In 2007-2008, rice prices surged dramatically. Export restrictions by key rice exporting countries, India and Viet Nam, combined with the panic buying of major rice importing countries, such as the Philippines, jacked up world rice prices by 117%-149% in the first quarter of 2008. The effect was devastating as close to a billion people plunged into poverty.
Another price spike occurred in 2011, this time spurred by Russia's ban on wheat exports because of a severe drought in the country. An additional 44 million reportedly swelled the ranks of the poor.
Today, the world is in the midst of yet another food price hike led by maize, soybeans, and wheat. The US, a dominant world producer of these crops, is experiencing one of the worst droughts in almost half a century. It is still uncertain what the effects would be on the lives of millions of poor in Asia and across the world.
With three price surges in just a span of five years, has the world learned at all from these experiences so that economies can become more resilient to extreme price volatility?
The answer is both yes and no. A case in point is the rice market in the Association of Southeast Asian Nations (ASEAN).
The ASEAN experience
To avoid a repeat of the rice price crisis, ASEAN member countries formulated the ASEAN Integrated Food Security Framework with a Strategic Plan of Action that focuses on establishing a regional emergency rice reserve, facilitating regional rice trade, developing an ASEAN food security information system, and pursuing innovations through research and development.
In June 2012, the ASEAN Food Security Reserve Board, the ASEAN Secretariat, and ADB piloted the ASEAN Rice Trade Forum in Cambodia. Four working papers came out of the Forum, putting across the key messages that:
- ASEAN will be less vulnerable to rice price shocks if it pursues deeper trade strategy, maintains an appropriate size of rice stocks at the regional and country levels, and is capable of gathering and correctly interpreting market information and intelligence.
- ASEAN can play a critical role in helping ensure that rice remains affordable by taking the lead in developing a regional rice price index and standardizing rice grades.
- ASEAN has to increase its regional reserves to address the likely occurrence of more severe and frequent natural disasters due to climate change.
About the authors
Eric Wailes, lead author of "ASEAN and Global Rice Situation and Outlook", is an agricultural economics and agribusiness professor at the University of Arkansas.
Ramon Clarete, author of "Enhancing ASEAN's Resiliency to Extreme Rice Price Volatility", is Dean of the University of the Philippines School of Economics.
Roehlano Briones, lead author of "Climate Change and Price Volatility: Can We Count on the ASEAN Plus Three Emergency Rice Reserve?", is a senior research fellow at the Philippine Institute of Development Studies.
Framroze Pochara, author of "Commodities Exchange: Options for Addressing Price Risk and Price Volatility in Rice", is a capital markets veteran with over 25 years of experience in the industry.