The true price of rice

 Sushil Pandey   |  

Of the world’s 1.1 billion poor people, almost 700 million people with income of less than a dollar a day reside in rice-growing countries of Asia. Rice is a staple food in Asia and accounts for more than 40% of the calorie consumption of most Asians. Poor people spend a large proportion of their income for buying rice. The level of rice production and prices is thus an important factor in determining the progress that can be made in reducing poverty in Asia. Keeping the price of rice low and affordable to the poor is crucial to poverty reduction. Given this, the current sustained upward trend in rice price is a major cause for concern.

The Green Revolution in Asia led to a rapid rise in rice yield and production. This contributed to poverty reduction directly through increased income of rice farmers and indirectly through a lower price of rice, which benefited poor consumers in both rural and urban areas (Fig.1). This long-term decline in rice price, however, seems to have come to an end in 2001, with the rice price taking a sustained upward turn over the past six years. The rice price continued to increase during 2007 and this upward trend seems unlikely to reverse anytime soon. Although a part of the increase in price can be explained by the continued depreciation of the U.S. dollar, there are other fundamental underlying causes of this rise in price.

A rise in the price of rice basically indicates that we have been consuming more than what we have been producing. This imbalance between demand and production is partly corrected by reducing the stock. In fact, rice stocks are being rapidly depleted, with the current stock being the lowest since 1988 . This depletion in stock has moderated the rise in price that would have occurred otherwise. A current low level of stock, however, compromises the ability to have such a moderating influence in the future and increases the risk of a sharp rise in price.

There is a saying in economics that “the solution to a high price is a high price.” High prices provide incentives to producers to increase production, which will ultimately contribute to a price reduction. This traditional solution, however, is morally and economically unacceptable in the case of rice because any rise in price will affect the poor disproportionately and will lead to an increase in hunger and poverty. Indonesia provides a case in point: the number of poor people increased by several million as a result of a steep rise in the price of rice that occurred in the wake of the Asian financial crisis of 1997. There is no doubt that the economic and political turmoil Indonesia went through was compounded by the dramatic jump in rice price.



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