How Countries Worsen the Food Price Crisis

Extreme reactions like hoarding food and banning exports can make prices higher.

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Philippines will boost rice production by seven percent this year, President Gloria Arroyo said, as it tries to protect itself against spiralling global food prices at the same time importing rice from Vietnam to avoid shortage.

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Since early 2007, when food prices began marching noticeably upward, there have been violent riots in more than a dozen countries, growing malaise in developed areas, including the United States, and a fluid debate about the origins of the spike. On the last point, a consensus has emerged. A slew of factors—record fuel prices, ethanol production, unprecedented demand, the effects of climate change—have been blamed, creating a sort of perfect storm for the world's food supply.

Although each merits attention, another culprit must now be added: the human reaction to the crisis.

Since the first of the year, additional jumps in food prices have bred not only uneasiness and widespread fear but also, in recent weeks, extreme responses. Countries in Asia and South America are clamping down on exports or banning them, often at the behest of panic-stricken leaders worried about inflation. Further down the supply chain, savvy farmers and producers are hoarding food to delay its sale. In a sense, the unfolding scene is a sort of "prisoner's dilemma" known in game theory: Individuals (and individual countries) are moving to protect their own interests—"defecting" rather than cooperating—as supplies become more precious.

The effect, some analysts say, has been to drive the market cost of food—rice and wheat, in particular—even higher and to further destabilize countries at risk of violence and hunger. "A lot of these countries [with bans] have poor populations, and they're worried about inflation, and they know that if they keep supplies high, they can lower costs," said U.S. Department of Agriculture economist Andy Aaronson. "That's just supply-and-demand economics, but it's a psychology that's going to have to break."

Restricting trade is an old and powerful tactic, and countries use it liberally, to protect farmers and consumers, to keep unwanted products out, or to keep internal stockpiles up. In fact, even before the current food crisis became apparent, many countries had begun blocking exports of products that have become expensive or scarce only recently; Argentina, in 2006, banned certain cuts of meat and later extended the ban to wheat.

But since the first of the year, a critical mass has taken hold. Rice, which is the staple food for roughly half of the world's population, or more than 3 billion people, has been particularly affected. China, Vietnam, and Egypt have imposed limits on the amount of rice they will export. India, at the end of March, banned "non-basmati" rice shipments outright and has continued to ratchet up the minimum price of basmati exports, which are known for their higher quality. Thailand, the world's largest rice exporter, is reportedly flirting with the idea of doing the same, even as its farmers toil to plant a third crop of rice this year, one more than usual. Wheat, too, has seen the scythe of political maneuvering: Last week, Russia extended for 60 days a ban on wheat exports. China and Argentina have adopted restrictions; in Pakistan, where farmers have just begun to harvest the annual wheat crop, officials yesterday said the country most likely will fall millions of acres below the expected goal, prompting the government to dispatch soldiers to guard grain elevators. "Now that the market is so nervous, governments get more nervous," said Joachim von Braun, director general at the International Food Policy Research Institute. "In addition to export bans, they try to build up storage to be on the safe side, and governments become part of the speculators."

The motivation for such bold measures is not hard to discern. Since the first of the year, rice prices in some areas have doubled; wheat, on average, is up 115 percent in a year. (In 2008, rice prices could jump another 50 percent, according to estimates.) Because the forces that kindled the rise in prices in the first place, such as increased consumption internationally and competition with biofuel production, are unlikely to subside anytime soon, countries rightfully see high prices as a pervasive threat. Unrest could mount; governments could fall.