Sunday, April 06, 2008

Rice Prices Skyrocket

Sources: MSNBC, International Herald Tribune

Rice prices have skyrocketed in the last year to the tune of 68 percent. Several factors have contributed to this. Fertilizer, pesticide and fuel prices have been very high. Storms, abnormal weather, disease, and floods have cut production. Net exporters such as Vietnam and Egypt have halted exports. All of this has cut the supply on the market, and without a matching decrease in demand, prices have soared.

This would seem to not pose much of a problem for rice farmers, but rice farmers are not seeing additional profits. According to one Vietnamese farmer, fertilizer, insecticide, and labor costs have doubled. Furthermore, a large proportion of rice farmers are actually net rice purchasers because they consume more than they produce. More importantly, many rice farmers have no means of storing their rice, and must sell right at the harvest—when prices are the lowest because supply is plentiful. So during the non-harvest season, individuals must purchase the rice at the higher costs.

The high rice prices have caused some unrest in various Asian countries that depend heavily on rice as their food staple. Protests have already begun in the Philippines. A Philipino worker has stated that his “family will go hungry” if prices rise any further. Moreover, the Phillipines is facing what has been called a “perfect storm:” rising rice prices coupled with a US economic downturn that reduces remittances. Nevertheless, for many poor Asian countries, there is some good news on the horizon. Prices are expected to stabilize once states like Uruguay, India, Indonesia, Vietnam, and Brazil harvest their rice and increases supply on the market. Domestic measures such as a crackdown on price-gouging, price manipulation, and hoarding have been instituted to keep rice prices somewhat reasonable.

Question: Many of these rice price problems have been caused as a result of poor infrastructure. If an adequate infrastructure, such as irrigation and genetic engineering of rice plants, can be established--production will increase. An increased supply will result in a drop in prices. How will smaller rice farmers be affected by this?

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