Singapore, April 2 - The price of rice, a key staple in Asian households, has risen nearly 50% since the start of the year, but the crisis could deepen with prices rising further in the second quarter as key producers put export curbs in place even as importers scramble to secure near-term supply.
The shortage and high price of rice may force governments in countries such as China, India, Bangladesh, Indonesia and the Philippines to take even tougher policy measures to contain rising food price-led inflation.
"In this quarter, I expect prices to go higher. How much it will rise will depend on how much exports India and Vietnam are able to undertake," said Chookiat Ophaswongse, president of The Rice Exporters Association of Thailand.
Thailand is the biggest rice exporter in the world and is currently the only significant one left in the market after most others have banned or scaled down exports.
India may not export much rice this quarter as the government earlier this week banned white rice exports, although it continues to allow limited exports of the very highly priced aromatic basmati rice.
"I don't expect the Indian government to (lift) the ban anytime before sowing (of rice) begins, around June," said Anil Mittal, chairman and managing director of KRBL Ltd, a New Delhi-based rice exporter.
Cambodia has banned exports for two months to stabilize prices in the domestic market while Egypt has suspended exports for six months, until October.
China too is not expected to have much to export this year, as the country struggles to keep domestic prices in check.
Vietnam, another key exporter of the grain, has said it wants to cap exports at 4 million tons this year, down from an earlier target of 4.5 million.
That would a further decline after exports fell 3.1% on year to 4.5 million tons in 2007. In a statement over the weekend, Prime Minister Nguyen Tan Dung, said Vietnam is also considering a tax on exports.
Although Thailand has so far not restricted sales, traders said the country is unlikely to export more than 8.75 million tons of rice this year, down 8.57% on year, as high domestic prices may force the government to step in to limit exports.
Thai rice exports could fall 30% to around 700,000 metric tons a month starting April, from more than 1 million tons each during the past six months, Chookiat said.
Consumers Find It Tough Securing Supply
Global rice production is expected to lag demand by around 2 million tons in the 2007-08 marketing year ending September 30, according to the U.N.'s Food & Agricultural Organization.
This is happening at a time when global stock levels have been steadily declining in recent years. According FAO, rice stocks fell to 103.6 million tons in 2006-07 from 104.6 in the previous year and could fall by another 1.2 million tons to 102.4 million in 2007-08.
While production is expected to increase 0.5% in 2007-08 to 430.4 million tons, demand will likely rise by 1.1% to 432.4 million tons, largely on account of increasing populations.
The Philippines, for example, is looking to import around 2.7 million tons this year to bridge the domestic supply gap and build stocks as escalating prices are fueling political and public anger against the government.
In mid March, the Philippines bought 335,500 tons of mostly 25% broken rice, mainly from Vietnam, at an average price of $700/ton, cost and freight basis, about 50% higher from contracts signed in late January.
Malaysia and Bangladesh are also looking to source more rice from an already tight market.
For Bangladesh, the ban on Indian rice exports couldn't have come at a worst time. While the country may still manage to import some rice from India soon, future imports are looking increasingly uncertain.
Bangladesh's crop was devastated by a cyclone last year and the country has struck a government-to-government deal with India to buy up to 400,000 tons of rice at $430/ton, a special concession offered by India.
According to industry estimates, Bangladesh may need to import 3 million tons food grains including rice this year.
Malaysia imports 70% of the rice it consumes, and is not known to have made any advance purchases.
"We know the market is tighter now. We have to source rice from around the region," Deputy Prime Minister Najib Tun Razak said earlier this week.
Higher Prices May Stay For Several Years
While the recent increase in prices has been steep and sudden, the market may be entering a prolonged period of high prices, said Adam Barclay, an analyst with the International Rice Research Institute in Manila.
"We are consuming more than we are producing and so stocks are falling every year. Weather problems like droughts and floods, urbanization and rising consumption in India and China are contributing to the problem," he said.
As more countries impose curbs on rice exports, sourcing rice will become increasingly difficult for the Philippines, Indonesia, Bangladesh and Malaysia, where rice production has steadily fallen behind rising demand, analysts said.
According to Chookiat, anticipated demand from major buyers such as Iran and Indonesia which are yet to buy what they need this year, could further boost export prices in Thailand.
"They haven't made any move to buy rice, may be because they fear (the current) high prices. But they also need to import and once they come in, prices could (rise further)," he said.
Iran and Indonesia together import around 2.5 million tons of rice annually, he said.
The Philippines, Asia's largest importer of rice, will hold another tender April 17 to buy up to 500,000 tons of 25% broken rice from Vietnam and traders are speculating price offers could hover around the $1,000/ton mark.
"If indeed Vietnam offers to sell (rice to the Philippines) at $1,000/ton, where would that place Thai prices, which are normally higher than Vietnam prices?" Chookiat asked.