Rice prices to surge in 2009 — IRRI

Rice prices are likely to rise sharply for the second straight year in 2009 as the global economic slowdown hits farmers and consumers alike, the International Rice Research Institute warned Friday.

The worldwide credit crunch would make it hard for farmers to secure cash to purchase essentials, such as seeds and fertilizer, the Philippines-based body said in the latest edition of its quarterly journal Rice Today.

At the same time, it added, the economic downturn may increase demand for rice in developing nations as falling income forces poor people to switch back to less expensive staples.

The price of rice—a staple food for half the world including nearly 700 million poor Asians—spiked to $1,080 a ton last April, triggering fears of social unrest.

It slid to about $575 six months later because of record production and the early effects of the economic slowdown.

But the current rice export prices remain around double those of mid-2007.

Credit crunch complications

But the institute warned that “production uncertainty due to tight credit and declining rice prices combined with strong demand growth points to another rise in rice prices in the coming months.

“Price volatility will remain high.”

Even if they had the cash, farmers burned by the sudden plunge in commodity prices “will likely play safe and reduce input for their 2009 crops.”

The institute pointed to a decision by the Philippines government to lower its 2009 rice output estimate by almost 4 percent, and said a similar move from other rice producers “is likely in the near term.”

While global rice output reached record levels for each of the last four years, this was achieved through increased acreage and obscured the key issue of declining growth in rice yields owing to reduced agricultural investments since the early 1990s, the IRRI said.

As the world consumed more rice than it could produce in five of the last seven years, it forced governments to dip into their reserves to make up the shortfall.

Historic low levels of rice stocks contribute to the volatility, it added.

While rice prices have dropped from their 2008 peaks, the IRRI said, “they are still high relative to 2007 levels, and are likely to remain too high for millions of poor.

“If the yield growth rate does not improve, we can expect rice prices to continue to rise, and at a faster pace than that seen since prices started moving up in 2000.”

The world produced a record rice crop with most of the increase coming from area expansion rather than yield growth, said the expert, adding that the rice yield growth has been slowing down since the early 1990s.

Boost yields

There is no other way out than improving the yield growth to solve the world rice shortage, caused by “fundamental imbalances in supply and demand,” Samarendu Mohanty, an expert of IRRI, said also on Friday.

In five of the past seven years, rice consumption has exceeded production, resulting in frequent dipping into the world’s buffer stocks to cover the shortfall, he added.

The key solution lies in “revitalizing rice yield growth through higher investment in research and infrastructure development,” said the expert.

Mohanty’s opinion was echoed by his colleagues in the research institute.

“The task ahead is challenging but not insurmountable and requires a substantial boost for agricultural research, which remains highly underinvested,” according to another journal article, jointly written by Sushil Pandey, Mark Rosegrant, Timothy Sulser and Humnath Bhandari.

“Increased investments together with policy reforms that make rice markets more efficient will provide the ultimate solution to the rice crisis,” it said.

Amid the crisis

The recent crisis turned the world’s attention back to agriculture, but the credit crunch is likely to further tighten funding for infrastructure improvements and research and development activities, he said.

Mohanty noted that many farmers who in late 2008 harvested a lower-priced crop produced with high-priced seeds and fertilizer.

“Burned once, these farmers will likely play safe and reduce input use for their 2009 crops,” Mohanty said.

The credit crunch will also make it difficult for farmers around the world to secure credit for purchasing inputs.

The Philippines, for instance, has lowered its 2009 rice production estimated by almost 4 percent, because of lower input use as farmers struggle to secure credit to buy seeds and fertilizer.

Production uncertainty because of tight credit and declining rice prices combined with strong demand growth points to another rise in rice prices in the coming months, warned the expert.

Making matters worse, the economic slowdown may increase the demand for rice in developing countries as falling income forces poor people to switch back to less expensive staples.

Consumption projections may, therefore, rise above earlier estimates of around 90 million tons per year of additional unmilled rice by 2020, according to the International Rice Research Institute.–AFP and Xinhua