What Spurred the Run on Rice
Tuesday, May 20, 2008, 10:10 PM
At the Costco (
COST) in San Francisco, rice is all the rage. Not long after the 10 a.m. opening on Apr. 24, the warehouse club was well on its way to selling out the day's supply of Thai jasmine rice. Real estate broker Mary Jane Galviso managed to snap up two 50-pound bags—the limit imposed by this particular store. "This is very frightening," says Galviso, a Filipino-American who made the more than 200-mile trip from her hometown of Orosi, in California's Central Valley, where her local grocery was out of Thai rice.
Rice, a lowly staple, has suddenly turned into a hot commodity. Some Costco and Wal-Mart
(WMT)-owned Sam's Club
stores have begun limiting purchases of premium varieties, such as Thai jasmine and Indian basmati,
in response to panic buying from individual shoppers and restaurant owners.
The rationing is but one manifestation of the global food crisis.
Around the world, prices for rice are starting to hit record highs: Thai rice, the benchmark, is hovering at around $1,150 per metric ton, compared with about $320 at the end of last year. That's puzzling since worldwide rice production was up in 2007, with Vietnam, Thailand, and India all logging bumper crops.
What has actually sent rice prices spiking in recent months are artificial shortages. Countries such as India and Vietnam, the world's No. 2 and No. 3 rice exporters, have
imposed limits or outright bans on rice shipments in order to shield their populations from the effects of soaring food costs. That in turn is hurting net importers of the grain, such as Iran and the Philippines. On Apr. 15, the Philippine government tried to buy 500,000 tons of rice in the global market but managed to get only 320,000 tons. The news sent shock waves through the wholesale markets.
With rice prices climbing ever higher, there's
plenty of incentive for everyone from traders to millers to store owners to stockpile the stuff. "You've seen a lot of
speculators coming into the market and making things even worse," says Chookiat Ophaswongse, president of the Thai Rice Exporters Assn.
At the Chicago Board of Trade, the traditionally sleepy market in rice futures has been jolted awake. Says Tim Hannagan, senior grain analyst at Alaron Trading in Chicago: "I've never seen a rice [futures] market until this year in my three decades of trading grains."
With Tom Giles in San Francisco and Frederik Balfour in Hong KongGogoi is a contributing writer for BusinessWeek.com.EVALUATION:Rice prices for premium and basic brands have gone up by up to 14% in recent weeks, caused by a surge in global demand for grain, poor harvests and increasing cost of production.
However, the author claims that the main reason behind the price hikes in rice are artificial shortages. I feel this is true to a certain extent as factors such as speculation on the market has led to consumers rushing to buy rice in anticipation of further increases (panic buying). It brings a new perspective to this issue, that maybe people are making a mad scramble for nothing.
Indeed, this is what someone posted on the forum at BusinessWeek.com:
Dave May 2, 2008 1:08 PM GMT
There is no shortage of anything, just manipulation of supply to demand more of a price increase from everyone else.
Jared Lorz May 5, 2008 6:21 PM GMT
There is no food crisis, there is no impending doom. This is just the latest Y2k Rapture load of crap the media is selling to manipulate the stock market.
Personally, I feel that the speculation has a large part to play in driving up prices. With increased quantity demanded, the price in rice will then be expected to increase. However, this speculation is not without basis, as there have been reports about how droughts have affected agricultural output, and hence led to a decrease in supply.
This is something we can all ponder over.
Sherry
