Curbs on rice run rivals credit mart seizure

From Cairo to New Delhi to Shanghai, the run on rice is threatening to disrupt worldwide food supplies as much as the scarcity of confidence on Wall Street earlier this year roiled credit markets.

China, Egypt, Vietnam and India, representing more than a third of global rice exports, curbed sales this year, and Indonesia says it may do the same.

Investigators in the Philippines, the world's biggest importer, raided warehouses last month to crack down on hoarding. 
 

STAPLE DIET Top 5 exporters & importers in 2007
Imports		Exports
Indonesia	2,000	Thailand	9,500
Philippines	1,900	India	5,000
Nigeria	1,700	Vietnam	4,522
Bangladesh	1,500	United States	3,044
EU-27	1,150	Pakistan	2,400
Figures in '000 tonnes Source: US Department of Agriculture, Foreign Agriculture

The World Bank in Washington says 33 countries from Mexico to Yemen may face "social unrest'' after food and energy costs increased for six straight years.

Rice, the staple food for half the world, rose 2.4 per cent to a record $20.985 per 100 pounds in Chicago on Thursday, double the price a year ago and a fivefold increase from 2001. It may reach $22 by November, said Dennis DeLaughter, owner of Progressive Farm Marketing in Edna, Texas.

"Rice will gain substantially over the next two years,'' said Roland Jansen, chief executive officer of Pfaffikon, Switzerland-based Mother Earth Investment, which holds 4 per cent of its $100 million funds in the grain.

Governments are likely to maintain curbs on exports "because those countries want to be able to continue to feed their own populations,'' he said.

The upheaval parallels turmoil in global capital markets that seized up nine months ago when subprime mortgages collapsed. The difference between what it costs the US government to borrow and the rate banks charge each other for three month loans ended last week at 1.36 percentage points. A year ago, the gap was 0.33 percentage points.

Export curbs
Rice growing nations are driving up prices for producers that want to sell abroad. The Vietnam Food Association said April 2 it asked members to stop signing export contracts through June, following China, which imposed a 5 percent tax on exports as of January 1. Egypt banned rice shipments through October.

Prices "are not coming back to the levels we came from,'' said Mamadou Ciss, head of the Singapore-based rice broker Hermes Investments. Vietnam's 5 per cent broken-grain rice may be 40 per cent higher within three months, he said.

Record grain prices are stoking inflation. The wholesale costs in India rose 7 per cent in the week ended March 22, the fastest pace in more than three years, underscoring the threat from rising food costs, the Ministry of Commerce and Industry in New Delhi said April 4.

The increase may boost profits for suppliers. Padiberas Nasional rose the most in seven years on Kuala Lumpur stock exchange last week. The company is Malaysia's only licensed rice supplier.

Commodity rally
Goldman Sachs Group forecasts that all agricultural commodities it covers will rise in the next six months, except for sugar. Global cereal demand will expand 2.6 per cent this year, 1.6 percentage points above the 10-year average, according to the Food and Agriculture Organization in Rome.

The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials gained for six consecutive years and advanced 15 per cent this year.

"We have some very serious problems developing globally for food and energy,'' said Greg Smith, executive director of Global Commodities in Adelaide, Australia, which manages $350 million.

World rice stockpiles are at their lowest levels since the 1980s, and the United Nations forecasts that exports will drop 3.5 per cent this year. Demand will increase 0.6 per cent this year to 422.5 million tonnes, while production will rise about 1 per cent to 422.9 million tonnes, the US Department of Agriculture said March 11.

Grains revolution
Rice yields globally expanded more than 40 per cent from 1980 to 2000, according to data compiled by the USDA. They've increased only about 5 per cent since then, the data show. Stockpiles will fall to 75.2 million tonnes, about half of where they were at the start of the decade, the USDA said.

There have been no significant advances in rice-seed technology in at least four decades, said Mehdi Chaouky, a London-based agricultural analyst with Diapason Commodities Management, which oversees $8 billion.

The so-called Green Revolution in the 1960s and 1970s introduced better seeds, technology and irrigation and chemical fertilizers to farming. That improved yields and buoyed food production, according to the FAO.

Some analysts say buyers in Thailand and Vietnam are hoarding grain and may release it in coming weeks, causing prices to drop. Another risk for speculators is that the increase will lead farmers to grow more crops.

Wheat rose to a record $13.495 a bushel in February before dropping as much as 34 per cent in the next five weeks, partly on expectations of additional planting.

Curbing exports
"There are lessons to be learnt from what happened in the wheat market,'' said Darren Cooper, a senior economist with the International Grains Council in London. "The market will adjust and we will see some restrictions on demand.''

For now, governments are limiting exports to ensure they have enough food at home. Vietnam, the third-biggest rice exporter after Thailand and India, will reduce shipments 11 per cent this year to 4 million tonnes, Prime Minister Nguyen Tan Dung said March 30.

"Bread is losing its place as the main staple food and rice is replacing it, and this created the problem,'' Ali Sharaf Eldin, chairman of Egypt's Chamber of Grains, said in an April 1 interview.

Investigators in Manila caught profiteers last month who were repackaging 20,000 fifty-kilogram bags of rice from subsidized government supplies for sale as higher-grade grain, according to Ric Diaz, an official at the National Bureau of Investigation.

Drought is hurting plantings in China, where an estimated 19.4 million hectares (48 million acres) of arable land had been affected by March 26, according to Xinhua, the state news agency. Consumer prices in China, the world's fastest-growing economy, soared 8.7 percent in February, the most in 11 years.