Sponsored By
Delta Farm Press Logo

Pandemic affects global rice marketsPandemic affects global rice markets

Rice market is vulnerable to multiple factors.

Ron Smith

May 21, 2020

5 Min Read
Rice markets and production function in complex systems.DFP Staff

Rice, the most important food in the world, according to the Rice Knowledge Bank (a digital extension service provided by the International Rice Research Institute), provides 21% of human energy across the globe.

Consequently, disruptions in supply or affordability threaten human health and well-being for a large segment of the world's population. A disruption like a global pandemic, for instance, affects rice markets and prices.

"The rice market is a demand-driven bull market in a world of demand-demolished and declining grain, meat, and ethanol/crude oil prices," says Milo Hamilton, president and senior economist, Firstgrain, Inc. But it is not immune.

COVID-19, Hamilton says, exposes some weak points."If there is a weak link in the rice marketing chain, it is the informal or mostly migrant labor that helps grow, harvest, and store the rice crop in Asia," he says. "More than 80% of the labor force in India and neighboring countries to the east is informal labor; no other major grain belt anywhere shares that distinction."

He explains that the informal labor, in places like India or Bangladesh, works for day wages with minimal or no government payments, no social benefits and no guarantee for a next day's work.

That labor force, with the threat of CIVID-19, "is scared or sick or both and works in crowded distribution centers. Many have fled home.

Related:Rice market up, subject to volatility

"We have seen what heavy use of migrant labor, working shoulder-to-shoulder, has already wrought in the U.S. meat packing industry," Hamilton says. "Any dense aggregation of workers in close proximity, such as in greenhouses or worker hostels, is similarly vulnerable."

Vulnerable workforce

Getting back to work in developing countries may be even more problematic than is the case in the United Sates and other developed economies, Hamilton says.

"Ending sheltering in place is easier said than done. In India, decisions come through at least three layers of administration: local, provincial, and federal. They reportedly must work in sync to reverse a directive. The Indian equivalent of U.S. state governors does not have the same power. And food does not wait on laborers. It's 'sell it or smell it.'"

He says U.S. dairy, fruit and vegetable industries illustrate the dilemma. "Un-harvested or un-processed product goes down the drain or rots in place as links in the food chain break."

The U.S. rice industry operates differently than rice in Asia and is less vulnerable. "Rice here is grown on large farming operations and is totally mechanized," Hamilton says. "The industry employs some hired or migrant labor but not to the extent as in the rice belt of Asia."

Several factors affect the global rice market, Hamilton says.

Trade issues

"A big problem in the rice market is that, unlike corn, beans or wheat, very little rice trades between countries, only about 9% of total production. Even that is a big improvement from 30 or 40 years ago. If a major importer is caught short of stocks, they can rock the rice price hard."

He says rice has the shortest marketing chain of any major carbohydrate. "Most beans and corn get converted into animals, which are slaughtered and put in refrigerated warehouses. Much of the rest of the corn goes into ethanol, also on the skids with the collapse in fossil fuel prices."

Supply side

Hamilton says global agriculture may be taking a harder hit than some observers imply.

"Asia has anticipated a bumper rice crop, but it may have a few marketing bumps. All it takes is one or two importers with minimal stocks to spook and spark a run on the market. And this assumes no 'second waves' of infection as happened during the Spanish flu epidemic of 1918-19."

That pandemic, he says, saw wheat and rice prices tripling between 1917 and 1919. "The big disruption now is fear of COVID 19, which equates to fear of death."

He explains that during the economic downturn of 2008, we had no fear of death, but people saw the price of rice going up and started hoarding.

"That's not what's happening today," he explains. "Today, rice is actually being eaten. In 2008, restaurants were doing just fine, now restaurants are nearly shut down. People are eating at home."

Production limits

Production and supply issues could be on the horizon. "Asia has about run out of area to grow rice," Hamilton says. "Of the 186 million metric tons of additional Asian rice production in the last 30 years, about 9 million came from just 5% more acreage. A stunning 177 million MT (the other 95%) came from greater inputs, particularly fertilizers, and resulting steep gains in rice yields."

Those gains could be jeopardized, Hamilton says, by increased production costs. "If oil prices should zoom back up as they did in 2008, China’s production costs will be vulnerable. Much of their grain production requires several times more inputs than in the U.S. grain belt."

Something as sinister as piracy also threatens global trade. "China ships in soybeans 14,000 miles across open water to their ports. If the U.S. withdraws its policing of the sea lanes, who will protect those trans-ocean shipments from piracy?

"This is the world that could lie ahead for shippers: politics, piracy and gunboat diplomacy," Hamilton says.

Where is the good news?

"If there is anything good to come from this grim situation, it is that the poor in Asian agriculture could see more social benefits. High food prices have a way of getting money to those who produce it."

He says sharp price rallies occurred in 1987, 1993, 1995 and 2003. "All those bull markets were local events until 2008, which was the first global bull market event since 1973.

"This one is global because of the global pandemic. Good things can come from big bull markets," he says. "From 1973 came the Green Revolution. On the other hand, from 2008 came massive rice subsidies to their rice industries."

Rice, Hamilton contends, is much too important a commodity, too essential to too much of the world population, not to have a more stable market.

About the Author(s)

Ron Smith

Editor, Farm Progress

Ron Smith has spent more than 30 years covering Sunbelt agriculture. Ron began his career in agricultural journalism as an Experiment Station and Extension editor at Clemson University, where he earned a Masters Degree in English in 1975. He served as associate editor for Southeast Farm Press from 1978 through 1989. In 1990, Smith helped launch Southern Turf Management Magazine and served as editor. He also helped launch two other regional Turf and Landscape publications and launched and edited Florida Grove and Vegetable Management for the Farm Press Group. Within two years of launch, the turf magazines were well-respected, award-winning publications. Ron has received numerous awards for writing and photography in both agriculture and landscape journalism. He is past president of The Turf and Ornamental Communicators Association and was chosen as the first media representative to the University of Georgia College of Agriculture Advisory Board. He was named Communicator of the Year for the Metropolitan Atlanta Agricultural Communicators Association. Smith also worked in public relations, specializing in media relations for agricultural companies. Ron lives with his wife Pat in Denton, Texas. They have two grown children, Stacey and Nick, and two grandsons, Aaron and Hunter.

Subscribe to receive top agriculture news
Be informed daily with these free e-newsletters

You May Also Like