[Vnbiz] Behind the Run on Rice

[Tran Dinh Hoanh]

Dear CACC,

FYI.

Hoanh
______________


http://www.businessweek.com/bwdaily/dnflash/content/apr2008/db20080424_496359_page_2.htm
 Behind the Run on Rice Despite bumper crops in Vietnam and India, export
limits and bans have created a global shortage and driven up prices

by Pallavi Gogoi <http://www.businessweek.com/bios/Pallavi_Gogoi.htm>
  At the Costco in San Francisco, rice is all the rage. Not long after the
10 a.m. opening on Apr. 24, the warehouse club was well on its way to
selling out the day's supply of Thai jasmine rice. Within an hour, customers
cleared three pallets loaded with 50-lb. bags of Super Lucky Elephant brand
jasmine rice from Thailand. Real estate broker Mary Jane Galviso snapped up
two bags—the limit imposed by this particular store. "This is very
frightening," says Galviso, who hails from Orosi, a rural community in
California's Central Valley, more than 200 miles southeast of San Francisco.
Her local grocery, which specializes in Filipino foods, has run out of Thai
jasmine.

In a dramatic development for U.S. consumers this month, shoppers and Asian
and Indian restaurant owners started panic-buying two of the highest-premium
varieties of rice—Thai jasmine and Indian basmati. That led many grocers to
run out of the rice, and warehouse clubs including Costco and Sam's Club
imposed limits on how much rice shoppers can buy.

The restrictions placed by Issaquah (Wash.)-based Costco
(COST<http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=COST>)
vary across the country, while Sam's Club, a division of Wal-Mart Stores (
WMT<http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=WMT>),
limited its customers to four 20-lb. bags of rice. "We've heard of cases
where restaurant owners are hoarding three weeks' supply of rice in their
basement, which is obviously more than they currently need, which makes the
situation even worse," says Richard
Galanti<http://investing.businessweek.com/businessweek/research/stocks/people/person.asp?personId=200006&symbol=COST>,
Costco's chief financial officer.
Record High Prices for Rice

In a statement Apr. 24, Sam's Club said its rice limits "are designed to
prevent large distributors or wholesalers from depleting our stock. We
believe limiting rice purchases to four bags per visit is consistent with
the needs of the majority of our members, including many restaurants…. We
will continue to work with our suppliers to manage inventories to meet
demand."

The rice rationing in the U.S. comes as the torrid pace of commodity price
increases has led to violence over food supplies and costs in several
nations. Globally, rice prices are starting to hit record highs, following a
host of other commodities. However, experts are clear: There's currently no
shortage of rice. "Vietnam and Thailand have had record rice crops in the
past year, and India too has had bumper crops," says Nathan Childs, a senior
economist who follows the global rice market at the Economic Research
Service of the U.S. Agriculture Dept.

Instead, what's driving the price of rice so high are widespread worries
about food inflation in many rice-growing nations. "In poorer nations, a
large share of people's earnings is spent on food, and big price increases
in other kinds of food are harming consumers," Childs says. So to protect
their supplies of rice—a staple food in much of the world—several countries
have imposed export bans or sharp limits. That has led to a sharp reduction
of rice available for trade in the global market. In 2007, India and
Vietnam, two of the world's biggest rice exporters, reduced their rice
shipments. Since then, Cambodia, Egypt, and Brazil have all halted rice
exports. And many observers worry that Thailand, the world's largest rice
exporter, might jump on the bandwagon.
Lots of Action in Rice Futures

Prices have soared to eye-popping levels in recent weeks: U.S. long grain
rice has doubled, to $800 per ton. Indian basmati rice prices are up 182%,
to $2,400 a ton, so far in April, compared to $850 per ton a year ago, while
Thai jasmine has more than doubled in price since last year, from $559 per
ton to $1,125.

The runup has been especially sharp since January, when Thai jasmine rice
was trading at $625 and basmati at $1,300 per ton, respectively. At the
Chicago Board of Trade, rice futures have historically been one of the most
thinly traded contracts.

However, with rice futures gaining 80% in the past year to $24 per
hundredweight, the contract is seeing a lot of trading lately. (A
hundredweight is the equivalent of 112 lb.) "I've never seen a rice market
until this year in my three decades of trading grains," says a shocked Tim
Hannagan, senior grain analyst at Alaron
Trading<http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=109216>in
Chicago.
Allegations of Global Rice Hoarding

The outlook appears grim, especially for nations that are net importers of
the grain and that have large rice-consuming populations, such as the
Philippines and Iran. A recent international auction offers one glimpse into
how tight the global rice market has gotten this year. On Apr. 15, according
to the Agriculture Dept.'s Childs, the Philippine government tried to buy
500,000 tons of rice in the global market but managed to get only 320,000
tons, leading several rice trade groups to contend that producers are
hoarding rice to see how much higher prices will rise. That news sent a jolt
through wholesale marketers around the world.

Restaurants and consumers in the U.S. followed suit last week and started
buying up their own future rice requirements. The Philippine government has
announced that it plans to enter the rice market for another 100,000 to
600,000 tons. If it can't find the rice it wants to buy, that could signal a
true crisis for the staple at a time when the world is already gripped by
concerns about food prices and supplies of other staple products such as
wheat and meat.
Aromatic Rice's Recent Gain in Popularity

Jasmine and basmati are both known as aromatic rice, because of the special
aroma they emit while cooking, an attribute that has proven difficult to
duplicate when grown in countries other than their origin. Because of this
quality, they have always commanded substantially higher prices than other
varieties of rice. Basmati is grown in India and Pakistan, while jasmine
rice comes from Thailand. Their consumption in the U.S. has grown
exponentially in the past decade, while overall rice consumption has kept
pace with U.S. population growth, rising a mere 2% or so annually in the
past decade.

Imports of jasmine rice from Thailand grew 78% in the last 10 years, to
394,000 metric tons in 2007, while basmati imports in the same period grew
112%, to 71,000 metric tons in 2007, according to the USDA. While both types
are sold in India and Thailand, these highest-premium varieties are rarely
consumed in their native countries and are produced mostly for export to
Britain, the Middle East, Hong Kong, Canada, the U.S., and Singapore.

Clearly, consumers like California's Galviso prefer Thai jasmine rice. Her
family eats rice at three meals daily and prefers the jasmine variety,
calling it "the prized one, because of its smell." On Thursday, Galviso was
willing to detour into Costco despite her several-hour commute into San
Francisco, where she works. Still, to keep costs in check, she has resorted
to mixing jasmine with other, less expensive varieties.

San Francisco's Costco sells 50-lb. bags of jasmine rice for $21.99, while
other stores sell the same rice for about twice that. The company is trying
to satisfy customers' demand for rice while keeping prices in check. It's
anyone's guess how long the company can continue walking that fine line.
"With every single truckload, the price goes up," says John Booth, a
regional operations manager, who adds that he hasn't seen such great demand
for rice in his nearly 22 years with the company. "We're seeing prices
increase daily."

Gogoi <Pallavi_Gogoi at businessweek.com> is a contributing writer for
BusinessWeek.com

-- 
Tran Dinh Hoanh, Esq., LLB, JD
Washington DC
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