Burma Disaster Drives Rice Prices Higher

Countries throughout Asia are likely to feel the impact of Burma's Cyclone Nargis as lost rice production pushes prices higher. The storm has damaged areas that account for 65 percent of the country's rice output.

rice_305 A worker checks the quality of rice at a factory in Thailand's southern Narathiwat province on April 26, 2008. Thai Prime Minister Samak Sundaravej promised that the kingdom would not cut rice exports.
AFP/Madaree Tohlala

Damage from Cyclone Nargis may spread beyond Burma in the form of higher food costs throughout Asia and the rest of the world, experts say.

World rice prices, which have nearly tripled since the start of the year, could be pushed up further as aid agencies scramble for emergency supplies to replace Burma's lost crops.

Industry analysts have suggested that the loss of Burma's rice exports from the world market is too small to make a major impact on prices, which have already hit record highs.
Before the cyclone, Burma was expected to export only about 600,000 tons this year, the United Nations Food and Agriculture Organization (FAO) said.

But experts told Radio Free Asia that any loss of supplies will add pressure on prices in a world market where only 30 million tons of rice are traded internationally. Supplies are already tight because producing nations including India, China and Cambodia have imposed export restrictions in an effort to keep prices from climbing further at home.

"When Asian countries encounter natural disasters and have to turn to the market ... it can produce a further price shock because the international market is so thin," said Robert Paarlberg, an agriculture expert and political science professor at Wellesley College.

Drop export bans

U.N. and World Bank officials have urged rice producing countries to open their borders and drop export bans to ease the world price spike. The cost of Thai B-grade has soared from about $365 per ton in January to $940 per ton this week.
Some 26 countries have curbed exports so far, according to the World Bank.

Paarlberg said that governments are feeling pressure due to inflation in prices of fuel as well as food. But world rice production is estimated to reach 425 million tons this year. That amount could meet world demand if the markets open up, he said.

It is still unclear how much of Burma's production will be affected. The five hardest-hit Burmese states account for 65 percent of the country's rice output, according to the FAO.

Some crops in the Irrawaddy delta may be damaged by salt water, the agency said.

Nicholas Minot, senior research fellow at the International Food Policy Research Institute in Washington, said the disaster is likely to increase price pressures in other countries even if relief agencies meet Burma's emergency needs.

"This will create a tighter situation in terms of tradeable rice supply on the world market, and it's very likely that there will be a need for food aid and rice imports into Burma," said Minot. "That will put an additional burden on both the budgets of the World Food Program and other food agencies, but also on the rice markets themselves."

Supplies likely to shrink

Minot said available rice supplies are likely to shrink even if governments donate food to Burma.

"There's really no way to isolate the effect from the market," he said. "Even if countries are able to provide rice out of their existing stocks and don't have to purchase it, traders are monitoring stocks, and if they see that the stocks are going down, that has a direct effect on prices."

World rice prices have declined slightly from a high of about $1,000 per ton after the Philippines cancelled an auction on May 5 due to a lack of competitive bids. The government decided to rely on its domestic stocks after a Vietnamese supplier reportedly sought a price of $1,200 per ton.

A Thai farmer harvests rice in a field in Thailand's Narathiwat province on April 26, 2008.
AFP/Madaree Tohlala
Minot said the resistance shows that importers fear they will be unable to sell rice at such high prices, but even in the best case, he sees little chance that prices will return to levels of a year ago. Paarlberg said rice costs are rising beyond the reach of the poor.

Restrictions make the situation worse

"When the price of food goes up as much as it has on top of the price of fuel, their disposable income goes to nothing," Paarlberg said.

While natural disasters and world demand have influenced prices, government export restrictions have been blamed for making the situation worse.

On April 30, Thailand's prime minister, Samak Sundaravej, suggested that his country should join forces with Vietnam, Cambodia, Burma and Laos to form a rice cartel that would coordinate exports, influence prices and help stabilize the market. The plan won support from Cambodia, but it was widely criticized as a scheme to keep prices high.

Paarlberg said a rice cartel is unlikely to work because cooperation among exporters is hard to enforce. Minot agreed, saying that calls for price-setting cartels usually come when commodity prices are low, not high. "I don't think that is what's really called for right now," Minot said.

Original reporting by Michael Lelyveld


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