On the News Tab, KXB posted a link to an article in Time about the skyrocketing global price of rice, which has the potential to destabilize economic conditions (and governments) all over Asia. For those who haven’t been following it, the price of rice has more than doubled in the past six months, peaking recently at more than $23.00 per hundred pounds. (See this Guardian article for more detailed numbers. Incidentally, the rising price of food has already led to riots in Haiti.)
The Time article points out that the problem isn’t that rice production has fallen (though part of the reason for the tight supply in Bangladesh in particular is the destruction caused by last year’s cyclone). Rather, the global demand simply seems to be rising faster than the supply, and many individual nations have been banning rice exports, destabilizing the market.
In India, the interaction between state regulators and the recently liberalized market is particularly complex:
Take India, for example, where rice prices are rising fast, contributing to 7% inflation last month, the highest in more than three years. The country is not suffering from a classic case of tight supplies. National rice production this year should hit 94 million metric tons, up more than 2 million metric tons from last year and more than 20 million metric tons from 2003’s crop, which was devastated by a bad monsoon. Nor have shortages hit a government-run rice-distribution program that helps feed India’s poor. That program bought 20.6 million metric tons last year. This year, procurement, from both domestic growers and importers, is expected to rise to 25 million metric tons, according to Manoj Pandey, a senior government official. “It’s not a question of low production or low procurement,” says Pandey.
What has changed is that, because of economic reform, the government has gradually eased its control over the rice trade during the past 15 years. India is now more open to the world — and more exposed to global price fluctuations. Farmers and traders across India are now selling to the highest bidder. That means a lot of Indian rice that was once sold domestically is instead sold abroad for higher prices — which in turn drives up domestic prices. The government, in an effort to keep as much rice as possible at home to quell inflation, has banned exports of nonbasmati rice and adjusted price controls to discourage exports of aromatic basmati rice.
(link)
The measures aren’t working. As the article goes on to state, instead of pushing the price of rice back down, the government’s ban on exports has led to hoarding on the part of sellers, who would rather not sell than sell at reduced prices.
The question I have for those who understand these issues better than myself is this: what should the Indian government do, keeping in mind that the vast majority of Indian consumers of rice cannot afford the current price? Continue reading