Scarcity & Choice - two rules, especially in rice

Just back from Bali. Expected a sweet journey, but ended up with a lot of news, and with business also taking its tol. The event also revealed the achilles heel of the rice industry by exposing the "denial" that the industry was going through as falling stocks and challenges in keeping supply up finally impacted on price.

Also interesting were :
- Rice as a comparison against other cereals (wheat especially since it rose 2-3 times its price)
- the Falling US Dollar and its impact
- Freight markets at historice highs (add the ageing handysize fleet, the lack on newbuildings in handies and the problem is elevated further)
- Price movements in the more niche markets of basmati and japonica offering a more dramatic price impact compared to the broader markets
- reluctance by exporters to committ to new trades (they weren't sure of price to offer rice at or simply decided to hold on to stocks for future price gains!)

October 9, 2007 was a landmark date in the global rice industry when everyone sitting with low stocks and some blindingly obvious signs suggesting isssues in supply availability.

Australia - almost obliterated from markets as a supplier (and possibly facing longer term issues if they are to return

China -also see the stock situation and food security creep into the system. Is their 220,000 capacity par boil plant the solution for African buyers concerned about future availability

Brokens - we hear they are as expensive as 5%..certainly close

Basmati - at 1200 $ per tonne, is double on the back onf EU and Middle East demand

USA - not any different, falling acreage, water issues in California = not a likely canditate to take up any short supply in the market


I did however hear of more land in Africa going into grains (rice) production, but even then, what this is likeyt to do is to minimise Africa's import growth rather than stall or reduce imports.

The fear is...can demand remain inelastic to price? Are the poor people of Asia and Africa able to afford rice? So far the problem seems that rice is the cheaper amogst cereals..but I suspect that there is a limit to how far further rice can rise - politics in the form of food security will or at least should place a cap on price rises.

But...if every government were to "panic" as India did (to me India had no choice - either buy more expensive imported wheat or place this ban and hope that consumers switch to rice..just a thought)....imagine what would happen.

the fact is - wheat has become 3x more expensive this year (well..at least twice) - rice has only been slowly rising in price (some folks in the EU may not even notice the difference once you take the falling dollar into account), and the Oct 9th incident has only reinforced the industry's concern or I would say the industry's refusal to accept facts has finally been challenged.


The result - rice prices will be higher but also more volatile.

Suddenly you have all exporters "dreaming" of what price they can get...but be warned, when you go in search of peaks and looking to time your decisions, things can go wrong..exporters may perhaps prefer to be in control of theie supply chain, manage freight and concentrate on their role as a supplier of choice, once who can be counted on (ie minimize, better still - no defaults), and work on making this opportunity and occasion to build business, even brand both in trade and at consumer levels and the foundations for the long terms where the controlling factor will be value.

On that note let me check out.. there are some serious concerns that I will keep watching while I complete the rest of the year where I will look more at shipping and then end the year with our annual coffee conference.