Rice prices are steaming, with many implications

The global commodities boom that has lifted prices of everything from gasoline to gold is now elevating rice - a staple food for half of the world - to its highest level in nearly 20 years. Rice's surge has complex consequences for the global economy. The ubiquitous grain is suffering poor harvests and tight supplies in some of the biggest rice-exporting and rice-consuming nations, just as demand grows in places like India and the Philippines. The higher price is a boon for some farmers and investors. But at the same time, it is expected to contribute to a protracted bout of food-price inflation for the foreseeable future, which could widen the rift between the world's haves and have-nots.

Soaring prices are drawing myriad investors into the market. On the Chicago Board of Trade, the number of bets outstanding on rice futures contracts recently reached a high - a basic sign that more traders see a chance to make money on rising prices. On the CBOT Friday, rice futures contracts settled at $13.1250 per 100 pounds, down 5.5 cents. That is up from $9.87 a year ago and just shy of the previous record price of $13.40, set in January 1988 when rice was traded at the Mid-America Exchange. While prices like these aren't at record levels in inflation-adjusted terms, they nevertheless threaten to exacerbate poverty in large areas of the world.

The story of rice echoes that of nearly all commodities, whether petroleum, copper or wheat. Prices for many commodities are surging thanks to booming demand from emerging economies like China. It is having broad ripple effects: Steel prices make it costlier to construct buildings; the rising cost of oil helps to drive up the cost of world shipping rates. Rising oil prices also make it costlier to grow and ship rice and other grains - which, in turn, drives up food prices.

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.

- Read that last part again. And then re-read it.

(2007-12-17 13:07:53 SGT) [Biz] Permalink

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