The rising price of rice (part 2)

According to IDEA, “statistics show that, on the average, there are about 200,000 new individuals being added in the population everyday, and by 2015, the world head count is estimated to reach close to 7 billion people. Once the amount of rice being consumed exceeds what is being produced, a climb in the price of rice become more likely.

Higher oil prices drive a portion of the story. Since rice farming nowadays requires oil energy, especially in the application of petroleum-based fertilizers and the usage of farming machineries that depend on oil, every increase in oil prices translate to additional costs. In addition, as farmers would still have to transport rice to the market, the price of this commodity would also have to cover transport costs, which are also driven ultimately by oil prices.”

Furthermore, it reported that, “the manifestations of global-warming are also partly to blame. The United Nations (UN) has seen that, every year, the world loses fertile land equivalent to the size of Ukraine because of drought, deforestation, and climate change. Last year, Australia suffered a drought, which brought enormous rice production losses. Since the price of rice is dependent on the dynamics of supply and demand, any shortage in production may instigate an increase in its price. History reveals that food economy and fuel economy are two separate entities.

However, the birth of biofuels creates room for these to merge. In fact, the world is beginning to take advantage of pristine opportunities behind this emerging source of energy”.

Today, in light of soaring crude oil prices, the market has a viable choice –to shift to the fuel value of a particular grain whenever its food value is something less. The trade-offs, however, may be unpalatable: the choice to shift to the more lucrative biofuel sector may give rise to a global food crisis. Plans to boost biofuels over the next decade seem to be certain, especially in the developed countries. The European Union is targeting a 20% increase in the market share of biofuels by 2020. China is investing about US$200 million in capital to build a biodiesel refinery in the Guanxi province. Some governments even subsidize the conversion of croplands to increase their biofuel feedstocks. Meeting the 2020 B10 Kyoto Protocol requirement and combating the threat of climate change may be two of the more noble objectives of some countries in their inclination to raise biofuel production, but the trade-off is huge. The production of biofuels needs large areas of arable land, resulting in the reduction of arable land dedicated to food and cereal production, according to the same report.

Incidentally, IDEA’s Economic Trends, a regular digest produced by the Institute for Development and Econometric Analysis, Inc. (IDEA) whose Chairman, Dr. Cayetano W. Paderanga Jr., is my former President/CEO is a non-stock, non-partisan institution dedicated to high quality economic research, instruction and communication. IDEA is committed to pursue independent inquiry into the workings of the economy, to propagate the techniques for doing this and to communicate the results of analytical studies to the public.

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