Price of rice to double despite record harvest

NEW DELHI - The world may soon pay more than ever for its most abundant food: rice.

A record crop this year will do little to slow the price rise for the staple of three billion people.

Stephan Wrobel, chief executive officer at Diapason Commodities Management in Lausanne, Switzerland, says that as China, the biggest consumer, and Vietnam, among the biggest exporters, continued to plough under their paddies, rice will double within two years to almost US$20 per 100 pounds from US$9.90 now.

Roland Jansen, of Liechtenstein-based fund Mother Earth Investments, says: "Fields in China are now being turned into land to build" apartments, factories and roads.

The prospect of reduced production threatens to spur inflation in rice-importing nations from the Philippines to Nigeria, while driving up costs for manufacturers including brewer Anheuser-Busch, the US' biggest buyer of the grain, and cereal makers such as Kellogg.

Rice inventories worldwide are already near a 26-year low and will drop further, says the US Department of Agriculture.

The quantity of unsold rice this year will be barely half the level of 2000's surplus, reducing the buffer against a crop failure, the department forecasts. Fertiliser and irrigation costs are rising with energy prices, and farmers are turning to cheaper-to-grow grains, fruits and vegetables.

"You have more and more people in the world and yields are not rising as quickly as the increase in population," says Mamadou Ciss, managing director at Ascot Commodities in Geneva, which traded 1.3 million tonnes last year, almost 5 per cent of the international market. "World stocks are very, very tight." Ciss expects prices to double in three years.

Rice may be the second-best agricultural investment, behind only the ethanol-powered corn market, says Julius Baer Holding, Switzerland's largest independent money manager.

Rice for November delivery gained 4.8 per cent last week to US$9.895 for each 100 pounds on the Chicago Board of Trade, the highest weekly close in more than two years.

Prices have jumped 48 per cent in the past year, outpacing the 19 per cent increase in wheat futures and the 8.3 per cent gain in corn.

The record is US$12.92 per 100 pounds, reached in December 1993. The world's largest exporters are Thailand, Vietnam and India, and the top importers are the Philippines, Nigeria and Iraq. China is the biggest rice consumer.

China has lost eight million hectares, or 6.6 per cent, of its farm land in the past decade, a Ministry of Land and Resources survey found.

Even forecasts for a record global crop are unlikely to dampen price rises. The world's rice crop will probably increase to 634 million tonnes this year, says the United Nations.

Growth in harvests will be curbed by the cost of fuel and shortage of land, says Greg Smith, managing director of Global Commodities in Adelaide, Australia.

"Even with genetically modified crops, we still require water, and fertiliser and equipment to harvest the crop," he says.

A developing El Nino weather pattern also threatens to reduce rice harvests. The last strong El Nino in 1997 and 1998 led to record imports by Indonesia, the third-biggest producer and consumer.

Grain gains

* Rice is the staple grain for three billion people.

* China and other Asian developing countries are ploughing under rice paddies.

* Pundits expect the price of rice to double in the next three years.

* A developing El Nino weather pattern threatens to reduce rice harvests even further.

- BLOOMBERG