in one country could hurt the poor in another. "We understand increasingly that with globalization and the international food trade, global food prices impact the poor in important ways," he said.

The possibility of a steep increase of special concern given the food-price crisis of 2008, which led to rioting in countries throughout the developing world, from Haiti to Yemen to India. For food security experts, that moment marked a turning point in how to assess the risks that arise from international commodity markets.

"Before, international prices had been quite stable for a number of years and what was more important was local fluctuations in prices," said Scicchitano. "The more local markets were integrated with international markets, the more there'd be a stabilizing effect on prices. Now it's the opposite effect. In this case, for rice, the more local markets rely on international markets, the more volatile they are."

Fabien Tondel, a markets and trade adviser for FEWS NET, said the relative stability of rice prices over the past few years has allowed people in poor countries to shoulder increases in other commodity prices, helping prevent a repeat of the 2008 crisis. The price of the standard variety of maize exported from the Gulf region of the United States was 89 percent higher in August than a year ago, and the price of wheat exports from that region increased by 45 percent over the same period.

The outlook for rice is still "relatively good," Tondel said. According to the International Grains Council, global production of the grain has been high, and over the next year there should be enough rice to satisfy the demands of importing countries.

Yet political events like the government program in Thailand could disrupt the normal functioning of the markets in those countries, causing demand to outstrip supply. "If merchants anticipate the supply to go down or prices to go up, they will likely hold onto their stocks to sell later at higher prices," Tondel explained.

Tondel was careful to avoid sounding alarmist. Even if the price of rice does go up dramatically, the results wouldn't necessarily be dire, he said. Other rice-producing countries could compensate for the shortfall in Thai exports, and the increased competition could persuade the Thai government to rescind its policy.

Still, when it comes to warning the world of the potential for a crisis, food-security experts aren't about to take any chances. "We saw what happened in 2008," said Tondel. "We want to make sure that it doesn't happen again."

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