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.
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.
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.
