The latest food price index released by the Food and Agriculture Organization of the United Nations (FAO) shows that international rice prices have climbed for the fifth consecutive month this year, reaching a 12-month high. As a ration, the price of rice has continued to rise, which has aroused widespread concern in the market. Why have international rice prices continued to rise? How much impact does it have on the food market?
Why prices continue to climb
The data shows that even though international rice prices climbed for five consecutive months, their prices still fell by 6.0% compared with the same period last year. International rice prices fell by 27.5 percent from March last year until the end of last year. The rise in rice prices at this stage is a rebound from last year's consecutive declines. In fact, as the main exporters of rice, the export prices of rice from India and Vietnam do not fluctuate much.
Dialectically, rising international rice prices are part of global inflation. Since the beginning of this year, there has been inflation in many countries, and the consumer price index (CPI) has hit a new high.
Thailand, for example, is the center of international rice price formation, and recently, domestic inflationary pressures have been relatively large. Thailand's CPI rose 7.1% year-on-year in May, according to The Bank of Thailand. The price of food is the basis of 100 prices. As an important agricultural product, rice tends to rise in price before other commodities in the overall consumer price index "basket of commodities" and rises more than other commodities. Since the beginning of this year, the price of rice in thailand's domestic market has risen by about 25%, and at present, the price of rice in Thailand's domestic market has been higher than the export price.
The rise in international rice prices has also been driven by price transmission of related varieties such as wheat. Under the current international situation, international wheat prices are easy to rise and fall, and the lateral transmission effect will continue, triggering a linkage rise in international rice prices. It is estimated that every 1% increase in wheat prices will lead to an increase of about 0.2% in rice prices, all other factors remain unchanged.
The rise in international rice prices has its market basis driven by production costs and demand driven.
From the production side, the main rice producing countries are generally fertilizer importers, which themselves bear the pressure of agricultural costs. The conflict between Russia and Ukraine has hindered the export of major fertilizer producing countries such as Russia and Belarus, further promoting the rise in the price of agricultural materials such as fertilizers and increasing the cost of rice production.
From the demand side, the market demand from the Middle East is increasing. Since the beginning of this year, Thailand has exported more than 200,000 tons of rice to Iraq and is expected to export another 200,000 tons; Due to the rising prices of wheat and corn, some countries will use rice for feed production, and the Food and Agriculture Organization of the United Nations has issued a forecast that the global use of rice animal feed in 2021/2022 is expected to reach 22.3 million tons, an increase of 11.9% year-on-year.
Will it continue to rise in the future
In the current context, will international rice prices continue to rise in the future? What are the implications for food markets?
In the future, international rice prices will be mainly affected by the policies of exporting countries. A few days ago, major rice exporters in Southeast Asia planned a joint price increase. At the end of May, a Thai government spokesman said Thailand and Vietnam planned to jointly raise rice prices. However, no clear policy message has been released. In the past three years, Thailand and Vietnam account for about 9.5% of global rice production and about 32.8% of global exports. This time, Thailand and Vietnam planned to jointly raise prices, similar to the "rice export OPEC" in 2008, but at that time, due to the inconsistent coordination of interests of major exporting countries, it could not be implemented.
Separately, India announced a ban on wheat exports in May, and the market has been highly concerned about the possibility of India restricting rice exports. India's rice production accounts for 23.5% of global production, exports account for about 26.2%, stocks account for about 18.1%, the lowest export prices, export volume continues to grow, has a greater impact on international food prices. According to the Food and Agriculture Organization of the United Nations, India's rice stocks are estimated to be around 39 million tonnes in 2021/2022. According to Indian government officials in charge of food affairs, the country's government stock level for processing finished rice and rice is 57.82 million tons, which is about four times the target reserve of 13.54 million tons, so there are no plans to ban rice exports for the time being.
The rice market is relatively independent of other food markets. Rice is mainly consumed as rations, and the processing chain is relatively short; At the same time, due to the influence of eating habits, the overall demand for rice rations has not changed much; In addition, rice is subject to nutritional indicators, energy values, etc., and generally does not have the potential to be used for feed in large quantities. From the perspective of 2021, global rice production is 521 million tons, and the trade volume is 51.5 million tons, which accounts for about 9.9% of production. Over the same period, wheat traded more than 192 million tonnes, accounting for 24.7% of production, and corn traded nearly 181 million tonnes, accounting for 15% of production. Both in terms of trade volume and proportion of production, rice is not very large. The main producers and consumers of rice are mainly Asian countries, and Asian countries can basically maintain self-sufficiency in rice and import small amounts. Taking the Philippines, which has a large import volume, as an example, the country's import volume will reach 3 million tons in 2021, and its dependence on foreign countries will be only 18.8%. Therefore, rice importing countries generally have a certain tolerance for international rice price fluctuations.
The international market has a production and inventory base to withstand soaring rice prices, and a corresponding exchange rate environment. At present, global rice stocks remain high, and the output of major producing countries is expected to increase. The latest forecast of the Food and Agriculture Organization of the United Nations (FAO) shows that global rice production in 2021/2022 will be 520 million tonnes, and although production will be 0.2% lower than the previous year, the ending stocks will remain high at 192 million tonnes, with an inventory-to-consumption ratio of 36.4%. According to the forecasts of major international institutions, the production of major producing countries in Southeast Asia and South Asia is expected to increase, and India's production is expected to reach a record 130 million tons, and Pakistan, Thailand, Myanmar and other places are expected to generally increase production. In addition, the Thai baht has continued to depreciate since 2021, and has depreciated by 12.1% by May, so international rice prices in US dollars are still under downward pressure.
How the domestic market responds
Rising international rice prices have less impact on the domestic market. Although the mainland is the world's largest importer of rice, it also imported only 4.96 million tons in 2021, accounting for only about 3.4% of total production. Moreover, the concentration of mainland rice import sources is not high. According to customs statistics, from January to April 2022, the mainland imported 2.26 million tons of rice, and the main source countries of imports were: India (30.9% of total imports), Pakistan (26.6%), Thailand (13.5%), Myanmar (12.2%), and Vietnam (10.2%). Therefore, even if the price of rice in Thailand continues to rise, mainland rice importers can turn more to imports from countries such as India and Pakistan.
From the production side, the stability of the mainland rice market has sufficient material foundation and policy guarantees. Rice production has been maintained at more than 400 billion catties since 2011, and in recent years, it has achieved consecutive bumper harvests, reaching 425.7 billion catties in 2021. The state continues to implement subsidies for the protection of arable land, subsidies for the purchase and application of agricultural machinery, etc., and recently the central government has also issued a one-time subsidy of 20 billion yuan to farmers who actually grow grain, alleviating the cost pressure brought about by the rise in the price of agricultural materials. In order to ensure the return of farmers to grow grain, the minimum purchase price of rice in 2022 will be raised in an all-round way, and the minimum purchase price levels of early indica, medium and late indica rice and japonica rice will be 124 yuan, 129 yuan and 131 yuan per 50 kilograms respectively, an increase of 2 yuan, 1 yuan and 1 yuan respectively over the previous year. The state has also carried out green, high-quality and efficient actions for key crops, integrated and popularized new technologies, new varieties and new machinery, and created a number of high-quality edible rice and special grain demonstration bases for processing early rice. At the same time, the state has adopted a series of policies to strengthen agriculture and benefit farmers and rich peasants, ensuring the enthusiasm of grain farmers; In addition to the grain import and export regulation mechanism, policies such as the minimum purchase price for grain and the policy-oriented grain auction transaction are also implemented. The above related measures regulate and complement each other, providing an environment for the stability of the rice market and laying a solid foundation.
(The author is director of the Rural Revitalization Research Center of the Management Cadre College of the Ministry of Agriculture and Rural Affairs)