The cobweb rice fields in Flores, Indonesia. The United Nations Food and Agriculture Organization’s food price index shows international rice prices are rising for the fifth straight month, reaching a 12-month high, according to the latest May data released last week.
Food prices have risen in recent months. And rice, a staple food in much of Asia, could be next, industry watchers said.
The prices of many foods, ranging from wheat and other grains to meats and oils, have skyrocketed. That has been caused by a host of factors, including rising fertilizer and energy costs over the past year, as well as the war between Russia and Ukraine.
Food export bans or serious disruptions included those from India (wheat), Ukraine (including wheat, oats and sugar) and Indonesia (palm oil).
Rice could be next in line. The United Nations Food and Agriculture Organization’s food price index already shows international rice prices rising for the fifth consecutive month to a 12-month high, according to the latest May data released last week.
Sure, rice production is still plentiful, experts said. But rising wheat prices, and generally higher agricultural costs, should make rice prices worth checking next time.
“We need to keep an eye on rice prices going forward, as rising wheat prices could lead to some rice substitution, increasing demand and lowering existing stocks,” said Sonal Varma, chief economist at Japanese bank Nomura.
Risk of protectionism
Protectionist measures “are exacerbating price pressures at the global level for several reasons,” she told CNBC’s “Street Signs Asia.” Farming feed and fertilizer costs are already rising, and energy prices are increasing freight costs, she added.
“So there is a risk that we will see more protectionism from countries,” Varma said.
Nevertheless, she maintained that risks to rice are still low, as global rice stocks are high and harvests in India are expected to be good this summer.
“Right now I will be much more concerned about India lifting an export ban on rice in the coming weeks — as they thought after wheat and sugar,” David Laborde, senior research fellow at the International Food Policy Research Institute, told CNBC .
India and China are the world’s two largest rice producers, accounting for more than half of the global total, according to the World Economic Forum. Vietnam is the fifth largest, while Thailand is in sixth place.
India imposed export bans on wheat in May, citing the need “to manage the country’s overall food security”. It also struck restrictions on sugar for several days after the wheat ban.
Are price increases preferable?
Laborde said a price increase would be far preferable to an export ban.
“We really need to distinguish between a price hike that offsets the higher costs and benefits farmers (and helps them produce), than an export ban” that pushes up prices in global markets but lowers prices in domestic markets, he said. he.
Nafees Meah, regional representative for South Asia at the International Rice Research Institute, added that energy costs, which have risen worldwide, make up a large part of rice production costs.
“So there’s an argument to say…if the market is signaling a price increase, why shouldn’t farmers take advantage of higher prices?” Nafees told CNBC’s “Squawk Box Asia.”
But a rise in rice prices would have a major impact on many in Asia, which is the largest consumer of the staple food.
“So in the Southeast Asian region, countries like East Timor, Laos, Cambodia and of course places like Indonesia, that [has a] very large population, many of whom are food insecure, will be hit quite hard if prices continue to rise and remain at these very high levels,” Nafees said.
Way above pre-pandemic levels
The UN food price index showed that prices are now 75% above pre-pandemic levels, said Frederique Carrier, director and head of investment strategy for RBC Wealth Management.
“Pandemic-related labor shortages and the Russian invasion of Ukraine have exacerbated the situation by both limiting food supplies and driving up energy prices even further,” she wrote in a June report.
About a third of the cost of food production is energy-related, Carrier said. Manure in particular is very energy-intensive to produce and prices have risen enormously since last year.