China's Ricebowl: Present And Future

There is a Chinese proverb that goes, "without rice, even the cleverest housewife cannot cook".  Rice is literally synonymous with China – rice cultivation goes back at least three to four thousand years. It is part of China’s culture, history and heritage much like potatoes are to Ireland. The word for rice in Chinese is the same as the word for food. And so, when faced with the prospect of a rice shortage, things are bound to turn unpleasant. Unfortunately, that is a very real possibility.

China and other Asian high rice-consuming nations are facing unprecedented high prices for this necessary staple.  On world markets, rice hit $850 per metric ton last week in some markets, up from $360 a ton at the end of 2007. Projections are that it could reach $1,000 per ton this year before new harvests. Citizens of these countries, particularly low income urban residents, are now suffering punishing high daily rice costs, angrily demanding relief from their governments.

Current record rice prices are not due to any sudden one-off catastrophic agricultural failure, but the result of a number of factors that have thrown the world’s supply/demand equilibrium off of its yesteryear affordable prices and ample supplies.

We in America have largely escaped the trauma of high rice prices. The United States grows ample rice for its own domestic needs. Unlike Asian countries, rice is not a major fixed part of our diet, and therefore is more easily substituted for other grains.  Nevertheless, worldwide limited supplies of wheat, due to multi-year draught conditions in large exporting nations (Australia) and new use demands for maize, due to increasing use in biofuel (ethanol), have resulted in record food prices for Americans.  

The importance of skyrocketing rice versus wheat and maize for Americans rests not in their daily food costs, but in the geo-political influences high rice prices may have on its global trade with China and other Asian countries. 

In recent years, China’s economic growth has increased rice domestic consumption.  Other countries in Asia have also experienced economic growth, along with similar increases in domestic rice consumption.  However, according to the World Bank, global paddy production has remained at a stubbornly static 300 million metric tons per annum over the past few years.  Increasing global demand against static world production has resulted in consistently higher global rice prices and a steady reduction in world rice stockpiles, which are at their lowest since 1983/84. 

High commodity prices invariably bring forth increased agricultural production.  Rice growers are now reacting to record prices. The UN’s Food and Agriculture Organization predicts this year’s harvest will rise 1.8 percent or some 12 million tons.

Currently other major rice exporting countries – India, Vietnam, Thailand, Egypt -- in the interest of economically feeding their own citizen as well as hoping for even higher international prices for their rice, have restricted their exports, limiting China’s ability to increase its domestic supplies through rice imports.

Further complicating Chinese rice supplies are domestic agricultural conditions.  In recent decades, the Chinese government, according to the International Rice Research Institute, has favored the country’s industrial growth and under-invested in its agricultural sector, resulting in static or declining domestic rice productivity.

In addition, years of neglect by the government in agriculture and its research have taken its toll on its domestic rice productivity.  Many Chinese farmers have suffered from a chronic lack of improved seeds, agricultural chemicals, government-sponsored agricultural technology instruction and improved irrigation methods, as well as a lack of governmental economic incentives to farmers to increase rice production. 

Top Rice Producers in 2007 (Million Metric Ton)

CHINA	186
INDIA	141
INDONESIA	57
BANGLADESH	41
VIETNAM	36
MYANMAR	32
THAILAND	30
PHILIPPINES	17
BRAZIL	11
JAPAN	11
USA	9
WORLD TOTAL	650

*Courtesy of UN Food & Agricultural Organization

Historically Asian governmental economic policies have further affected rice productivity. These policies have favored low consumer rice prices over the economic welfare of the agricultural sector.  In addition, the loss of prime agricultural land to urban and industrial development and the country’s chronic water shortage -- which is so vital for rice -- has also hindered increased production.   

While present domestic rice prices are prohibitive for its citizens, longer-term there is domestic hope through new governmental agricultural policies.  Increased governmental interest and support to agriculture (now becoming evident), according to the International Research Institute, has great potential to markedly increased domestic rice productivity, resulting in the hope of future moderation in rice prices.

Jim Tillotson is professor of food policy and international business at The Fletcher School of Law and Diplomacy at Tufts University.  Prior to returning to the academic world in 1989, he worked in industry, holding various research and development positions in the food and chemical sectors. His professional interests are on the influence of social, technological, economic and political factors on the food supply and food policy as well as emerging issues resulting from the interactions between agricultural and industrial public policies and public health policies. 

© 2009 CNBC.com