Behind the Rice 'Shortage'

Business Week's Pallavi Gogoi explains the recent media firestorm over the price of rice. Rice, a staple food source throughout Third World nations, has had dramatic price increases over the last couple of months - yet there is plenty of rice being produced. Reason? Due to larger inflationary concerns, rice exporting nations are withholding their crops from the global market due to domestic concerns.

"The rice rationing in the U.S. comes as the torrid pace of commodity price increases has led to violence over food supplies and costs in several nations. Globally, rice prices are starting to hit record highs, following a host of other commodities. However, experts are clear: There's currently no shortage of rice. "Vietnam and Thailand have had record rice crops in the past year, and India too has had bumper crops," says Nathan Childs, a senior economist who follows the global rice market at the Economic Research Service of the U.S. Agriculture Dept.

Instead, what's driving the price of rice so high are widespread worries about food inflation in many rice-growing nations. "In poorer nations, a large share of people's earnings is spent on food, and big price increases in other kinds of food are harming consumers," Childs says. So to protect their supplies of rice—a staple food in much of the world—several countries have imposed export bans or sharp limits. That has led to a sharp reduction of rice available for trade in the global market. In 2007, India and Vietnam, two of the world's biggest rice exporters, reduced their rice shipments. Since then, Cambodia, Egypt, and Brazil have all halted rice exports. And many observers worry that Thailand, the world's largest rice exporter, might jump on the bandwagon."

Rice prices in the US have effectively doubled, and many retailers such as Costco and Sam's Club are imposing limits on the amount people can purchase. Additionally, many restaurants appear to be stockpiling supplies as well. things may get worse; the Phillipine government tried to purchase a half million tons recently on the world market but was only able to acquire 320,000 tons. The Phillipines is a large rice importer, and has announced it will be looking to purchase another 100,000-600,000 tons in the near future. Whether or not the government there can find such a number could signal even further concerns over supplies.