Ali’s blog

Mostly quant stuff with occasional digressions

The price of rice has doubled in the last 3 months

Posted by alifinmath on April 4, 2008

In the FT:

Rice prices rose more than 10 per cent on Friday to a fresh all-time high as African countries joined the rush of south-east Asian importers to secure supplies from the handful of exporters that continue to sell the grain in the international market.

The rise in prices – a 50 per cent jump in two weeks and more than double since January – threats to trigger social unrest in emerging countries, where the grain is a staple for more than 2.5bn people, analysts have warned. 

Diligent readers of my blog know I always try to connect the dots (rightly or wrongly). But here I confess I’m at a loss. What does this mean? I know the same has been happening to wheat prices. My wife told me yesterday that a small bag of stoneground wheat flour — hitherto costing about $2 — now costs $6.50. In a prior post, I’ve provided a link that gives plausible reasons for the surge in prices. But what are the implications of this? Does the price system — at least for these staples — break down at some stage as these foodstuffs are perceived as being so central to national survival that they can’t be entrusted to the vagaries of the “free market?” Do we enter a system of bilateral barter agreements? Are these the first intimations of the breakdown of the global financial system (an article of faith with me)?

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3 Responses to “The price of rice has doubled in the last 3 months”

  1. alifinmath said

    More on rice prices:

    http://news.xinhuanet.com/english/2008-04/24/content_8038093.htm

    QUOTE As consumers concerned about rising rice prices, the shelves at big-box warehouse stores like Sam’s Club and Costco have been cleaned out and the wholesale retailers are adopting policies to limit rice purchases by customers.

    Sam’s Club announced Wednesday that customers will no longer be allowed to purchase more than four bags of jasmine, basmati and long-grain white rice per visit, the Los Angeles Times reported.

    The price of many foods, including beer, bread, coffee, pizza and rice have risen rapidly recently in the United States as the country contends with its worst bout of food inflation since the 1990s.

    With the exception of rising prices, the United States has so far escaped the problems seen in other countries, where food supply shortages have prompted protests, but the limits on bulk rice purchases by a major retailer such as Sam’s Club are the first sign of any spillover in the country, the Los Angeles Times said.UNQUOTE

  2. alifinmath said

    A Council on Foreign Relations study of one principal reason food (including rice) is becoming so pricy:

    http://www.foreignaffairs.org/20070501faessay86305/c-ford-runge-benjamin-senauer/how-biofuels-could-starve-the-poor.html

    QUOTE How Biofuels Could Starve the Poor

    The enormous volume of corn required by the ethanol industry is sending shock waves through the food system. (The United States accounts for some 40 percent of the world’s total corn production and over half of all corn exports.) In March 2007, corn futures rose to over $4.38 a bushel, the highest level in ten years. Wheat and rice prices have also surged to decade highs, because even as those grains are increasingly being used as substitutes for corn, farmers are planting more acres with corn and fewer acres with other crops.

    This might sound like nirvana to corn producers, but it is hardly that for consumers, especially in poor developing countries, who will be hit with a double shock if both food prices and oil prices stay high. The World Bank has estimated that in 2001, 2.7 billion people in the world were living on the equivalent of less than $2 a day; to them, even marginal increases in the cost of staple grains could be devastating. Filling the 25-gallon tank of an SUV with pure ethanol requires over 450 pounds of corn — which contains enough calories to feed one person for a year. By putting pressure on global supplies of edible crops, the surge in ethanol production will translate into higher prices for both processed and staple foods around the world. Biofuels have tied oil and food prices together in ways that could profoundly upset the relationships between food producers, consumers, and nations in the years ahead, with potentially devastating implications for both global poverty and food security.UNQUOTE

  3. alifinmath said

    People have been stockpiling rice (mostly Asians, I guess, since they must be the biggest rice consumers), but this makes economic sense. The Wall Street Journal is offering this stockpiling advice:

    http://www.rense.com/general81/pantry.htm

    QUOTE Reality: Food prices are already rising here much faster than the returns you are likely to get from keeping your money in a bank or money-market fund. And there are very good reasons to believe prices on the shelves are about to start rising a lot faster.

    Stocking up on food may not replace your long-term investments, but it may make a sensible home for some of your shorter-term cash. Do the math. If you keep your standby cash in a money-market fund you’ll be lucky to get a 2.5% interest rate. Even the best one-year certificate of deposit you can find is only going to pay you about 4.1%, according to Bankrate.com. And those yields are before tax.

    Meanwhile the most recent government data shows food inflation for the average American household is now running at 4.5% a year.

    And some prices are rising even more quickly. The latest data show cereal prices rising by more than 8% a year. Both flour and rice are up more than 13%. Milk, cheese, bananas and even peanut butter: They’re all up by more than 10%. Eggs have rocketed up 30% in a year. Ground beef prices are up 4.8% and chicken by 5.4%.UNQUOTE

    Sobering advice.

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