The spider web rice fields in Flores, Indonesia. The United Nations’ Food and Agriculture Organization Food Price Index reveals worldwide rice costs approaching for the 5th straight month to reach a 12-month high, according to the most recent May information released recently.
Food costs have actually been on the increase in the previous couple of months. And rice, an essential food in much of Asia, might be next, market watchers stated.
The costs of lots of foods, varying from wheat and other grains to meat and oils, have actually soared. That’s been driven by a variety of aspects, consisting of the increasing expense of fertilizer and energy in the previous year in addition to the Russia-Ukraine war.
Food export prohibits or severe disturbances have actually consisted of those from India (wheat), Ukraine (wheat, oats and sugar, to name a few) and Indonesia (palm oil).
Rice might be next in line. The United Nations’ Food and Agriculture Organization Food Price Index currently reveals worldwide rice costs approaching for the 5th straight month to reach a 12-month high, according to the most recent May information released recently.
To make certain, rice production is still plentiful, professionals stated. But increasing wheat costs, and the typically greater expenses of farming, would make rice costs worth keeping track of next.
“We need to monitor rice prices going forward, because rising wheat prices could lead to some substitution towards rice, increasing demand and lowering existing stocks,” stated Sonal Varma, primary economic expert at Japanese bank Nomura.
Risk of protectionism
Protectionist procedures “actually worsen price pressures at a global level for various reasons,” she informed CNBC’s “Street Signs Asia.” Feed and fertilizer expenses for farming are currently increasing, and energy costs are contributing to freight expenses, she included.
“So there is a risk that we see more protectionism from countries,” stated Varma.
Nevertheless, she preserved that threats to rice are still low as international rice stocks are sufficient and harvests in India are anticipated to be great this summer season.
“Right now, I will be much more worried by India slapping an export ban on rice in the coming weeks — as they were thinking about after wheat and sugar,” David Laborde, senior research study fellow at the International Food Policy Research Institute, informed CNBC.
India and China are the world’s leading 2 manufacturers of rice, representing majority of the international overall, according to the World Economic Forum. Vietnam is the fifth-largest, while Thailand remains in 6th location.
India enforced export restrictions on wheat in May, pointing out a requirement “to manage the overall food security of the country.” It likewise slapped constraints on sugar simply days after the wheat restriction.
Are cost walkings more effective?
Laborde stated that a rate boost would be far more effective to any export restriction.
“We should really differentiate between a price rise that compensates for higher costs and will benefit farmers (and help them producing), than an export ban” that presses costs up on world markets however presses costs down on domestic markets, he stated.
Nafees Meah, local agent for South Asia at the International Rice Research Institute, included that energy expenses, which have actually been increasing internationally, are a huge part of rice production expenses.
“So there is an argument to say … if the market is indicating an increase in price then why shouldn’t the farmers benefit from increased prices?” Nafees informed CNBC’s “Squawk Box Asia.”
But a boost in rice costs would terribly impact lots of in Asia, which is the greatest customer of the staple.
“So in in the Southeast Asia Pacific region, countries like East Timor, Laos, Cambodia and of course, places like Indonesia, which [has a] very large population, and many of whom are food insecure will be pretty badly affected if prices continue to rise and stay at these very high levels,” stated Nafees.
Way above pre-pandemic levels
The U.N.’s food cost index revealed costs are now 75% above pre-pandemic levels, stated Frederique Carrier, handling director and head of financial investment technique for RBC Wealth Management.
“Pandemic-related labor shortages and Russia’s invasion of Ukraine have aggravated the situation by both curtailing food supply and pushing up energy prices even further,” she composed in a June report.
About a 3rd of food production expenses are energy-related, Carrier stated. Fertilizer in specific is extremely energy-intensive to produce and costs have actually skyrocketed considering that in 2015.