This post is joint with Tom Slayton, a rice trade expert and former editor of The Rice Trader
It has been a busy week in the rice markets following CGD's release on Monday of our note about how to puncture a speculative price bubble that threatens millions of people with malnutrition and worse (see Unwanted Rice in Japan Can Solve the Rice Crisis--If Washington and Tokyo Act ). On Wednesday our proposal was discussed at hearings on the world food crisis in both the House and Senate.
Arvind Subramanian, a joint senior fellow at CGD and the Peterson Institute, kicked off his testimony before the House Financial Services Committee by reminding the congressmen that "there are only seven meals between civilization and anarchy." He then recommended the sale of the Japanese rice stocks as the first of several policy responses to bring down soaring prices.
A representative of one of the two U.S. rice industry trade associations – the U.S. Rice Producers’ Association – was there to hear Rep. Barney Frank's first question after the testimony: what is needed for the U.S. to signal Japan that it is okay to export imported U.S. rice? Told that the Office of the U.S. Trade Representative (USTR) has authority to make the decision, Rep. Frank said: "All right, we're going to check that, but I'm inclined to be supportive of that. And I've talked to our staff members. We'll look at that.” The Rice Producers’ Association representative later told reporters that they, too, were in favor of Japan being able to export its stocks.
Meanwhile at the Senate Foreign Relations Committee hearing, Sen. Robert Menendez asked the two government witnesses, Henrietta Fore, director of U.S. foreign assistance and administrator of the U.S. Agency for International Development (USAID); and Ed Lazear, chairman of the President’s Council of Economic Advisors, a pointed question about our proposal:
According to the research of the Center for Global Development, the release of rice stocks being held by Japan and China can bring prices down now, possibly cutting them in half by the end of June. But this can only happen if our government lifts its objections to the re-export of rice previously imported from the United States. I see the specter of rice that could be used to help the world's hungry be used for feed and livestock in Japan... versus being used to feed human beings. And so what's our view of that?
The answers weren’t very satisfactory but the mere mention of Japan exporting its stocks led some speculators to dump their contracts in Chicago yesterday and today. Futures contracts for July rice ended limit down, or 75 cents lower yesterday and fell by a $1.05 to $20.44/100 lbs as the limit was expanded to $1.15. Also, Thai wholesale prices, which had been rising, fell today by $16 to $841-843 per ton.
Towards the end of the Wednesday, an unnamed USTR official was quoted as saying that the U.S. had no problem with Japan exporting its rice, but there was some ambiguity as there was also a call for the U.S. and Japan to "coordinate" their food aid efforts over the coming weeks. The ambiguity—and the lack of an official announcement that the sales would proceed--made some rice trade-watchers suspect that this thing may not be over yet.
One thing is clear: sudden and unexpected exposure to the limelight is prodding the bureaucracy in both Japan and Washington into action, and is already taking some of the speculative steam out of the market -- both of which are good news for poor people who depend on rice to survive.