While shopping at Costco yesterday, I was greeted with a peculiar sign:
We bought one bag, which apparently did not require supervisor approval. My weak understanding of all the buzz:
1. Rice prices globally are rising.
2. This is greatly affecting countries like China, Vietnam, India, who are usually great exporters.
3. They may not export as much.
4. US citizens will likely pay more as a result.
5. Big rice buyers like bakeries worried, want to buy lots of rice now.
6. Costco and Sam’s want enough rice to make all their customers happy, so they limit purchases.
7. Buzz from CNN playing this story all day long causes (I think) undue hoarding.
But, why not just raise the prices now? It’s not like a Wii where the price is set by Nintendo. Is this happening near you as well?
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Nothing to fear but fear itself…and the cost of fear can be very significant. Would say more but i gotta go now.
The price HAS risen more than 200% in the past year. With that kind of increase “poor folks” can’t afford to feed themselves, hence causing them to riot.
Don’t forget all the other fun food shortage news: drought in Australia, no butter in Japan, corn/soy bean prices doubling, major grain exporting country have shut off exports.
Sounds like the beginning of “the end” to me. Ok, maybe not yet, maybe just one more tiny thing would put the world over the edge, like a drought in the Midwest.
global supplies are down, from Australian drought and other severe weather affecting Asian farmers and many countries have ceased exporting.
worlds poor are spending half their incomes on food (rice). This will severely affect global aid. I wonder if freerice.com will be able to continue donating rice. So far I’ve donated about 10,000 grains of rice, though I have yet to count the grains of rice in a bag so I don’t quite know how much rice this is.
I don’t think prices have hit US consumers yet, but it is on the way, from bakeries to cereals and other grains. I suppose this will in turn raise meat prices and we’ll have to tighten our belts a bit.
I agree, why not raise prices? that would probably curb demand without breeding fear. What I’ve read is that there is not a shortage, they just don’t want to run out… but that makes no sense.
Is it price gouging for stores to dramatically increase prices to curb demand if their purchase price has not increased?
arbitrarily raising the price may not hurt most people, but it would seem that rice is a cheap way for people with a limited income to eat – they may be hurt most by the price climbing. personally, i dont eat enough rice for it to matter – a bit here and there, but i could double my rice intake and still not notice the difference on my grocery bill… i would just blame it on milk, oj, etc, etc, etc going up.
I like to buy 20 lb bag every six month or so. Last time I paid for 20 lb bag was $11 and this time I bought it was $18.
So you can say price have increased but it doesn’t matter in developed country like US beacuse 20 lb bag is less than an hour of salary for most of the people. But in developing or under-developed country, food (rice) for whole family constitutes of 30% to 80% of their earning.
In US people (including me sometime) like to throw away food without realizing that even a handful of rice can save a person life in Africa or drought hit asian countries. Yes people are still dying because of hunger.
The kicker was CNN throwing the word “rations” into their headlines yesterday. Way to fuel an unnecessary panic.
From what I read the limit is four 20-pound bags per visit, so this isn’t exactly affecting the home chef here. It’s targeted at small businesses who want to stockpile ahead of rising prices.
We eat a lot of rice, so that would affect us a lot more than other staples going up. I guess we’ll see how it turns out…I’m not really sure what to do, major stockpiling seems impractical.
@Wes: “Sounds like the beginning of “the end” to me. Ok, maybe not yet, maybe just one more tiny thing would put the world over the edge, like a drought in the Midwest.”
Actually, I believe we are in a multi-year drought cycle. We could quite possibly experience a wet spring (hard to get into the fields and plant) followed by a hot dry summer. It’s a bad combination because a plant will put down shallower roots with a wet spring. The result of course is poorer yields.
There are many reasons for price increases for rice and commodities around the world: bad weather (drought in Australia, insects in Vietnam etc…), biofuels consuming large quantity of food crop (corn), high oil price, rising affluence in developing countries like India, China (people want to eat more meat and it takes more grains to feed livestocks).
Prices of rice have already risen in the US. A 50-pound bag of jasmine rice used to be around $23, now about $40. Hoarding is a natural human tendency. However, living in an affluent country like the US, it is really not necessary and it will only exacerbate the problem.
An average US family spends less than 10% of their income on food so a 10% increase of 10% is only 1%. However, this is a severe problem for poor countries where food consumes a majority of their income. My heart goes out to these people. We could help by donate to World Food Program: http://www.wfp.org
Hoarding by consumers and brokers is a large part of the problem and is making the situation worse than the drought that started the price going up in the first place. But with maybe just one or two exception the U. S. should not help any country. That only forces the poor in the U. S. pay for the poor in some other country. That is a bad policy if that happens.
Why not raise prices now? Because big box retailers like Costco don’t have a lot of discretion in setting prices. If you went to a local (non-chain) grocer, you may find higher prices already.
Justjoeguy – The U.S. is (at least partly) responsible for the food riots in other countries. By giving growers incentives to divert crops to ethanol production, we’ve made grains more expensive across the board. Moreover, producers are switching land use to corn in order to capitalize on the ethanol subsidies. This, combined with biofuel subsidies in other countries (like the UK), growing demand for grains and grain-fed livestock from other markets (India and China), droughts in Australia, high oil prices … you’ve got the perfect storm leading to a global food crisis. Point is that the U.S. is not innocent and shouldn’t just ignore the effects of our actions on other countries.
The US is a net exporter of rice because we hardly eat any of what we grow. Don’t worry about shortages in the USA, except maybe your favorite name brand rice imported from India. I can’t remember the percentage, but we export something like 80% of what we grow. So if farmers in the USA start using rice to make ethanol, then the USA consumers won’t have a problem finding rice (price might go up of course), it’s the countries that we normally ship it to that will be hurting as they can’t import what we burn in our cars.
Where I live, if there is even a rumor of a dockworkers strike, people start hoarding toilet paper (and rice too actually) and that causes the ‘outages’ as the supply chain gets overwhelmed. If people didn’t panic, there would be NO problem as there would be enough for everyone on the island in the supply chain of warehouses and stores. But unfortunately greed and wanting to get mine first is what happens and is the cause of most problems. So, instead of everyone having enough, some people have stuff in their closets for years after the ‘strike’ doesn’t happen and others are forced to make do without.
So, who is ultimately to blame? The media for having to have their ‘story’ and rousing the people into their hysteria.
OK, the more I read about this the more “angry” I become because people are drawn to all these crazy talk. To simply put, the world rice production has never dropped in the past few years due to any of those bogus reasons such as “bad weather in Australia” or “Ethanol subsidy induced food shortage”. The media gave these reasons without ever check its facts. People, many of them well educated, just bought these reasons without even putting one bit of critical thinking in them. It’s like, since New York Times and CNN are all repeating the same thing, then they must be true!
C’mon people, wake up. Check your facts then make up your mind. We spend years in college be trained to think independently, critically, not just some algebraic formulas and technical writings.
The fact is that the world food production has been steadily increasing in the last decade after the cold war and the UN said in their report a couple of years ago thanks to this increasing production and efficiency, there are more people came out of starvation than any other period in our modern history. The traditional rice producers are all having major harvests in the past few years. Australia’s major agriculture products are wheat, lamb, woo, and beef. They don’t have a good geographical area to grow a lot of rice (Australia is very dry!) US on the other hand, is a big big rice producer itself. US produces and exports rice.
This is very much like the oil price scare. Even till today, there’s no clear evidence to show that world oil supply is even close of being threatened by the China/India demand. It’s essentially a commodity game and the commodity traders are the people behind this unreasonable and illogical push up of the price. Period. The simple market supply and demand is being replaced by the prospective supply and prospective demand. The only problems are: 1) we are not very good at predicting things, ever; and 2) prospective target affecting present market transaction is illogical and against true market operation principles.
good point, arz. we are not short on calorie production globally. what we are short on is sensible logistics and policies (based on artificially cheap fossil fuel for the past couple of decades) that could deliver these calories where they need to be, when they need to be. hence any regional stockpiles have been under stress — so the global supply chain is under stress. if we rely too much on “Just In Time” delivery for a large and complex enough system, then we will be more sensitive to disruptions than in the past. just like the crazy financial tools with too much leverage, we are pushing distribution to its limits, not supply.
and don’t even get me started on the politics of national tariffs/incentives and their role in straining stockpiles and distribution. grrrr.
You can all thank Bernanke for the rising commodity prices this year.
WHY DON’T BIG BOX STORES JUST RAISE THE PRICE?
Because they make most of their money not from the sale of goods, but from the charging of membership fees. Making an extra buck or two or even losing a buck or two on a bag of rice is less important than having the customer renew that membership year after year. If rice sold out due to panic or speculative buying, or if the price was raised a lot, it would leave a bad taste in the mouth of a significant portion of their customer base (people who eat a lot of rice).
Basically, they just want to make sure that every time one of their dues-paying members walks in the store, they can buy a 25 pound bag of rice at a price that seems like a good deal. Even if they lose a few bucks on price, they make it up elsewhere.
I think Costco is crazy. Raise the price. Quota are what should be used only in extreme circumstances (I know quotas were used in WWII for sugar…). I could understand quotas in a country where there is a drastic shortage. In the USA we have a mechanism to regulate demand – price. And unless the situation is crazy (like massive shortages in the USA) of basic food stuffs using quota just seems lame to me.
Just bought a bag of rice yesterday in Pennsylvania for about 2x what it was last time we bought. ($4+ for a “bag”)
what use does rice have for bakeries? I didnt think rice was used for making bread. Please enlighten us.
I agree with arz. CNN admits that if we feel any shortage of rice, it’s because people are hearing all these scare stories and stockpiling (especially restaurants), causing an actual short-term shortage.
arz,
Thank you for reminding me to not question so blindly. I totally ate up that bull about Australia. what are your sources? I visited http://www.riceworld.org – the intl. rice research institute and it does not appear that rice production is steadily increasing. Maybe slightly, though figures for 1999 nearly matched 2006. Even if we assume that food supply has been increasing, can we assume that it is keeping up with the worlds population growth? There is evidence pointing to increasing stress on the food supply as population has been more than steadily increasing. Rapid price increases also threaten to erase all the gains made in starvation eradication.
Also, US is not a major producer, though we can take care of ourselves. 90% of rice is grown in Asia, 50% in India and China alone, and most rice is not globally traded (7%).
I don’t know about anyone else, but I stocked up. I go through it pretty fast and I wanted in before the price jumped and before Jasmine rice supplies stop reaching US markets. In that sense, people are wise to buy during a run on the market, before prices rise. As a good that has a long shelf life, one may as well maintain a reasonable stockpile.
Oil is an interesting case of speculation and perception. While you may be right about prospective supply and demand, all the price speculation has not curbed demand, so it seems to be a rather inelastic, scarce, commodity. Ahmadinijad of Iran said Oil must find its “true price,” and American policy makers are saying “there is nothing we can do to lower prices.” consumption behavior is not changing despite drastic price increases
Arz, I understand where you’re coming from. The mainstream media and big box rations are all contributing to a sort of mass hysteria. But it’s wrong to assume that there’s no global food crisis, just because the media says so. Even a broken clock is right twice a day. You shouldn’t let your distrust of the media automatically discount everything it publishes, and you should definitely check your own facts.
The quoted passages below exerpts are taken from the United Nations Food and Agriculture Organisation’s Crop Prospects and Food Situation Update, February 2008. Emphasis mine.
Demand is up: “World cereal utilization is forecast to reach 2 120 million tonnes in 2007/08, pointing to a growth of 2.6 percent from the previous season. This relatively strong growth (about 1.6 percent above the 10-year average) reflects higher food and feed utilization as well as a significant increase in industrial use. Total food consumption increase is mainly concentrated in the developing countries and mostly driven by population growth. Total world feed utilization of cereals is forecast to increase by nearly 2 percent in 2007/08, to 754 million tonnes. Most of this increase would reflect a sharp expansion in world utilization of coarse grains, which in part reflects a gradual recovery in animal production. In addition to food and feed, the industrial usage of cereals is also growing. In recent years the rapidly growing biofuel sector is emerging as a leading source of demand.”
Supply is down: “As a result of strong demand and a shortfall in overall cereal production in 2007 compared to utilization needs, world cereal stocks by the close of the seasons ending in 2008 are expected to fall to just 405 million tonnes, down 22 million tonnes, or 5 percent, from their already reduced level at the start of the season and the smallest since 1982. ”
In particular, rice is down: “Global rice carryover stocks at the end of seasons in 2008 are estimated at 102.4 million tonnes, which would represent a 1.2 million tonnes drop from their opening levels. The expected decline suggests that production in 2007 would fall short of utilization and that drawing from world reserves would be needed to bridge the gap. Although as a group, the traditional exporting countries are foreseen to end their seasons in 2008 with larger inventories, much of the increase would be concentrated in China. The situation in the other traditional exporting countries is less buoyant, since Australia, Cambodia, Thailand, the United States and Viet Nam are all anticipated to end the season with smaller inventories.” Any coincidence that Australia is in the sixth year of a drought? By the way, you probably don’t think Australia exports a lot of rice because its rice industry contracted 98% since the beginning of the drought. Before, it made up 2-3% of the global rice production.
In short, people want crops for eating, for feeding animals (for eating), and for biofuels. But even in cases where supply is expanding, it’s not expanding at a rate that keeps pace with demand expansion. That means shortages.
No need to panic, because United States has not hit crisis levels. But don’t belittle the suffering around the world (with people rioting for food) by saying, pooh-pooh, the media is blowing things out of proportion.
K – Yep, import/export restrictions are definitely not making the situation better.
Once upon a time Andy said…….
Oh, Bernanke’s on my list allrightee……….DEAD POOL list!!!! The very TOP of it!!! I throw darts at it every day!!!
But in regards to this problem…….I’ll start worrying abut it when Mickey D’s runs out of $1 double cheeseburgers. 😉
Rationing makes people irrational. They should just raise the prices to meet demand. You don’t HAVE to buy rice in bulk.
I think the Daily Show did a great job covering the food crisis: The media has blown things out of proportions, so Americans are panicking about a non-existent crisis while paying no attention to a very real global crisis. Except the Daily Show explained it in a more humorous way.
Yesterday I bought 4 sacks of 20lbs jasmine rice at my local Indian store for $15/each. Five minutes later my friend stopped by at the same store and the store owner jacked up the price to $20 after he realized the local mexican store sold 20lbs rice for $23. So ridiculous!
The Australian drought is related to butter shortage in Japan and overall dairy problems. I was using the drought as an example of the food “shortage”. The Chinese are eating more meat and driving more cars. Every extra bit of oil, wheat, rice, corn, and soy produced is being sucked up. A little blip any where in the chain will cause significant issues in other places around the world.
There are a lot of people that subsist on about $1 a day of food. If the food doubles in price, as rice has, you are going to starve.
I work at a Costco and today we had 2 pallets of rice in the front of the warehouse. The doors opened and it was like the day after Thanksgiving, people came running through the door to grab as many bags as they could. 90 or so 50lb bags were gone in about 3 minutes.
Costco bases their selling price on what it costs them, so that is why the price hasn’t jumped…. yet. As soon as it gets to the buyer that the price to buy has gone up it will pass it along to the consumer.
They also limit in my store be cause they want to make the member happy or at least – which decision angers the least amount of people. If they limit to 3 or 4 bags a person more people will be getting something. Plus some people who don’t use rice normally will come in and buy 40 bags just because they hear there is a shortage.
We don’t use a lot of rice in our diet, so a warehouse size box of Minute Rice(TM) is usually good for 6 to 9 months for us, but seeing the craze this morning even had me thinking, “maybe I should get a bag” even though it would last us 5 years. :0
Lily, you totally missed my point. I never said there’s no crisis, I just said the crisis was not caused by simple imbalance of supply and demand, but largely speculative moves by commodity traders for their own gain.
In other words, yes, there is a major crisis in the developing and under-developing world, Africa in particular. It is caused by not lacking of supply of food, but the high price of the food. In turn, the high prices do not (should not) reflect/justify the true availability of the commodity. Even if there is a 5% short fall of the world demand on rice production, it should never justify a 200% jump in price in just one year.
Your own logics seem explained my point well. You said even with high oil price, the global demand on oil has not decreased. I’d add one word after your sentence – “yet”.
Things don’t happen over night. The balance of supply and demand are always like a slow moving seesaw that you will never see them swing like two crazy monkeys jumpy back and forth. The global demand on oil will have to be adjusted, either by reducing demand itself (such as driving less), or through inflation (get paid more so you can afford $6/gal. gas). Eventually, inflation will induce more damage and soon or later you will see demand will fall. People in US are already driving less, tough guys are buying 2nd smaller trucks while keeping their F-350 Heavy Duty and Doudge Ram 3000 in their 3 car garage more often.
The same pattern applies to the other side of the curve. Yes, the Chinese are eating out more, wanting better diet and all. But their wealth is not increased over-night. Thus their demand is only gradually increasing. Oil price increased 400% in just few years. If you want to contributing that kind of increase squarely to just those growing tofu (soy) eating Chinese, you should expect that half billion Chinese all driving BMWs and living in 5,000 sq. ft. houses by now.
Again, this 200%-400% price in crease is not justifiable by just global demand alone. Ethanol phenomenon is very much unknown right now. Bush only started trying to put that into his agenda a couple of years ago. Yes, the demand will increase, but it will not likely change the landscape that quickly.
Arz –
Global oil demand & consumption has been increasing annually by several percentage points over the past few years. Yet from 2005 to 2007 global oil production has DECREASED! 2005 was the all time PEAK in oil production. Hence the dramatic price increase – it really is supply and demand, as simple as that. There are no fat men in back rooms with cigars cornering the market on rice/oil/wheat/corn/butter.
Oil production, so far, has peaked in 2005 – now whether that was “on purpose” or not is debatable.
As for rice, 2007 was the 2nd year in a row where global rice production could not keep up with demand and population growth.
-Wes
Does anybody know an article that actually backs up the theory that speculation is driving the rice price increase? Don’t get me wrong, I suspect that it is true, but I just haven’t seen any figures.
Well, I cannot find an article about rice price speculations, here is a wonderful website layout the overall rice production and its impact on the pricing:
http://www.sagevfoods.com/MainPages/Rice101/Production.htm
a couple of key points here:
1- Out of all the total productions of the world, only about 5% are traded (hence most rice producing countries consume its own productions)
2- US, though only produces about 2% of rice world total, is in fact 2nd or 3rd largest exporter of rice. The other 2 largest exporters are Thailand and India.
3- The world market price of rice is always highly volatile because of #1 (5% are traded)
4- There are no known natural disasters in the past year that curbed the domestic production of rice in China, India, and elsewhere. West Africa and few other places in the under developed world had always had problems producing enough food for themselves. So they are always the first to get hurt when the price are jacked up.
5- Not all rice are the same. Far Eastern Asians will only eat medium grain rice (sticky rice) while Southeastern Asians prefer long grin varieties. This made the market fluctuation of pricing even less predictable. In general, however, this year’s price surge was not tied to any particular shortage anywhere, certainly not the US domestic market as half of the US production is enough for the domestic needs.
6- Year 2008 will be the highest food production year worldwide. We will see whether the food commodity price will drop or not. I have a sense it might not drop much just like the oil price.
It’s certainly not one “fat guy” sit there pushing a button that caused this panic. But a lot of people, driven by media, are making more and more paradoxical claims about the shortage and incredible demands that caused this entire drama to proceed.
Couldn’t they have found a less panic-inducing way of putting this? Geez…
The U. S. is not responsible for the so-called grain shortage. It’s caused by the weather, hoarders and brokers. Trying to make the poor in the U. S. pay for is irrational. That solves nothing. The way to fix it is to produce more energy at lower prices.
I eat a decent amount of rice but like other commentors I don’t think piling up my rice sacks are practical. I agree they should just raise pricing.
I live in Thailand, #1 rice exporter in the world. This is a top topic right now over here. No shortage here (yet) and a bumper crop expected this year. But prices have doubled in the last few weeks.
Rice farmers here, traditionally quite poor, are hoping to cash in on the higher prices. But rice traders aren’t paying them much more, not yet. Traders got burned by the sudden jump in price because they had so many large forward priced contracts at the old price that they had to fill with higher priced rice. Now they are trying to recoup their losses by offering the old price to farmers. As a result farmers are holding back, refusing to sell. So a shortage may be coming here, which could lead Thailand to restrict exports and drive the price even higher.
The system seems rather unstable.
As a non US citizen living in the US, I can’t help but notice your post implies I’ll soon pay less for rice than you citizens do!
Rockin’! This is even better than the no jury duty thing!