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CONCERN MOUNTS OVER COST OF RICE
BY GEOFFREY CRAIG
A dietary staple of more than 3 billion people worldwide, rice is fast becoming a luxury – and a potential catalyst for social and political unrest. With international prices nearly tripling in the past year, nations are struggling to feed their populations. Countries from Senegal to the Philippines are scrambling for ways to lower domestic prices as the poor become unable to afford this basic commodity.
Governments have good reason to be concerned. The World Bank estimates that 33 countries are in danger of social instability over soaring food prices, particularly rice. In Haiti, deadly riots over food prices recently forced the country’s prime minister out of office. And angry voters in Malaysia cited rising food prices as a source of their discontent when they dealt the ruling party a huge setback in March’s general election.
“Poor people are suffering daily from the impact of high food prices, especially in urban areas and in low-income countries,” World Bank president Robert Zoellick said in a press release last month. “In some countries, hard-won gains in overcoming poverty may now be reversed.”
Several factors are to blame, analysts say. It seems supply cannot match the demand stemming from the world’s growing population. There are simply too many new mouths to feed. A burgeoning middle class in India and China represents a segment of society eating more per capita than ever before.
Another cause has been bad weather, believed by some to be a consequence of climate change. Severe droughts in Australia, a cyclone in Bangladesh, poor harvests in Europe in 2006 and 2007, and unusually wet weather in sub-Saharan Africa have eroded harvests. The decline might have been offset elsewhere, except with oil prices at an all-time high, governments have earmarked more agricultural production for bio-fuels, instead of food.
The result has been higher cereal prices. International wheat prices have shot up 90 percent in the past year. Corn and sorghum prices are up nearly 40 percent during the same period. But the increase in the price of rice, which has risen 260 percent in the last year, has had the deepest impact considering that over half of the world’s population consumes the grain.
Egypt is experiencing the same irony as other major rice growers – that a steep and persistent spike in global prices has made the grain unaffordable in the very places where it is grown and exported from. A standard one-kilo bag of rice sells for LE 4 in most groceries, a 35-percent increase since the start of the year. “A lot of people can no longer afford to buy rice at the store,” says one rice farmer, adding that the cereal’s price has risen so much that poor people “can only eat rice if they have the land to farm and grow it.”
Egypt’s total rice production contracted 3.3 percent to 6.53 million tons in 2007 due to lower yields, the UN’s Food & Agricultural Organization (FAO) reported. To compensate for the shortage, Egypt imported 100,000 tons of rice last year. Yet even with the imported quantity, the amount of rice being sold onto the local market was not enough to prevent domestic prices from rising.
One reason, says Yasser El Khayal, marketing manager at the Union of Producers & Exporters of Horticultural Crops, is that exporters have capitalized on the commodity’s soaring value. “When international prices go up, exporters will buy more rice from farmers, and sell it overseas,” he says.
Exporters pay a premium of about 10 percent above the “farmer gate” price to secure a supply of rice for shipment abroad, making it a good deal for farmers, El Khayal told Business Monthly. Last year, despite dwindling production, exporters sold a record 1.3 million tons of rice, 36 percent more than 2006.
The government has attempted to secure the domestic supply by regulating exports. But a LE 200 ($35) per ton export tax on rice imposed last September by the Ministry of Trade & Industry (MTI) has done little to curb the grain’s sale to overseas buyers. Exporters point out that the tax is negligible compared to soaring global prices. Between September 2007 and March 2008, the export price of Egyptian rice increased by $186 to reach $587 per ton, easily outweighing the cost of the export tax.
The skyrocketing price is part of a larger pattern of rising global food prices. In Egypt, food inflation has been the main culprit behind general inflation. Staples such as cooking oil and dairy products have increased 42 percent and 20 percent, respectively, over the past year. A 26.5-percent increase in non-subsidized bread, stemming from higher international wheat prices, has resulted in longer queues at public bakeries.
In light of high wheat prices, people may be buying more rice, according to Minister of Trade and Industry Rachid Mohamed Rachid. “Consumption of rice went up because the price of pasta and bread soared,” he told state news agency MENA on March 27. The minister floated this idea while explaining his decision to ban rice exports for six months beginning April 1. “We had to make sure there is enough rice available in the local market, so we halted exports,” he said.
In doing so, Egypt – the world’s seventh largest exporter of rice in 2007 – joined India, Vietnam and Cambodia in banning rice exports to boost local supply. Indonesia and Brazil also implemented bans last month, while Thailand is considering whether to implement export restrictions. Together, the bans remove more than a third of the rice traded in the international market.
In Egypt, the export ban appears to have had some success. The “farmer gate” price dropped to LE 2,000 ($366) per ton by mid-April, compared to LE 2,500 ($457) before the ban. Consumer prices have also come down. Retail prices dropped from LE 4.5 to LE 4 per kilogram, though are still well above the 2006 price of LE 2.5 per kilo.
An export ban is easy to implement and might reduce domestic prices right away, but experts argue that trading restrictions are not a viable long-term strategy. They “tend to have a limited impact on domestic price levels and a significant negative effect on earnings for domestic producers and exporters,” the World Bank report warned. It explained that export bans lower prices, thereby creating a long-term disincentive to produce.
Ibrahim Al-Milani, a sharecropper in Sharqiya governorate, says the export ban will not have any bearing on the amount of rice seedlings he plants this season. In late April, he was clearing the chaff of the winter wheat harvest and flooding the land to make rice paddies. He said he could grow other crops, but his first priority was providing enough food for his family, and then selling the surplus. “We want to eat rice, so that’s what we grow.”
Besides, he figures the export ban won’t last. “I don’t think the export ban matters. We won’t harvest until October, and by then, I think exports will be allowed.”
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WATER WASTAGE
Rice is a water intensive crop, so its cultivation in an arid country like Egypt would seem to make little sense. Growing rice requires about 7,000 cubic meters of water per feddan, which is about triple the amount required by wheat. For Egyptian farmers, however, rice is an economically viable crop because water is supplied free of charge.
Rice was grown on 1.8 million feddans in 2007, consuming an estimated 18 percent of Egypt’s water resources. Critics charge that freely distributing water encourages wastage. “Farmers should pay for the water used in irrigating their crops,” says Hanaa Kheir El Din, executive director at the Egyptian Center for Economic Studies. “There is concern about water scarcity. Providing such an important input free of charge isn’t justified.”
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