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China's Rice Bowl
A cheap supply of the Asian staple is no longer guaranteed, and that's bad news, says a Friedman School professor
By Jim Tillotson
There is a Chinese proverb that goes, "without rice, even the cleverest housewife cannot cook." Rice is synonymous with China-rice cultivation goes back at least three to four thousand years. It is part of China's culture, history and heritage, much like potatoes are to Ireland. The word for rice in Chinese is the same as the word for food. And so, when faced with the prospect of a rice shortage, things are bound to turn unpleasant. Unfortunately, that is a very real possibility.
Current record rice prices are not due to any sudden one-off catastrophic agricultural failure, but the result of a number of factors. Photo: Yue Tong Law/iStock
China and other high rice-consuming Asian nations are facing unprecedented high prices for this necessary staple. On world markets, rice recently hit $850 per metric ton in some markets, up from $360 a ton at the end of 2007. Projections are that it could reach $1,000 per ton this year before new harvests. Citizens of these countries, particularly low-income urban residents, are now suffering punishingly high daily rice costs, angrily demanding relief from their governments.
Current record rice prices are not due to any sudden one-off catastrophic agricultural failure, but the result of a number of factors that have thrown the world's supply-demand equilibrium off of its yesteryear affordable prices and ample supplies.
We in America have largely escaped the trauma of high rice prices. The United States grows ample rice for its own domestic needs. Unlike Asian countries, rice is not a major, fixed part of our diet, and therefore other grains are more easily substituted. Nevertheless, worldwide limited supplies of wheat, due to multi-year drought conditions in large exporting nations (Australia), and new use demands for maize, due to increasing use in biofuel (ethanol), have resulted in record food prices for Americans.
The importance of skyrocketing rice prices lies in the geopolitical influences they may have on U.S. trade with China and other Asian countries, says Jim Tillotson.
For Americans, the importance of skyrocketing rice prices rests not in daily food costs but in the geopolitical impact they may have on our trade with China and other Asian countries.
In recent years, China's economic growth has increased domestic rice consumption. Other countries in Asia have also experienced economic growth, along with similar increases in domestic rice consumption. However, according to the World Bank, global paddy production has remained at a stubbornly static 300 million metric tons annually over the past few years. Increasing global demand against static world production has resulted in consistently higher global rice prices and a steady reduction in world rice stockpiles, which are at their lowest since 1983-84.
High commodity prices invariably bring increased agricultural production. Rice growers are now reacting to record prices. The U.N. Food and Agriculture Organization predicts this year's harvest will rise 1.8 percent or some 12 million tons.
Currently, other major rice-exporting countries, India, Vietnam, Thailand and Egypt-in the interest of economically feeding their own citizens, as well as hoping for even higher international prices for their rice-have restricted their exports, limiting China's ability to increase its domestic supplies through rice imports.
Further complicating the issue of Chinese rice supplies are domestic agricultural conditions. In recent decades, the Chinese government, according to the International Rice Research Institute, has favored the country's industrial growth and underinvested in its agricultural sector, resulting in static or declining domestic rice productivity.
In addition, years of neglect by the government in agriculture and agricultural research have taken a toll on domestic rice productivity. Many Chinese farmers have suffered from a chronic lack of improved seeds, agricultural chemicals, government-sponsored agricultural technology instruction and improved irrigation methods, as well as a lack of governmental economic incentives for farmers to increase rice production.
Historically, Asian governmental economic policies have further affected rice productivity. These policies have favored low consumer rice prices over the economic welfare of the agricultural sector. In addition, the loss of prime agricultural land to urban and industrial development and the country's chronic shortage of water, which is vital for rice, have also hindered increased production.
While current domestic rice prices are prohibitive for its citizens, longer term, there is domestic hope through new governmental agricultural policies. Increased governmental interest in and support for agriculture (now becoming evident), according to the International Research Institute, have great potential to markedly increase domestic rice productivity, resulting hopefully in future moderation in rice prices.
Jim Tillotson is a professor of food policy and international business at the Friedman School of Nutrition Science and Policy.
This article first appeared on CNBC.com, © CNBC, 2008. Reprinted with permission.
