Rising prices threaten supplies
Business Times 8 Apr 08;
(LONDON) From Cairo to New Delhi to Shanghai, the run on rice is threatening to disrupt worldwide food supplies as much as the scarcity of confidence on Wall Street earlier this year roiled credit markets.
China, Egypt, Vietnam and India, representing more than a third of global rice exports, curbed sales this year, and Indonesia says it may do the same.
Investigators in the Philippines, the world's biggest importer, raided warehouses last month to crack down on hoarding. The World Bank in Washington says 33 nations from Mexico to Yemen may face 'social unrest' after food and energy costs increased for six straight years.
Rice, the staple food for half the world, rose 2 per cent to a record US$20.910 per 100 pounds in Chicago yesterday, double the price a year ago and a five-fold increase from 2001. It may reach US$22 by November, said Dennis DeLaughter, owner of Progressive Farm Marketing in Edna, Texas.
'Rice will gain substantially over the next two years,' said Roland Jansen, chief executive officer of Pfaffikon, Switzerland- based Mother Earth Investments AG, which holds 4 per cent of its US$100 million funds in the grain.
Governments will likely maintain curbs on exports 'because those countries want to be able to continue to feed their own populations', he said.
The upheaval parallels turmoil in global capital markets that seized up nine months ago when sub- prime mortgages collapsed.
The difference between what it costs the US government to borrow and the rate banks charge each other for three month loans ended last week at 1.36 percentage points. A year ago the gap was 0.33 percentage point.
Rice-growing nations are driving up prices for producers that want to sell abroad. The Vietnam Food Association said on April 2 it asked members to stop signing export contracts through June, following China, which imposed a 5 per cent tax on exports as of Jan 1. Egypt banned rice shipments through October.
Prices 'are not coming back to the levels we came from', said Mamadou Ciss, head of Singapore-based rice broker Hermes Investments Pte Ltd. Vietnam's 5 per cent broken-grain rice may be 40 per cent higher within three months, he said.
Record grain prices are stoking inflation. Wholesale costs in India rose 7 per cent in the week ended March 22, the fastest pace in more than three years, underscoring the threat from rising food costs, the Ministry of Commerce and Industry in New Delhi said on April 4.
The increase may boost profits for suppliers. Padiberas Nasional Bhd rose the most in seven years in Kuala Lumpur stock exchange trading last week. The company is Malaysia's only licensed rice supplier.
Goldman Sachs Group Inc forecasts that all agricultural commodities it covers will rise during the next six months, except for sugar. Global cereal demand will expand 2.6 per cent this year, 1.6 percentage points above the 10-year average, according to the Food and Agriculture Organization in Rome.
The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials gained for six consecutive years and advanced 15 per cent this year.
'We have some very serious problems developing globally for food and energy,' said Greg Smith, executive director of Global Commodities Ltd in Adelaide, Australia, which manages US$350 million. World rice stockpiles are at their lowest levels since the 1980s, and the United Nations forecasts that exports will drop 3.5 per cent this year. -- Bloomberg
