Indonesia may limit rice exports to curb local prices

Indonesia, the world's third-largest rice producer, may join China, India, Vietnam and Egypt in curbing exports to build stockpiles after prices doubled. The country's rice production may exceed domestic consumption by 2 million metric tons this year, insufficient to allow for exports, Agriculture Minister Anton Apriyantono said.

Rice, the staple food for almost half the world population, has soared on increased imports by the Philippines, the biggest buyer of the commodity, and as global food supplies lag behind demand led by China and India. Record prices are stoking inflation and threaten social stability in emerging countries. Consumer prices in China rose 8.7% in February, an 11-year high, and reached a 13-month peak in India. Rice in Chicago climbed to $20 per 100 pounds this week from about $10 a year ago. Wheat has more than doubled in the past year and gains in crude oil exceeded 50%. The United Nations warned in February that 36 countries, including China, face food emergencies this year, as stockpiles of grains such as rice drop to a 26-year low.

Rice price chart from Feb 2007-Apr 2008 as traded on CBOT [Chicago Board Of Trade] - note how it has doubled from $10 in 2007 to over $20 in Apr 2008.

- If this Asian rice crisis has come as a complete surprise to many people, it is only because many people weren't paying attention. I wrote this blog entry back on 17 Dec 2007 and I said to read and then re-read this paragraph : "In July, Vietnam - the world's second-largest rice exporter after Thailand - said it would restrict rice exports in order to meet domestic needs first. India, another large exporter, announced similar export restrictions in October." That was followed by a post on 10 Mar 2008 which talked about how soaring rice prices are impacting Asia's poorer countries and how this had the potential to get very bad, very quickly.

And here we are, staring down the proverbial shotgun barrel of possible rice shortages. As I have expected, the economists are talking up their substitution theory again, and recent media articles are making some noises about switching to potatoes or some such. I shouldn't really need to, but I will, point out that 1. potatoes, bread, noodles and such are not exact substitutes for rice and people are not going to switch overnight, and 2. the prices of these other types of food are going up as well. Just take a look at wheat prices. In the real world, there is no such thing as a perfect substitute. The way these economists think reminds me of Marie Antoinette's "let them eat cake" when bread prices were rising dramatically just before the French Revolution.

So, what to do? I am going long rice. I went out and bought and took personal delivery of a few bags of physical rice from the nearest local outlet (ie Cold Storage supermarket). I hope it does not come to actual shortages here in Singapore, but it does not hurt either to be prepared.

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