Rice prices to remain high for two-three years, economist

By Dominique Patton

- Last updated on GMT

Related tags: Rice

World rice production is expected to rise almost 2 per cent this
year, easing the current tight supply and bringing downward
pressure on prices, the FAO said this week, but it will be two or
three years before prices drop significantly.

Rice prices have increased by 66 per cent between March 2007 and March 2008, reaching around US$546 per tonne for high quality Thai B rice. The rise has led to concerns about rioting in parts of Asia, such as the Philippines, where rice is a staple food and consumers are unable to bear such significant increases. "We may see a little fall in prices when new supplies come onto the market but it won't be sufficient to bring them back to last year's price,"​ senior economist Concepcion Calpe told FoodNavigator.com. High rice prices will also eat into the margins of a rising number food processors using rice as a raw material for healthy foods. Rice is seeing growing popularity as an alternative to wheat for consumers avoiding gluten. European sales of products such as wheat-free breads and cakes have grown by almost 120 per cent over the last three years to reach €48 million ($65 million), according to Mintel. Rice prices have risen after years of declining global stocks, as major producers China and India switch to growing other crops to feed animals at the same time as other nations eat increasing amounts of rice. Consumption is growing faster than production in the EU as well as Africa. However higher prices are expected to spur "sizeable production increases"​ in all the major Asian rice producing countries, especially Bangladesh, China, India, Indonesia, Myanmar, the Philippines and Thailand, where supply and demand are currently rather stretched, said FAO. Governments in these countries have already announced incentives to raise production. In the EU, rice output is expected to increase by 1.7 per cent, said Calpe, with higher production in Spain, offsetting a decline in production in Italy as farmers shift to growing wheat. But imports are also likely to grow from 1.1 million tonnes to 1.3 million tonnes in 2008 based on higher consumption, making the region vulnerable to developments in producer countries. "In a couple of months, as new supplies reach the market, we expect the prices to stabilize but a lot depends on what exporting countries do,"​ said Calpe. Four of the leading rice exporters - China, India, Egypt and Vietnam - have either imposed minimum export prices, export taxes or export bans on rice to protect against inflation at home. This will reduce the amount of rice traded internationally by 1.1 million tonnes compared with the 2007 trade, said FAO. "Short-term volatility will probably continue, given the very limited supplies available from stocks. This implies that the market may react very strongly to any good or bad news about crops or policies,"​ warned Calpe. According to FAO's latest estimates, paddy production rose by 1 per cent in 2007 to 650 million tonnes. It is the second consecutive year where production growth fell short of population growth.

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