Severe floods and droughts have resulted in bad crops in many places and risingfood prices worldwide. Against this backdrop, will the 2008 food price crisis be repeated this year?
The global food situation is now in a tense mood. That demand is outpacing supply poses one reason. But what really lies behind the tension is the fact that food prices which have been high since the 2008 crisis continue to be on the rise. Price hikes have denied the poor access to food and have enfeebled efforts made by budget-constraint nations to assist their citizens in dealing with food problems. This worsening may trigger new crises in a number of countries where the rich-poor gap has been so immense. As the people have felt disgruntled at inequality and corruption in these countries, escalating food prices send in the last straw.
A long-term forecast of the global food market is a tough job. For years, experts in the fields form two opposing groups when it comes to market estimation in the long run.
Pessimists remain skeptical of an imbalance on the global rice market. The grounds for this argument are similar to those picked to explain the food price crisis in 2008. Food demand is rising as the world population keeps growing while cultivable land is declining. At the same time, climate change has reduced agricultural productivity, and will even wipe out some rice fields. What's more, the ever-expanding demand for bio-fuel has eaten into food supplies. Last but not least, prices of fossil fuel and other input materials have soared, leading to the rocketing investment costs of rice production.
Experts adopting more optimism contend that rice demand in Asian countries will decline, especially in economies gaining better income. Meanwhile, scientific and technological advances will allow rice to be planted in arid regions or deserted land which has not been reclaimed for various reasons. Escalating prices will possibly add interest to research programs and investment in food production.
Regardless of the above conflicting viewpoints on the long-term rice market, the outlook for the supply is much grimmer than for the growing demand, which has haunted rice consuming nations. Generally speaking, rice prices are climbing as input costs are rising. Adding fuel to the fire, the shrinkage of cultivable land is going on unstoppable.
It is almost impossible to forecast the weather. Climate change, besides making rice-growing fields disappear, is a cause to the fickle weather and thus leads to unpredictable prices.
By and large, in the export business, the supply-demand imbalance, glut or scarcity in a while-several weeks or months-can be a prelude to fevers or plunges in prices. Despite a rising trend in the long run, at a point in time, price fluctuations do happen. Therefore, businesses can be in the red and farmers in dilemma. Neither businesses nor farmers are able to keep their products in store long enough to wait for a price increase. Obviously, nobody knows for sure when prices will rise or fall.
Measures to be taken
A lesson can be drawn from the 2008 crisis. That is no government in the world dares to risk allowing the free export of rice at sensitive moments when prices soar and the future is unpredictable. Researchers' analyses and predictions can be right or wrong, and their accuracy causes no direct results. However, a wrong decision made by a government can be quite catastrophic, even so disastrous that it cannot be amended. As a result, prudence should be exercised if all the elements have not been taken into account.
Another notable problem is that rice price hikes are not always beneficial to all social strata in a country, including farmers. If farmers cultivating rice have to sell rice immediately after harvesting it, they will gain no benefit no matter how high rice prices will climb afterward.
While many forecasts have painted a dismal picture of tense food situation, rice export is lukewarm at this moment, prompting exporters to pose the question whether there is a contradiction of information. It can be "the calm before the storm," or as well a result of good preparations carried out in rice-importing countries to avoid another crisis like the one in 2008.
In the end of 2007, several warnings of a food crisis were issued but nobody thought it would be as severe as it broke out in the following year. Then adverse weather and natural disasters prompted food-exporting countries to halt exports. Meanwhile, fearful of the worsening situation, importing countries raised their buying prices. What followed was a chaotic market on the global scale.
Shortly afterward, careful reviews of global food supply, demand and reserves showed that shortages, if any, would not be so acute. Some economies with remarkable reserves-such as the United States and Japan-announced they would soon engage in the market. Although the volume sold by Japan was not large, it soon helped bring down the fever. Prices plunged as quickly as they had climbed. At present, experts contend that the same 2008 scenario will not be repeated as far as its unexpectedness is concerned. However, specialists have no doubt about the fact that food prices will increase.
Currently, there are signs of food price hikes not only this year but also in the coming years. The hard nut to crack is the unpredictability of the weather. Governments are busy with measures to tackle the problem. Those measures are believed to be workable if the weather is not so harsh. Otherwise, severe natural disasters will spell trouble which can be aggravated by bad sentiment.
The key is storage capability
In Vietnam, if regulatory procedures remain the same, they will be inappropriate in the coming years when more businesses will engage in the rice export industry. A perfect example of this is the support for temporary rice storage. Storing rice temporarily to minimize farmers' losses is justifiable. However, the most beneficial in this case were companies provided with the incentives to store rice, not farmers.
The two fundamental weaknesses in Vietnam's rice production and export remain credit and warehouses. Credit in this case is that for farmers, not that for export companies. As long as this problem persists, farmers will be forced to sell rice immediately after harvest again and again.
Storage poses the second problem. Rice warehouses owned by trading companies are capable of storing rice for six months at most; few can keep rice good for more than one year. Meanwhile, the number of State-owned warehouses is modest. As a rice crop in Vietnam often lasts only three months, it helps save investment in building warehouses. However, should disasters happen, this strong point will turn out to be a major disadvantage.
The strategic system of rice storage should be three-tiered: farmers with small-scale storage facilities for short term, trading companies with warehouses capable of storing both paddy and rice for six months to one year, and State-owned warehouses capable of storing rice for more than one year. The Government does not trade rice but it should buy paddy and rice to resell them when the situation improves. This is the flexible mechanism ensuring national food security and facilitating Vietnam's participation in global food security. Food and rice are a key issue. Therefore, the Government should get involved with its policies and regulatory system. This task should not be totally entrusted to companies, even State-owned entities.
To improve the competitiveness of the rice export industry, it is essential to improve the current value chain and the industry itself. In doing so, in addition to existing rice husking and polishing facilities, it is necessary to build a system of standard warehouses. Such a network is the cornerstone of national food security and Vietnam's participation in the global market in case of necessity.
— Food Price Crisis: Credit and Warehouses