Sunday, 4 May 2008

Made in China: Your Rice Bowl

Another interesting story from Forbes.

A Black Market Grows In Rice

Shu-Ching Jean Chen, 05.01.08, 2:26 AM ET



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With grain prices surging and major producers restricting exports, a lucrative illicit trade in rice and flour has emerged in Asia.

The biggest opportunities may be in China, the world's largest rice producer, where grain prices are among the lowest in the world due to a combination of domestic subsidies and export curbs.

Reports of rice smuggling have surfaced this week in areas all along China's sprawling borders, from Yunan province next to Vietnam, to northwest Xinjiang, which borders the central Asian states of Kazakhstan and Kyrgyzstan, all the way to Guangdong, a prosperous southern Chinese province that sources 60% of its rice from elsewhere in the country. Smuggled Chinese rice has turned up in Hong Kong and Macau, where prices are in line with international rates and there has been panic buying. So far, Chinese customs officials have described the incidents as isolated, but increasingly the authorities are worried about the potential for an expansion of smuggling should price gaps widen further.

Smuggling is occurring across Asia due to price disparities between major grain-producing countries, where domestic prices are being kept artificially low, and the region's major importers.

Indonesia, a major rice producer that curtailed exports last month, is stepping up border patrols to prevent smuggling to the neighboring Philippines, the world's largest rice importer.

Pakistan has been trying to stem smuggling of rice and wheat into India and Afghanistan. Last month, an Afghan border policeman was reportedly killed in an exchange of fire with Pakistani troops who were trying to stop a caravan of flour smugglers.

In the case of China, the root cause of smuggling is obvious: Prevailing international rice prices are as much as four times higher than in China; the price of wheat, more than twice as high.

China accounts for nearly a third of total world rice output.

There's no reason for China to worry that the smuggling will take food out of the mouths of its citizens. Four consecutive years of ample grain harvests have not only allowed China to meet its self-sufficiency goal of satisfying more than 90% of domestic demand, but also to build up massive reserves.

Attempting to reassure the public of the government's ability to feed the country amid the tightest global grain markets in three decades, Premier Wen Jiabao said in March that China had accumulated between 150 million and 200 million tons of grain reserves, enough to supply more than 30% of its annual consumption, compared with the 17% to 18% mark deemed safe by the U.N. Food and Agriculture Organization. That explains why, despite blistering headline inflation due to the skyrocketing prices of oil and pork, Chinese rice prices remain stable.

With all the incentives to continue subsidizing rural rice farmers, China may choose to live with the price disparity for some time. Better to build a Great Wall against rice imports than risk irritating millions of its poorest citizens.

Saturday, 3 May 2008

What can we do about the food crisis?

There is an interesting story in TODAY, an English newspaper in Singapore, on the proposal by Thailand, the world's largest rice exporter, to set up an OPEC-like cartel with other major rice exporters in the region to control rice prices. For more, see here.

Meanwhile, the current issues of the BRIDGES Weekly Trade News Digest by ICTSD published a piece on how to tackle the current food crisis.


In an attempt to address the global crisis over high food prices, UN Secretary-General Ban Ki-moon has set up a special task force drawing on 27 international agencies, including UN bodies as well as the WTO and World Bank.

Sharp hikes in the price of a wide range of staple foods have sparked unrest in a number of poor developing countries in recent months. The increases have been driven by a variety of factors, including poor harvests, policies encouraging the use of food crops for biofuels, and market speculation (see BRIDGES Weekly, 23 April 2007,

The heads of key international agencies met in Bern on 29 April, where they agreed to step up emergency food aid through the World Food Programme, as well as to work to promote a longer-term solution to the problems of the global food supply.

Speaking to journalists following the meeting in the Swiss capital, Ban urged countries not to further exacerbate the problem by installing new export restrictions for key food crops, such as rice, as many major exporters have done.

WTO chief Pascal Lamy and World Bank President Robert Zoellick expressed similar views. "We urge countries not to use export bans," said Zoellick. "These controls encourage hoarding, drive up prices and hurt the poorest people around the world."

Lamy added that WTO Members should push to conclude the Doha Round in order to help alleviate the crisis. "I believe that today's call for action under the auspices of the UN secretary-general can help WTO Members gather the necessary political energy in order to help developing countries to increase their food production capacity," he said.

Addressing the issue of more far-reaching policy reform, Ban highlighted the need to look critically at biofuel production. "Further research must be undertaken on the impact of diversion of food crops to bio-fuel production and all subsidies to bio-fuels should be reviewed," he said.

Biofuels part of the problem

Civil society groups and scientists are also urging action on grain and oilseed based biofuels, arguing that biofuel use mandates, as well as tariffs and subsidies in rich countries, are promoting hunger by raising the cost of staples.

In advance of the UN coordination meeting, Oxfam International reminded participants that deep distortions to the global agricultural trading system needed to be remedied, including relatively new ones related to biofuels.

Celine Charveriat, Oxfam's deputy advocacy director, called for developed country subsidies to biofuels to be axed. "Biofuels are not only a major cause of increasing prices but are also linked to labour rights abuses and land grabs in developing countries. Furthermore, research suggests they may make climate change worse. In this context it is absolute madness to have mandatory targets," she said.

A New Deal on hunger?

Other commentators have also linked biofuels with hunger.

Nancy Birdsall and Arvind Subramanian of Center for Global Development argued in a recent blog entry that EU and US biofuel mandates and subsidies were raising food prices, and that these higher prices were prompting several developing countries to restrict food exports, compromising the global food supply (

In order to address the food crisis, they called for a 'new deal on hunger', under which industrial countries would eliminate all forms of subsidies to biofuels that compete with food production. In return, developing country food producers would eschew export restrictions, and importers would lock in their recent tariff cuts on food ("a plus for all agricultural exporters"). As part of this new deal on hunger, Birdsall said that developing country exporters could temporarily set aside their objections to developed country subsidies and tariffs on staple foods - "the bone of contention in the Doha trade round."

These trade-distorting agriculture subsidies in rich countries, however, have been blamed for reducing food production and agricultural investment in developing countries.

Joachim von Braun, head of the International Food Policy Research Institute (IFPRI), has proposed a global moratorium on biofuels in 2008, saying this would lead to a decline in the price of maize by about 20 percent, and of wheat by about 10 percent, in 2009-10, directly alleviating the food crisis. Von Braun did not express opposition to biofuels as such; he acknowledged that while some are bad, others are good, and increased international trade in efficient cane-based ethanol could help provide a sustainable solution. Brazilian ethanol, considered among the most carbon efficient, currently faces steep tariffs in the US and European markets.

Sustainability criteria not enough

Meanwhile, an advisory panel to the European Environment Agency said that the EU should suspend its biofuels target, calling it "overambitious [and an] experiment [whose] unintended effects are difficult to predict and difficult to control." Although stressing that not all biofuels are bad, nor biofuels the only reason for soaring food prices, Laszlo Somlyody, the panel's chair, said "the idea was that we felt we needed to slow down, to analyse the issue carefully and then come back at the problem."

EU members have agreed on plans to make biofuels account for 10 percent of transport fuel by 2020 (see BRIDGES Trade BioRes, 25 January 2008,, and BRIDGES Trade BioRes, 18 April 2008,

UK Prime Minister Gordon Brown also recently called for a rethink of the mandate, saying that "We need to look closely at the impact on food prices and the environment of different production methods and to ensure we are more selective in our support (for biofuels)."

However, the European Commission has been adamant that there will be no rethink of the 10 percent target.

Although the EU is building sustainability criteria into its biofuels policy, environmental groups including Greenpeace and Friends of the Earth Europe say that on the basis of drafts they have seen, they doubt the rules will be effective. A coalition of civil society groups wrote a letter to EU officials in early April, calling on them to "reject weak proposals and ensure that adequate time [is] taken to reflect the latest scientific evidence [in order to] avoid exacerbating the current climate and ecological crises and to prevent detrimental human impacts."

In the US, where 20-25 percent of maize is being distilled into ethanol this year, some states have started to rethink their biofuels policies. In Missouri, a state house committee on transportation is considering whether current policies can be rolled back. Texas Governor Rick Perry has asked for a waiver with regard to the full ethanol mandate. The US has set a mandate of using 9 billion gallons of renewable fuels in 2008, rising to 36 billion by 2022.

The civil society letter on the EU biofuels target can be found at:

ICTSD reporting; "UN chief orders task force to tackle food crisis," AFP, 29 April 2008; "Food Price Hikes Fuel Anti-Ethanol Moves In US," REUTERS, 28 April 2008; "Environmental Groups Call for Credible Biofuel Safeguards," FRIENDS OF THE EARTH EUROPE - PRESS RELEASE, 4 April 2008; Letter to Ambassadors, Birdlife International, EEB, FOEE, Greenpeace, 2 April 2008; "The Legality of PPMs under the GATT," Jason Potts, IISD, 2008; "EU Can Hit Biofuels Goal Without Conflicts-Germany," REUTERS, 14 April 2008; "EU Environment Chief Raises New Biofuels Condition," Reuters, 16 April2 008; "An Appeal to Slow Down on Biofuel," INTERNATIONAL HERALD TRIBUNE, 16 April 2008.