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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Egypt, with an increasingly politically restive population, represents a case in point. In recent weeks, clashes in bread lines have reportedly become routine and sometimes violent. The state-owned daily newspaper reports that 12,000 people have been arrested for selling flour on the black market. Rice prices, meanwhile, rocketed from just over $200 per ton last October to $430 per ton at the end of March. The government responded on April 1 by suspending rice exports for six months. The response had an immediate pull: This week, prices have fallen by more than $100— still high but nonetheless an improvement.

At the same time, individuals further down the totem pole are implementing their own safeguards. From Egypt to India, reports of hoarding and speculation have become commonplace. Farmers, expecting higher prices in the near future, are keeping their crops under lock and taking them out of the supply chain. Distributors are doing the same, hoping to benefit from inflated retail prices. In the Philippines, which imports much of its rice, the country's president, Gloria Arroyo, has dispatched an Anti Rice Hoarding Task Force to arrest suspected hoarders. (Fast-food restaurants there, including McDonald's and KFC, have been asked to halve the amount of rice they serve with a usual meal.) Fear of shortages has even found its way to Hong Kong: In recent weeks, the price of rice in most supermarkets has climbed 30 percent, prompting a spree of panic-buying before Hong Kong officials on Monday were able to guarantee supplies from Thailand, which already provides 90 percent of its rice.

The panics in Hong Kong and the Philippines illustrate an important point: As exporting countries stop exporting and shore up supplies internally, countries that rely on imports are increasingly vulnerable. One result, apart from alarm, is that an international game of hot potato has ensued, shifting the squeeze to other countries. In the case of rice, the demand has been shifted to the United States, among others. "We're seeing a lot of nontraditional markets coming to us," said Thomas Wynn, director of market development for the U.S. Rice Producers Association, noting that the United States is now shipping rice to Cuba, Africa, and the European Union. The United States should meet the demand, Wynn said, but the extra trade will bring side effects: stockpiles going down, prices, once again, going up.

Meanwhile, humanitarian agencies, which provide much-needed food to volatile countries like Iraq and Afghanistan, are getting lashed from all sides: higher prices, locked supplies, millions of people newly priced out of the market.

To a certain extent, analysts say, these protective measures can't be avoided. "If you asked every ambassador in the world to come to a meeting," said Bobby Coats, a professor at the University of Arkansas Cooperative Extension Service, "and everyone showed up and you asked the question, 'Does your country have a policy of protecting your agricultural sector?' everyone is going to raise their hands. Nothing will breed chaos faster than the nonavailability of food to people who are used to having it."

The flip side, it seems, is that a bunch of protective measures, taken together, can breed chaos for everyone else. "It's understandable that leaders will take refuge in export bans when they see no other options," von Braun said. "But this policy collectively is a massive policy failure. At a time of scarcity, when more trade is needed, less is permitted."

Von Braun says the World Trade Organization should step in and organize a global response. So far, that hasn't happened. Instead, when substantive discussions occur, they're often between neighbors: India and Bangladesh, Thailand and the Philippines. On a slightly more reassuring note, analysts note that global supplies are tight but not insufficient, barring a natural catastrophe. Some say that prices for crops like rice could plateau before moving higher again in the next few years. As good news goes, that's pretty measly.