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.

Larry on the Economy

via NRO, Larry Kudlow excplains just how well the economy is doing. He also explained this from a broader perspective last week at his place.

In short, we've experienced some of the best economic times in the history of the planet. We're six years into a fantastic boom here in the US. The current expansion is in its 74th month, but the post WW2 average expansion lasted only 57 months. We're basically still at full employment, with unemployment an insignificant 4.7%, with 94,000 jobs added last month, and the household survey showing an even more impressive 696,000 jobs. Wages are up 3.8%, and total compensation is up 3.3%. And as Larry said, wait, there's more.

"U.S. productivity surged 6.3 percent in the third quarter, its best pace in four years. A big rise in output per person is good for profits, growth, and low inflation. Business inflation has come down from 3.5 percent a year ago to 1.5 percent today. U.S. household net worth just scored a new record high of $58.6 trillion, with financial asset gains outpacing the drop in real estate values.

According to Prof. Perry, household wealth has increased 43 percent in just the past five years, despite $100 oil, $3 gas, and the sub-prime infection. The stock market, which is probably the best leading indicator of the future economy, appears just as resilient. Despite these same challenges, it is overcoming a brief correction and looks set to rise by roughly 10 percent this year."

He also points out that due to the recent Fed actions to cut interest rates, mortgage refinancings surged 70% last month, and Treasury Secretary Paulson has put together a plan to move cash strapped homeowners into FHA financed refis to mitigate the subprime market meltdown. Larry believes another half point Fed rate cut would also really help give the overall economy another shot in the arm and also ease any pressure on those with adjustable rate loans as well.

His earlier post on his was a broader historical perspective, calling the last 25 years a period of where "Prosperity has become the rule, not the exception". He notes three reasons for this: the rise of global capitalism to nations formerly running a socialist state planning economic model such as China, India and the nations of the fromer Soviet bloc; the spread of the lower tax rate model espoused by prominent economists such as Milton Friedman; and the focus of central bankers worldwide in fighting inflation, which is not a trade-off for full employment, as thought thirty years ago - the present situation certainly proves that point.