Credit crisis could lead to rice price rise, warns IRRI

12-Jan-2009 - Last updated on 12-Jan-2009 at 12:05 GMT

Rice prices could rise again in the near future as farmers find it more difficult to secure credit and lower grain prices cause them to plant less, according to the International Rice Research Institute (IRRI).

In the latest issue of Rice Today, the IRRI said: “Production uncertainty due to tight credit and declining rice prices combined with strong demand growth points to another rise in rice prices in the coming months. Price volatility will remain high.”

Although the benchmark Thai rice price has fallen from a record high of $1,080 a tonne in April to $555 at the end of last week, export prices are still around double those of mid-2007.

But the IRRI has said that prices will experience further upward pressure as incomes in some of the world’s poorest countries are hit by the global economic crisis, meaning that many could increase their consumption of rice as a substitute for more expensive foods. “Consumption projections may therefore rise above earlier estimates of around 90 million tons per year of additional rough (unmilled) rice by 2020,” the IRRI said.

Supply and demand imbalance

The reasons for record prices in April were manifold: Australian droughts and floods in Bangladesh left supplies short at a time when many were turning to rice as a cheaper alternative to other grains like wheat, which had already seen record-breaking prices. This in turn increased rice demand, further exacerbating the issue.

Blaming “fundamental imbalances in supply and demand”, the IRRI said that increasing yield growth is the only solution to world rice shortages.

It has expressed concerns about a slowdown in yield growth since the early 1990s and, with current rice area at an all-time high, it said “it is foolish to assume that additional area can keep coming to meet future demand. If the yield growth rate does not improve, we can expect rice prices to continue to rise.”

Meanwhile, many farmers have been wary of planting so much rice this year after finding themselves in the difficult position of having bought expensive inputs such as seeds and fertilizer after costs shot up, the IRRI said, only to be looking to sell their harvest when grain prices had crashed.