The rice crisis: what needs to be done?

In the first few months of 2008, the export price of rice tripled, reaching levels not seen since the last great food crisis of the early 1970s.

A host of factors converged to drive the price spike, which put adequate supplies of rice - the staple for around half the world's population, including the majority of the world's poor - out of reach for millions of consumers, largely in Asia, but also in other rice-consuming regions around the world. Several countries experienced rice protests and riots. In Haiti, several people were killed and the Prime Minister was sacked. In Bangladesh, with country reeling from floods and a major cyclone, thousands of workers rioted over wages too low to feed themselves and their families.

As of June 2008, prices had begun to come down from the extraordinary peaks of the previous two months. However, agricultural economists the world over expected that process would settle at a level considerably higher than that of early 2007, before the rapid rise. Higher rice prices, it was agreed, were here to stay for some years. In response to the situation, the United Nations hosted an emergency food summit in Rome on June 3-5, 2008, prompting world leaders to pledge to reinvest in agriculture.

By examining the causes behind the price increase, several responses become clear, particularly if we are to avoid similar situations in the future. One of the keys to producing enough affordable rice for a growing world population is a rejuvenation of investment in public agricultural research.

What happened?

The poorest of the world's poor are the 1.1 billion people with income of less than a dollar a day. Around 700 million - almost two-thirds - of these people live in rice-growing countries of Asia. Rice, the dominant staple in Asia, accounts for more than 40 per cent of the calorie consumption of most Asians. Poor people spend as much as 30-40 per cent of their income on rice alone.

Major exporting countries such as Vietnam and India announced export restrictions to protect their domestic consumers. These restrictions prompted rapid buying from importing nations, which further pushed up the price as the rice supply in the world market dwindled. As the price spiked, hoarding and speculation exacerbated the problem.

What are the underlying reasons for the rice crisis?

We are consuming more than we are producing
Many factors, both long- and short-term, have contributed to the rice crisis. At a fundamental level, the sustained rise in the price over the past 7-8 years indicates that we have been consuming more than we have been producing. Rice stocks are being depleted, with current stocks at their lowest since the 1970s.

Annual growth in yield is slowing
A major reason for the imbalance between the long-term demand and supply is the slowing growth in yield, which has decreased substantially over the past 10-15 years in most countries. Globally, yields have risen by less than 1 per cent per year in recent years - slower than population growth and down from well over 2 per cent in 1970-90 - the period known as the Asian Green Revolution, which was characterised by high-yielding, fertiliser-responsive rice varieties and rapid boost in yields.

Reduced public investment in agricultural research, development, and infrastructure
An important factor accounting for the slowdown in yield growth is the reduced public investment in agricultural research and development - the very engine that drove productivity growth to begin with. The steady decline in rice prices through the 1990s led many governments to believe there was a perpetual supply of plentiful food. Lower prices were taken for granted, leading to complacency in agricultural research and development. Investments in irrigation have decreased substantially and existing irrigation infrastructure has deteriorated.

Little room for expansion of rice area
The possibility of increasing the rice area is almost exhausted in most Asian countries. In many areas, highly productive rice land has been lost to housing and industrial development.

Demand growth
Three key factors have contributed to steady growth in demand for rice, which is increasing globally by about 5 million tons each year. First, population growth is outstripping production growth, and this is projected to get worse. Second, rapid economic growth in large countries such as India and China has increased demand for cereals, both for consumption and for livestock production, pushing up the price of cereals in general. Third, rice is an increasingly popular food in Africa, with imports into Africa accounting for almost one-third of the total world trade. It is expected that demand from Africa will continue to grow.

Oil prices
The price of oil has increased rapidly during the past year. In addition to contributing to general inflationary pressure, this has pushed up freight costs for importers and production costs have risen due to higher fuel and fertilser prices (fertiliser production is heavily dependent oil and natural gas). Rising oil prices and concerns about climate change have also spurred rapid investments in biofuels, increasing pressure on international trade of grains and livestock feed, as well as on agricultural land in some countries.