44 CHAPTER 2


by about 50 percent above an all-time trough, so that it was widely felt that rice markets were avoiding the price surge being witnessed in other cereal markets. But from November 2007 to May 2008 they increased by a further 140 percent (Figure 2.15). This rise was despite production reaching an all- time high in 2007 and fairly stable rice stocks (with the exception of China, which held excessive stocks prior to their reduction and is not a major trader of rice).


What appeared to prompt this remarkable surge in international prices is the export restrictions imposed on the Indian and Vietnamese rice markets in October and November 2007. According to USDA,11 Vietnam placed a partial ban on new sales because it had oversold in the global market and the govern- ment was concerned about rising domestic food prices. Headey (2010) shows that there was also increasing demand for Indian rice exports, which he ties to the run-up in wheat prices, because many major rice importers are also major wheat importers. To make matters worse, a poor wheat harvest put pressure on India’s Public Distribution Scheme, which relies on both wheat and rice stocks. Although the action prompted protest by rice producers and the academic community (Gulati and Gupta 2007), the Indian government initially argued that its responsibility was to its own poor rather than to its neighbors. However, the worst direct impacts of this decision—rice shortages in India’s largest export market, Bangladesh—were eventually averted in April 2008, when India decided to make concessions to Bangladesh by selling their smaller neighbor 500,000 tons of rice at prices less than half of those prevail- ing in international markets at the time.


The concessionary act probably averted a humanitarian disaster in Ban- gladesh, but it did not undo the panic that ensued in international markets, especially as India is often the world’s second largest rice exporter. In early 2008 further export restrictions were imposed by Vietnam, Cambodia, and Egypt. Panic buying, or precautionary demand, was also important. The Philippines, one of the largest net importers of rice, engaged in panic buy- ing, importing 1.3 million tons of rice in just the first 4 months of 2008—an amount that exceeded its entire import bill for 2007. These actions exac- erbated the crisis, and the price surge continued until May. In May Slayton and Timmer (2008) proposed that China, Japan, and Thailand could solve the crisis by releasing excess rice stocks. In Japan most of this excess rice has accumulated because of World Trade Organization (WTO) rules requiring Japan to import rice from overseas. But most of this imported rice is used as feed grain. In late May 2008 Japan promised to release 300,000 tons of rice


11 See <http://www.ers.usda.gov/news/ricecoverage.htm>.


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