Third Eye on the Third World

Date :April 2, 2008

Author: John Mangun

BUSINESS MIRROR

“Outside The Box”

Title: “The West is Controlling Your Rice Price”

Go to the Internet and “Google” the phrase ‘world rice shortage’. Most of the websites carrying information about a shortage of rice is from our own local newspapers. However, a potential shortage of reasonably priced price is affecting communities from ‘Kansas to Kabul’ as one newspaper in Bangladesh described the problem.

Quoting from Asia News Network, the website independent-bangladesh.com perhaps summarized the cause of the problem the best. “Worldwide, economists are worried that the diversion of agricultural land and certain crops to biofuel production is cutting into grain and cereal production for human consumption. The prices of rice and wheat are linked”. That last sentence is the key to the issue, something our local politicians have failed to understand.

Wheat prices are going to historic highs and will continue to climb. The best barometer of future commodity prices is the futures exchanges in the US. There the contract price for December 2008 delivery is higher than the current March 2008 price forecasting rising prices through the end of the year.

And if wheat prices are going to continue up, then you can be sure that rice prices will track the wheat price trend.

I wrote in this column that one of the reasons that we are not able to produce enough rice in the Philippines is because of government interference in the free market system that would have allowed farmers to sell rice at a high enough price to invest in agricultural infrastructure.

While there is still a large group of people that believe that government is the answer to all problems, in fact, government usually creates the problems that private enterprise must solve. Thirty years of government intervention in rice production has not solved the production problem.

National governments did not build the rail systems of Europe and the US in the 1800’s; private companies did. The Philippine government gave the nation the Philippine National Railway. Any chance that private enterprise might have done a better job? Globe, Smart, and Sun put phones in 20 million Filipinos’ hands, not Malacanang or the Congress.

And the US and European governments’ interference in the free market is what will drive rice prices up in the Philippines.

From the Environmental News Service: “The world is facing the most severe food price inflation in history as grain and soybean prices climb to all-time highs. Wheat trading on the Chicago Board of Trade on December 17th breached the $10 per bushel level for the first time ever. In mid-January, corn was trading over $5 per bushel, close to its historic high. And on January 11th, soybeans traded at $13.42 per bushel, the highest price ever recorded. All these prices are double those of a year or two ago. In Mexico, corn meal prices are up 60 percent. In Pakistan, flour prices have doubled. China is facing rampant food price inflation, some of the worst in decades.” Why? “28 percent of the projected 2008 U.S. grain harvest” will be used, not for food, but for fuel, bio-fuel.

If you subscribe to all the environmental hysteria, you might think that using bio-fuels is a good thing. But consider the consequences. “Projections by Professors C. Ford Runge and Benjamin Senauer of the University of Minnesota four years ago showed the number of hungry and malnourished people decreasing from over 800 million to 625 million by 2025. But in early 2007 their update of these projections, taking into account the biofuel effect on world food prices, showed the number of hungry people climbing to 1.2 billion by 2025. That climb is already under way. The U.N. World Food Programme (WFP), which is now supplying emergency food aid to 37 countries, is cutting shipments as prices soar. Whereas previous dramatic rises in world grain prices were weather-induced, this one is policy-induced”.

The reason for the dramatic rise is grain prices is because of government intervention. In an attempt to reduce the use of crude oil coming primarily from the Middle East, Western governments mandated the use of bio-fuels, savagely interfering in the free market. But these governments took one more disastrous step towards food scarcity. They subsidize the non-competitive price of ethanol-based fuel. Because of government subsidies for bio-fuel production, corn farmers in the US and in other countries can make more and more profits as the price of oil goes up.

We may think of rice as rice meaning that rice prices live in a world of their own, controlled by the dastardly rice cartels and smugglers. Prices of basic food commodities are all connected. The free market allows adjustment in all countries.

In India, wheat and rice are almost equally important in the diet. Yet because of rising wheat prices, Indians are eating more rice leading to higher prices. And the fact is, the price of wheat as with corn, is artificially high because of the artificial demand created by bad government policy.

Email comments to mangun@email.com.