Tuesday, December 8, 2009

New food price crisis?

Peter Timmer warns that we may be heading for a repeat for the 2005-2008 food price crisis:
Rice prices are already $150/ton greater than those paid by Manila less than one month ago.
[Picture courtesy FAO.] The three main events he indicates triggered, in particular, the 2008 price leap were export bans by India and Vietnam and panic buying by the Philippines. There are some indications that the Philippines are starting some more panic buying. There will be a presidential election there in May and typhoon damage decreased Philippine rice stocks, so they are buying two months earlier than usual and in large quantities (three tenders for 600,000 tons and more).

Timmer also brings up some very excellent questions:
Why do they publicly disclose the price they are willing to pay in advance? Why do they announce future tenders while earlier tenders are still outstanding, a practice that arguably contributes to higher prices? Why are tender terms so restrictive, to the point where they seem designed to discourage suppliers who can provide rice at competitive prices? And why did they pay prices so far above the market last year? Will they do so again this year? ...

One explanation is that the country just wants to get its imports ordered before they have to pay even higher prices. If that is the case, quiet tenders over an extended period of time with flexible terms and longer delivery dates would be the better approach. The alternative explanation is that the government actually wants to pay higher prices because these contracts carry larger “commissions” that fill political coffers. With such an explanation, NFA’s behavior suddenly makes sense.
India and Vietnam both sit on large stocks of rice, but are making every noise that they will either continue to sit or else try to add to those stocks in the coming months.

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