Page 2 of 2 Japan ducks rice-crisis solution
By C Peter Timmer
than other commodities by panic and hoarding. These were precipitated by sudden
export restrictions in India, which were stimulated by events in other
commodity markets, especially wheat, not from local shortages. (Facing a
parliamentary election in May, 2009, the Indian government did not want to face
further criticism over additional wheat imports. Thus rice exports needed to be
curtailed to maintain supplies for the Public Food Distribution Scheme.)
These export restrictions spread to other suppliers and led to urgent efforts
by rice importing countries to secure supplies - at any price - in a thin
global market. It is no accident that most of these countries face elections,
and food price inflation is
extremely unpopular. Rice has returned as the "political commodity", even in
relatively affluent Asia. The result: the extraordinary price rises we have
seen in recent months, even though the underlying fundamentals support only
modest price increases.
From this perspective, the current crisis can be seen as a result of the
renewed tension between rice as an economic commodity traded on world markets
and its role as a political commodity that influences the fate of poor farmers
and consumers, and, consequently, political regimes. Rice prices are the
barometer of this tension, and any sign that rice markets are about to spiral
out of control leads to understandable behavior on the part of farmers,
consumers, traders and governments: store more rice.
The inevitable result of such hoarding is a spiral in rice prices, the very
thing that all market participants feared. The only way to break these
rocketing prices is to convince market participants that adequate supplies are
forthcoming, quickly and reliably. The response is then for prices to fall
immediately and sharply when new (and unexpected) supplies hit the market.
Pricking the rice price bubble in this kind of market turned out to be
possible: the Japanese offer of 300,000 tons of its WTO rice to the Philippines
dropped rice prices from more than $1,100 per ton to about $800 per ton by
June, but the opportunity to build on that momentum and drive rice prices down
further, to perhaps half of the level seen in April, was lost. Remember, even
rice at $500-$600 per ton is too expensive for the world’s poor.
Olympic rice
In addition to the release of Japan’s rice stocks, China could get some badly
needed good publicity by taking a leadership role in this crisis. Beijing is
holding stocks that are the equivalent of at least four months of domestic
consumption. China could easily afford to double last year’s exports of almost
1.4 million metric tons with no repercussions on its own inflation rate.
Certainly, Chinese rice traders would like the opportunity to sell some of
their stocks at more than double the price they paid to acquire them. It is
worth noting that China has helped stabilize the world rice market before:
during the three years from 1973 to 1975, during the worst rice crisis ever,
mainland China had net exports of 7.1 million tons, compared to just 2.8
million tons for Thailand. On either side of the crisis, that is in 1972 and
1976, Thailand exported more than China. Thus, by boosting exports, China
played a major role in stabilizing the world market at that time.
Alternatively, Beijing could launch its own food aid program to help the
world’s poor - they could call it "Olympic Rice" - and make their first
donation to Myanmar. This rice could be shipped overland from China, avoiding
the logistical nightmare caused by the sinking of 70 ships in the Yangon area
during the typhoon. Word from senior Chinese policy analysts is that such a
decision could only come at the "very highest level". Some subtle
behind-the-scenes US diplomacy could play a positive role here, although a more
aggressive supply offer from Japan might be even more helpful in stimulating
the Chinese to take action. These two countries compete on the global political
stage as well as in its markets.
Beyond the immediate crisis, investment in agriculture generally and rice, in
particular, has suffered over the last two decades, and hundreds of millions of
dollars of new funding is needed annually. But the payoff from those
long-overdue investments in irrigation infrastructure, plant breeding, and
post-harvest losses will only be realized over the medium- and long-term.
What’s needed now is a renewed surge of supplies to keep the speculative bubble
from re-inflating and to reassure anxious countries and poor people around the
world that there is indeed enough rice for everybody.
What did Japan do?
This is Prime Minister Fukuda’s (lightly edited) description of the event:
The
G8 Hokkaido Toyako Summit, which began on July 7 - the day of Tanabata, the
Star Festival - ended successfully the day before yesterday without major
incident or trouble. This was a tribute to the cooperation of the people of
[host city] Hokkaido, the security personnel, the volunteers, and many other
people. I would like to take this opportunity to extend to everyone involved my
deepest appreciation for their support.
This year's Summit was extremely important and drew a high level of interest
from around the world, to an even greater degree than recent ones. The reason
for this was because this Summit took place at a time when global challenges
such as ongoing global warming, soaring oil and food prices, and tension in
financial markets are having a great impact on the everyday lives of people
very close to home.
Addressing these issues, the leaders gathered around one table engaged in
serious and candid discussions - which, at times, got heated - day and night
over three days, producing numerous results.
First, we agreed to seek to adopt as a global target the long-term goal -
which, at last year's Summit, the leaders went no further than agreeing to
"consider seriously" - of at least a 50% reduction of global emissions of
greenhouse gases (GHG) by 2050. This, needless to say, is based on the premise
that the G-8 including the US agree on this goal. We also discussed actively
the roles of each country in responding to soaring oil and food prices that
have hit family budgets and have become a matter of life or death in the
world's poorer countries.
On oil issues, the leaders agreed to accelerate efforts to have oil production
increased, and to conserve energy and introduce new sources of energy. We also
agreed to ensure that more detailed inventory information is made available and
to strengthen supervisory frameworks for the futures markets, in order to avoid
financial markets having a detrimental impact on prices.
On food issues, we decided to further strengthen support for the efforts by
developing countries to step up their agricultural production and called for
the removal of export restrictions, as well as for the release of food stocks,
as emergency measures.
In addition to the leaders of the G-8 nations, Japan invited to this year's
Summit the leaders of 16 other countries, including China and India, and the
representatives of five international organizations. We carried out frank
exchanges of opinions over many hours with a view to reaching resolutions on
the important issues that the world is facing.
It is only natural that different countries have different stances and
opinions. That said, issues we are facing now are global issues that no one
country or even one group can resolve alone. The leaders all acknowledged that
a concrete resolution can only be realized when we overcome our differences,
and we expressed to the world our firm resolve to move forward in tackling
these issues together.
While serving as Chair of this year's Summit, I became keenly aware of the
weight of the world's expectations for Japan's contributions to the endeavors
to resolve various global issues, including global environmental issues. With
the aim of Japan being an indispensable nation for the world, and a nation that
its people can be proud of internationally, we will continue to move forward,
step by step, together with the people.
With such "bold
action" from Japan on such an urgent issue, where it had the power to act
decisively in the interests of resolving the world rice crisis, it is no wonder
that commentators asked "where is Japan?" as the G-8 leaders gathered. Sad.
Japan missed an extraordinary opportunity to exert leadership at the summit,
choosing instead lip service. It is not too late, however, for Japan to take
advantage of the opportunity to lead the world toward resolution of the
immediate rice crisis.
Notes:
[1] Thai 100% B, FOB Bangkok
The writer would like to thank Tom Slayton, former editor of "The Rice Trader"
and now Visiting Fellow at the Center for Global Development, for continuing
conversations on these topics over the past several months.
C Peter Timmer is a visiting professor with the Program on Food Security
and Environment, Stanford University, and non-resident fellow with the Center
for Global Development, Washington, DC. He can be contacted at ptimmer@cgdev.org.
He wrote this article for Japan Focus.
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