The United States is considering allowing Japan to sell imported US rice on the global market in an effort to curb soaring prices.
In the mid-1990s, under pressure from other countries, Japan began importing rice for the first time in at least a generation. Since then it has imported hundreds of thousands of tons of rice, much of it from the United States. But little of the rice has been consumed directly. The Japanese have scoffed at its flavor, and the government has successfully protected Japanese rice growers and their favored japonica rice variety, which holds symbolic and economic value. As a result, most of the snubbed rice has been stored in warehouses, where it either spoils or is later used as animal feed, rice flour, or, in limited cases, humanitarian food aid.
Now, however, in a calculated attempt to help ease the global food crisis, Japan is considering releasing a large amount of its rice stocks—perhaps a million tons or more—to the rest of the world. Because the stockpiles contain U.S. rice, Japan is actively seeking U.S. approval to resell it. Representatives of both countries met last week, and a second meeting is scheduled for Friday, a U.S. Trade Representative official told U.S. News.
The appearance of a new supply of rice, many experts say, could quickly lower global rice prices, because it would help curb the speculation, hoarding, and panicky trade restrictions that have contributed to surging rice prices this year. From January to April, wholesale rice prices climbed 75 percent, and export prices nearly tripled. Riots, food shortages, increased hunger and malnutrition, and political instability in a number of countries have followed.
Friday's meeting, the trade official said, will involve representatives from the Japanese Ministry of Agriculture, Forestry, and Fisheries and the U.S. Department of Agriculture. It will focus on technical details of a potential "rice release," including how much rice Japan might release, and how it would be distributed. Japan, for instance, could sell it directly to other countries, or give it to the U.N. World Food Program.
Japan has about 2.4 million tons of rice currently in storage, 1.5 million tons of it imported; most is kept in air-conditioned public warehouses.
In 1995, Japan imported slightly less than 400,000 tons of rice. By the first part of this decade, that number had climbed to about 700,000 tons annually.
In theory, a sudden infusion of rice could have a domino effect around the world. Sobered investors would stop speculating, since new supplies would reduce pressure on the market. Governments would be reassured that rice supplies were sufficient to meet demand and would remove or relax trade barriers, which have a particularly large effect on the narrow rice market. And hoarders, no longer expecting prices to continue rising, would stop stockpiling.
Underlying these projections is the belief that the rice market is suffering from different troubles than corn or wheat. The increase in corn-based ethanol production, many argue, has directly affected corn prices. Poor harvests and dwindling stocks have directly impacted wheat. But rice production, on the whole, remains high.
Indeed, the rice problem is more one of distribution than supply. India and Vietnam, two of the largest exporters of rice in the world, are banning or sharply restricting exports, as are Cambodia, Egypt, and Brazil. Large importers such as the Philippines have scrambled in recent months to procure shipments. In many countries, hoarding has become the routine practice. The damage to rice fields in Myanmar by Cyclone Nargis, which hit on May 2, has quickly turned the country from a rice exporter to, temporarily, an importer of food aid. (Rice prices have jumped more than 50 percent since the disaster.) Noting these trends, speculative investors have been betting on rice commodities, causing prices to rise even higher.
In other words, a classic "bubble" has formed. In a report released last week by the Center for Global Development, two experts, Tom Slayton and C. Peter Timmer, wrote that "an agreement by Washington and Tokyo for Japan to release its 1.5 million tons of unwanted rice is the key to piercing this bubble." The result, they wrote, would be to bring prices down immediately, "averting hunger, malnutrition, and increased mortality among poor people in Asia."
It might also convince China and Thailand, which also hold large rice reserves, to release part of their surpluses as well. China, in fact, has the world's largest rice stocks, but has so far kept a low profile in the rice crisis, and the recent earthquake in Sichuan province will likely keep its focus internal.
Others, however, caution that the impact of Japanese surpluses could be much smaller, since the run-up in rice prices this year reflects a number of factors, not all of which are speculatory.
"There are two schools of thought on the matter of the rice price hike," said Kwanchai Gomez of the Asia Rice Foundation, a nonprofit organization based in Bangkok, Thailand. "One believes that the current rice price surge is more speculative in nature, and that Japan and China, with their sizable rice stocks, can help puncture the bubble; and another believes that there are more fundamental causes of this price hike"—among them: record fuel costs, which affect not only transportation costs but also the price of fertilizer.
There are, however, already signs that it could work, at least in the short term. The mere threat of Japan taking action was enough, at the end of last week, to rattle the international rice market: Benchmark rice future indexes on Friday fell 5 percent, and sell orders predominated.
Friday's meeting now assumes primary importance. For Japan to release its rice stocks, as it appears ready to do, it first needs the agreement of the United States, which to a certain degree,. is still annoyed with Japan for the way it has treated U.S. rice imports. In the 1990s, Slayton told U.S. News, "Japan said, 'OK, we're going to bring your rice in, but that doesn't mean our people are going to see it.'" As a result, U.S. rice has little brand recognition in Japan, much to the dismay of U.S. rice growers.
Given the severity of the world food crisis, the U.S. government, officials say, appears ready to allow Japan to move rice out of storage and put it up for sale on the market. But it wants to make sure the agreement will also compel Japan to more fully honor the spirit of its trade commitments with the United States in the future.
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