The 2008 rice crisis seems to be a distant memory now, with rice prices slipping back to the precrisis level. In the last few months, global rice prices have fallen by more than 30%. Potential buyers have opted to stay on the sidelines, as they expect prices to drop even lower. Despite the free-falling global prices, however, rice in major domestic markets remains expensive. Hence, the real question now is, “What will happen to the global market in the next few months as we move into the thick of the wet-season rice crop?” The plain and simple answer is, “Nobody knows.” Certainly, the impending monsoon will play a significant role in directing the trend in rice prices in the near term. Moreover, the drought in many Southeast Asian countries—particularly in Thailand and the Philippines—had some impact on the recently harvested dry-season rice crop, but it was not intense enough to cause any considerable change in the global rice market.
A technical analysis of the recent price trend suggests that Thai rice (5% broken) has been fluctuating between US$500 and $600 per ton for the last year and a half (November 2008 to April 2010). Technical experts refer to this as “market consolidation” and the range is termed as the “consolidation zone.” Once the market breaks out of the consolidation zone, prices can be expected to move away from this range significantly. If the breakout happens on the downside, prices can drop notably to a low level and vice versa. Fortunately or unfortunately (depending on whom to ask), the price of 5% broken in early June has fallen below the $500 support level and, since then, has dropped by more than $75 (Fig. 1). In the third week of June, the export quotation of 5% broken was $425 per ton. It remains to be seen how far down the price will fall before it stabilizes and moves upward.
The recent introduction of a price guarantee program in Thailand and the overflowing government warehouses in India and Thailand may add downward pressure on rice prices in the short run, barring some unexpected news that could change market perceptions. According to a report published in Hindu Business Online, public rice stocks in India as of 1 May 2010 were nearly 26 million tons, that is, 5 million tons higher than what they were on 1 May 2009. Despite a 10-million-ton shortfall in production in the 2009 kharif (wet) season and the domestic commitment to provide subsidized grains for 65 million families below the poverty line, the government has been able to procure enough to add 5 million tons to its already bulging stock.
In the case of Thailand, high pledging prices in the last 2 years have resulted in a significant rise in government stock holdings. This scheme contributed to the rise in market prices, pricing Thai rice out of the export market. However, under the newly introduced price guarantee program, participating farmers can sell their rice in the market at the prevailing price and get the difference between the guarantee and the market price from the government—definitely a move in the right direction in terms of making Thai rice more competitive in the global market and also in easing the pressure on government warehouses.
The current situation brings back the burning question: Is the 2008 food crisis just a fluke and should the world go back to business as usual and not worry about the future of rice food security? Before answering this question, one needs to look at global rice supply-and-demand prospects in order to assess food security objectively. On the demand side, global per capita rice consumption has been more or less flat, with rising consumption in some countries offset by declining consumption in others. Outside Asia, where rice is not a staple, per capita consumption continues to rise steadily and the trend will likely continue in the foreseeable future. In the last two decades, per capita consumption in sub-Saharan Africa has increased by nearly 50%, from 15 kilograms in 1990 to 22 kilograms in 2010. Outside Asia and sub-Saharan Africa, rice has also gained in importance—as reflected in the changing consumption patterns—despite being a minor food grain. In the last five decades, per capita consumption has more than doubled, from 8.3 kilograms in 1960 to 18.3 kilograms in 2009. The past trend will very likely continue in the future as people continue to move toward a more balanced diet. Total rice consumption is projected to rise by an additional 25% by 2035.
Ultimately, the consumption pattern in Asian countries, which represent 90% of global rice consumption, will ultimately decide the future trend in rice consumption. Asian consumers are likely to move toward more balanced diets by adding more meat, poultry, vegetables, milk, and dairy products into their food basket as they become wealthier. In the last 20 years, unprecedented economic growth in most Asian countries has diversified the food basket. However, the rate of diversification has been slower than what was witnessed in Japan, South Korea, and Taiwan during the last few decades. Per capita rice consumption in China and India declined between 1990 and 2005 (Fig. 2). But, the recent USDA statistics on Indian rice supply and use indicate that the trend in per capita consumption has reversed in the last 5 years, with a 5-kilogram increase between 2004-05 and 2008-09. In the case of Indonesia and Vietnam, per capita rice consumption increased between 1990 and 2000, but decreased between 2000 and 2005. Unlike these countries, per capita consumption continues to rise in the Philippines and Bangladesh. Based on these trends, it is evident that not all Asian countries will follow the Japanese and South Korean food consumption pattern as they become wealthier. Each country will be unique in the way it diversifies its consumption pattern as incomes rise.
Using population projections from the United Nations and income projections from the Food and Agricultural Policy Research Institute, global rice demand is expected to rise from 439 million tons in 2010 to 496 million tons in 2020 and further increase to 553 million tons in 2035.
This shows an overall increase of 26% in the next 25 years. The rate of growth, however, will decline from 13% for the first 10 years to 11% in the next 15 years as population growth slows down and people diversify from rice to other foods. Among various rice-consuming regions, Asian rice consumption is projected to be 67% of the total increase, rising from 388 million tons in 2010 to 465 million tons in 2035 (Fig. 3). In addition, Africa will need 30 million tons more rice, which marks an increase of 130% from 2010 rice consumption. In the Americas, total rice consumption is projected to rise by 24% over the next 25 years.
On the supply front, expansion of rice area in traditional rice-growing regions of Asia is not a feasible option considering population growth and the pressure on rice lands from urbanization, climate change, and competition from other high-value agriculture. Although expanding rice land in a few Asian countries such as Myanmar and Cambodia is still possible, political and economic conditions need to be stable for that to occur. Beyond Asia, some parts of African and Latin American countries can also potentially expand rice production, but the underlying economics have to make sense before farmers start expanding rice production on a large scale. For example, Africa has responded to rising rice prices in recent years by expanding production by 40% in the last 5 years. Both area expansion and yield increase contribute equally to production growth. Rapid production expansion has also put a lid on the growth of imports, which increased rapidly from 2.5 million tons in 1990-91 to 7.1 million tons in 2001-02. Since then, rice imports have fluctuated between 7 and 8 million tons, coinciding with the steady increase in global rice prices that nearly doubled during the last decade.
Thus, global rice yields must rise much faster than what has been witnessed in the recent past to make rice available and affordable to the billions of poor consumers. Globally, farmers need to produce at least 8–10 million tons more paddy rice each year, which requires an annual increase of 1.2–1.5% over the coming decade that is equivalent to an average yield increase of more than 0.6 ton per hectare. Over the longer term, rice yield growth of 1.0–1.2% annually will be needed to feed the world and keep prices affordable even if global rice consumption growth is expected to slow down because of pressure on rice lands in the developing world caused by urbanization, climate change, and competition from other high-value agriculture.