Real cause of high rice prices?

The price of rice experienced a substantial increase during 2008.

Some countries suffered food riots, and here at home the media covered the rationing of rice in some grocery chains. For growers, the increase on the price of rice was good news.

The Economic Research Service (ERS) has recently estimated the U.S. season average rough rice price for 2008/2009 at $16.50-$17.50 per cwt, up 25 percent from 2007/2008. Medium and short grain average price is projected at a record $21.50-$22.50 per cwt.

The ERS explains that high medium grain prices are explained by Egypt’s export ban, the lack of exportable supplies in Australia and a smaller U.S crop in 2008/2009.

But what caused the sudden increase in rice price last year? In a recent article, Brian Wright, professor in the Department of Agricultural and Resource Economics at UC Berkeley, explores some of the possible causes.

In the media’s coverage of the price increase, many reasons were mentioned.

The drought in Australia, increased demand in China and India, increased production of corn and soybeans for biofuels, and just plain speculation. Wright explains that all these events may have had very little effect, if any, in the price increase.

On the other hand, he points to the decision by the Indian government on Oct. 9, 2007, to ban rice exports, as the starting point of the crisis. Soon, due to production problems in some countries, other exporters, such as Egypt and Vietnam, decided to ban exports too. This created much anxiety in the rice market, and prices soured as importers tried to secure their supplies. The crisis was somewhat resolved late last summer when rice production estimates predicted a good harvest.

According to Wright, a poor 2008 harvest would have caused a market collapse and severe consequences for poor importing countries.

It seems that, when available rice stocks are low or uncertain, the price of rice becomes very sensitive to fluctuations in excess supply. Predicting what the price of rice is going to be next season is almost impossible. However, if we understand what happened last year we may get a better idea of what the future has in store.

You can read Wright’s article in the Nov./Dec. issue of the Agricultural and Resource Economics Update, available at

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