China, Egypt, Vietnam, and India, which represent about one-third of global rice exports, curbed sales this year, and Indonesia did so as well, Bloomberg News reported Monday. Grain and food demand is increasing at above-trend rates due to solid economic growth in emerging markets. These regions are experiencing expanding middle classes -- a factor that historically has almost always led to rising per capita food consumption in the country where the growth occurred.
As a result, the price of rice and other commodities has soared -- rice hit $21 per 100 pounds on Monday, Bloomberg News reported -- and governments may face increased social unrest, given the pivotal role rice plays in many developing nations.
Economist Glen Langan said the most immediate impact on markets will be higher prices for wheat, soybean, and corn -- and another round of price hikes for U.S. groceries that use those commodities. That's because rice has risen so much, developing-world citizens and businesses will look for cheaper substitutes, forcing up the price of those substitutes.
Higher food prices, everywhere
Longer-term, the increase in the price of rice serves as yet another data point concerning the ability of global food stuff/commodity producers to meet global demand in light of the food consumption boom in emerging markets. Initially, about two years ago, Langan thought the higher prices that draw more farmers into the market would be satisfactory to meet rising demand. But China and India et al's decision to curb export sales this year belie that thesis, Langan said. Further, despite a tripling of grain commodity prices in the past three years, demand continues to increase at above-trend rates, he said.
As a result, the possibility of social unrest is rising, Langan said, particularly in poorer developing nations like India and Mexico, if staple food prices do not moderate and/or public actions are not implemented to blunt their increase.
"Today's commodity problem is not like that old Soviet system case study where in the 1970s the Soviet Union could not import or produce enough bananas and the response from Soviet citizens was 'Well, then we do without bananas today. We'll eat apples instead,' " Langan said. "For billions of people rice is a staple food that's hard to substitute for."
In the developed world -- including the United States -- Langan said the immediate impact will be still higher prices at the grocery store, particularly for bread, cereal, and pasta, among other items. Previous grain-based price rises have already pinched Americans' food budgets. More pinches are ahead, Langan said.
"Crude oil is still the world's most important commodity, but it looks like food is campaigning to be a close second," he said.