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International Rice Prices Are Afraid To Escape The Rise In The Second Half Of The Year! Fertilizer Shortages Have Reduced Production In Some Asian Countries.​

2022-07-26

Bumper harvests over the past four years have provided relatively healthy stocks for the rice market and led many to believe that rice could still be one of the few agricultural products to survive the disruption of the Russian-Ukrainian conflict. But that has changed recently.


"Price increases are inevitable, rice used to be the exception, but not anymore," John Baffes, senior agricultural economist at the World Bank, said recently.


The United Nations Food Agency and the World Bank jointly forecast that they have changed their view on rice prices. In April they thought rice prices would fall in the second half of the year, but now they are forecasting higher prices.



Shortage of fertilizer


The main reason for the change in forecasts is the surge in fertiliser prices, with nitrogen-based fertilisers now trading at their highest level since 2008.


Since the beginning of the conflict between Russia and Ukraine, the world's major fertilizer producers - Ukraine, Russia and Belarus - have been hit with varying degrees of export, directly leading to the reduction of fertilizer supply in the global market.


On the other hand, 80% of the ammonia used in fertilisers comes from natural gas, and the tight supply of natural gas has caused prices to soar, further threatening fertiliser production.



"This is a huge concern for global markets, particularly in Asia," said Julia Meehan, a fertiliser expert at Independent Commodity Intelligence Services. "The high cost of natural gas has caused demand destruction, we are seeing production scaling back, and some fertilizer producers have chosen to shut down production."


Fertilizers mean crop yields are damaged, particularly in Asian countries that depend on Russian fertilizer, she added. Farmers in these countries are also poorer than in the rest of the world, making them more exposed to cost fluctuations.


In 2021, India imported about 15% of its ammonia from Russia to make nitrogen-based fertilizers, while Indonesia accounted for more than 15% and Thailand, Vietnam and Malaysia accounted for about 10%.


"When we made our forecasts in April, we assumed that energy markets would stabilize after the early effects of the conflict," said Baffes of the World Bank. Instead, energy prices have become more volatile, especially for natural gas and coal."


The price of rice


David Laborde, a senior research fellow at the International Food Policy Research Institute in Washington, says the impact of higher fertilizer costs on rice yields and prices is also inconsistent, depending on government policies and usage.


He further explained that this means that rice production can vary greatly between different countries, regions and even farmers.


In Thailand, for example, farmers may adjust their fertilizer use with limited losses on average, he said. But for Sri Lanka's farmers, the lack of foreign exchange will force them into serious losses.


Laborde also said China has been stockpiling grain and ensuring domestic food production, while India has long had protectionist policies, subsidizing fertilizer and imposing export bans to prop up domestic supplies. As a result, both countries are likely to maintain high yields and prices will not fluctuate wildly.


But he warns that for poor farmers in Africa or Asia, the difference between rice production without fertiliser and what would have been achieved in the past could be as much as 50 per cent.


The rice market is a relatively small one, supported by a fixed number of big exporters, with only 9% of global output traded internationally, compared with more than 20% for grains such as wheat. This property makes rice prices very elastic, with even small changes in supply causing large price fluctuations.



Laborde noted that the sensitivity of rice prices will cause more pain for international buyers this year.


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