Rice fetches unmatched prices as supplies dip

NEW DELHI: Take note of this period for it could be the last time that rice is coming cheap. Prices for the key staple in India and much of the world are going through the roof and, for the first time in over three decades, Vietnam has sold broken rice to the Philippines at an unheard of $ 750 per tonne. The highest price that 5% brokens has fetched so far has been around $425-450 per tonne.

The price virus is spreading through the rice world faster than you can say “pilaf”! The government of Thailand, another major exporter, is currently toying with the idea of restricting exports to increase domestic supply and decrease local prices while Vietnam on Friday decided to impose a duty on rice exports and exporters will limit shipments to 3.5 million tonnes in the first 10 months of this year. The limits on sales by Vietnam will further tighten supplies in Asia.

Over the last six months, the international price of rice increased sharply from $ 430 (August 2007) to $ 590 (February 2008) (FAS US Gulf). Meanwhile, the retail price of rice in Delhi has increased from Rs 15 to Rs 18 per kg over the same period. The domestic market is 300% bigger than the international rice market, where Thailand, Vietnam, Pakistan and India dominate.

Commodity experts and sector analysts contend that the restrictions on rice by exporting governments could further fuel international rice non-premium price to new heights of up to $1,000-$1200 per tonne in the near term. Recent export restrictions in India, curtailing the country’s role in the international rice market, are also expected to trigger new dynamics in price trends for rice.

The implications could be serious for India, among the world’s top producers and consumers, already facing a tight supply despite record output. The country already faces an annual shortage of 1.4 m tonne-odd, up from an earlier estimate of 1.25 million tonnes and, cutting customs duty to 0% as the government did on Thursday, ostensibly to lower local prices, hike supply and check inflation, is seen as a no-brainer at a time when global prices hit new highs, except to serve as political symbolism.

Analysts see these developments as signalling a paradigm shift in rice trade and the demand-supply situation within the country, paving the road, in the middle and longer term, to imports bolster the food security buffer. “Semi-milled and milled rice are consumed the most within the country. But with global prices at a record high, imports won’t happen and neither inflation nor prices will be checked through the recent customs duty cut to 0%. The signals that India has sent out, though, will jack up world prices further.

Significantly, the export restrictions were imposed on Basmati varieties for the first time ever this month, a categoric indication of the gravity with which the government had finally begun taking the issue of tight rice supply. The world’s Basmati exports are dominated by India and this premium variety (75% of the domestic output is exported) has never been considered a part of the food security regime, even though premium non-Basmati varieties came into that ambit.
22 Mar, 2008, 0326 hrs IST,Prabha Jagannathan, TNN
***************************************************************************************************
Here's an article that gets a bit technical about trading and pricing commodities:
http://www.tradingarticles.com/introfutures.html

DISCUSSION IDEAS:
Often, when the price for any given product goes up significantly, a "substitute" product will enter into the marketplace as a "replacement" for the high-priced item. An general example of this in the world commodities arena is oil. With the price of oil rising, the demand for development of effective alternative fuels is also rising (compounded by environmental market pressures).

Do you think that there are "substitute" products for rice? Does your answer to this question vary, depending on the geographical context (New York City vs. rural Thailand, for example)?

What influences the wholesale price of a food commodity like rice?

What additional factors affect the retail price of same?

What do you think is the main cause of this steep rise in the cost of rice?

How do you think this will affect the world?
************************************************************************************************