- Rice prices soared to their highest in nearly 12 years after India’s ban on rice exports and bad weather limited supplies of Asia’s staple food.
- Morgan Stanley said in a report that rising global food inventories, especially in Asia, have helped reduce volatility in production and minimize economic impact from a consumer perspective.
- Nomura said the Philippines was the “most vulnerable” country to high food prices in the Asia-Pacific region because of its high share of food in the consumer price basket, at 34.8%.
An undated stock photo of a market stall stacked with different types of Vietnamese rice in a grocery store in Ho Chi Minh City. Vietnam is one of the largest exporters of high-quality rice, Asia’s most important staple food.
Bichoraro | Istock | Getty Images
A perfect storm may be brewing in Asia.
India’s rice export ban and bad weather hit production and supply of Asia’s staple food, pushing rice prices to their highest level in nearly 12 years, according to the United Nations Food Organization.
“Global rice prices are of particular concern,” Qingfeng Chan, senior director at the Asian Development Bank, told CNBC. “What is clear is that food price volatility will continue in the coming months.”
In Asia, excluding India, food inflation has been relatively subdued so far this year.
But a combination of factors has raised fears that rice supply shortages could return to massive increases in other Asian food commodities.
These include extreme weather events caused by global warming, the first El Niño event in seven years, Russia’s withdrawal from the Black Sea Grains Initiative, and protectionist food policies in the form of trade restrictions.
El Niño is a weather phenomenon caused by warming waters in the eastern and central equatorial Pacific, bringing havoc and stormy weather around the world.
At the height of the 2010-2012 food price crisis, the Asian Development Bank estimated that: International food prices rise by 30% In 2011, rice’s share of food prices in developing Asia translated to 10%, reducing gross domestic product growth in some food-importing countries in the region by 0.6 percentage points.
Highlighting how high food prices are eroding purchasing power, ADB estimated at the time that a 10% rise in domestic food prices in developing Asia would push 64.4 million people into poverty based on a poverty line of $1.25 a day. suggested that he would fall. That would have meant that the poverty rate would rise from 27% to 29% in the meantime.
Indeed, most Asian countries will be able to withstand a supply shock on rice alone.
“Prices are definitely soaring, and that’s not only alarming, it’s also leading to stories of people panicking and buying up,” said Erica Tay, an economist for Thailand and China at Maybank. there are,” he said. “However, looking at overall demand and supply figures, Asian countries are very well positioned to weather this price and supply shock in the rice market.”
Countries are recognizing the need to prepare to weather these disruptions, whether they be trade shocks or agricultural supply shocks.
Erica Tay
The Economist, Maybank
He pointed to the fact that several countries in the region are net exporters, including Thailand, Vietnam, Myanmar and Cambodia. China, the world’s largest rice market, imports only 1% of its rice needs, mainly from Vietnam and Myanmar, so the shortfall from India will have “negligible impact,” Tay added. .
Moreover, the recent surge in rice prices comes amid a widespread decline in food prices.Whole food prices, according to the United Nations FAO Food Price IndexIt’s down about 23% from its peak in March last year, according to Tay.
China’s rice supply is under threat after flood alert levels were raised in three provinces that account for almost a quarter of China’s rice production. But Mr. Tay pointed out that the country’s rice stocks are at least eight months’ worth of annual needs.
“This is one of the legacies of COVID-19,” Tay said. “Countries are recognizing that they need to be prepared to weather these disruptions, whether it be a trade shock or an agricultural supply shock. is.”
China is also focusing on food security. President Xi Jinping sees the need for food imports as follows. Sources of National Security Risk.
“But I think we’re looking further ahead and paying attention to El Niño weather patterns,” Tay said. “And when that happens, it could lead to even more widespread disruptions to agricultural supply, as projected for the second half of this year.”
Tay said the main concern was that not only would the supply of rice be hit, but the overall crop yield could be adversely affected. “That could further increase the upside risks to consumer price inflation,” he added.
Rising global food inventories, especially in Asia, have helped reduce volatility in production and minimize economic impact from a consumer perspective, Morgan Stanley said in a memo dated Aug. 3. Stated.
As a result, US-based investment banks expect volatility around El Niño to manifest first through inflation and then through the net trade balance.
This is especially because food accounts for a large share (around 30% to 40%) of the consumer price index basket in most emerging Asian economies.
Most countries in the Asia-Pacific region, with the exception of Australia, India and Thailand, are net importers of food. Singapore and Hong Kong rely on imports for 100% of their rice consumption demand.
Longer term, I think we need to accept that climate-related disruptions will become more and more frequent.
Erica Tay
The Economist, Maybank
Nomura said this left Asia-Pacific economies “extremely exposed” to rising global food prices. However, it could be months before the full impact of that is seen in inflation data.
This delay is likely the result of government measures such as price controls and subsidies adopted to soften the impact of rising food prices in domestic markets. However, this is likely to exacerbate global food price pressures as well.
Nomura economists Sonal Varma and Shi Ying To noted in a note dated Aug. 11 that “lag varies by country, but global food price inflation and Asian CPI food inflation take an average of six months. It was found that there was a delay in These delays could range from three months in Indonesia to nine months in South Korea, he said.
This means that high food prices will not lead to food inflation until late this year or early 2024.
Nomura ranks the Philippines as the “most vulnerable” country to high food prices, as food accounts for a high 34.8% of the consumer price basket, with rice making up 8.9% of the basket. identified.
Paul Hughes, chief agricultural economist and research director at S&P Global, said low-income households, whether developed or developing, would undoubtedly be hit hardest.
“These households tend to spend a greater percentage of their income on food. When prices rise, they have no choice but to cut other spending where possible,” Hughes said in an email. .
Market players are eyeing some food categories.
El Niño is expected to bring dry conditions to much of Asia later this year, which will affect rice crops.Thailand is already one of the world’s Second largest rice exporter — Encouraging farmers to plant less crops to save water.
S&P Global’s Hughes said similar dry conditions would affect production of palm oil in Malaysia and Indonesia, a major source of cooking oil, as well as wheat and barley from Australia.
ADB’s Chan said the “dynamic relationship” between wheat and rice prices also underscores the need to monitor wheat prices closely. He also mentioned corn and fertilizer prices.
“Increase in wheat prices in various countries [like Pakistan and Uzbekistan] It encourages consumers to shift to rice, putting upward pressure on domestic rice prices,” he said.
Prices have surged more than 300% after floods in major tomato-producing states such as Andhra Pradesh, Maharashtra and Karnataka, highlighting the impact of bad weather on vegetable prices, but India We are facing a tomato crisis.
“In the long term, I think we have to accept that climate-related disruptions will become more and more frequent,” Maybank’s Tay said.
“And indeed, scientists are developing more climate-tolerant rice varieties and are trying to encourage farmers to adopt more climate-tolerant farming methods,” she added.
“So I think once adoptions are on track, there should be a return of some predictability to the produce supply and the lives of the farmers.”