At around 5 p.m. on April 2, local police and officers from the Philippines National Bureau of Investigation descended on a four-story warehouse in suburban Manila. They were acting on a tip-off about possible illicit activity. But the agents weren't searching for drugs or knockoff Rolexes. They were looking for rice. The inspection was part of a nationwide effort to nab profiteers who, taking advantage of sky-high prices for Asia's most basic food, are suspected of repackaging government-subsidized rice and reselling it at higher market rates. Officers have had some success, discovering 27,000 bags of rice at one warehouse, according to Rex Estoperez, spokesman for the Philippines National Food Authority (NFA), which distributes subsidized grain. "Another warehouse was caught in possession of many, many [empty] NFA sacks," says Estoperez. "So where did the rice go?"
That's a question millions of Asians are asking. Across the region, the price of food, from wheat to pork, is increasing at dizzying rates. But it is rice, the foundation of Asia's diet and a potent symbol of its cultures, that is causing the most anxiety. In Thailand, Vietnam, Bangladesh, India, Pakistan and elsewhere, the price of rice has doubled in the past year, a hike that hurts all the more because Asian families often spend half of their weekly budget on food, more than double what Western households spend. In an effort to contain spiraling domestic prices, major rice producers, including India and Vietnam, have sharply curbed exports disrupting global supply chains, fueling more inflation, and prompting rice hoarding and panic-induced shortages. Asia is experiencing one of the uglier aspects of globalization: as countries have become increasingly reliant on one another for vital products, they have also become more vulnerable to external shortages and price spikes as they ripple around the world.
It's one thing if you can't find pork at your local market. You can always buy chicken. But rice has no good substitute in many Asian diets. In Mandarin, the word for rice is also the word for food. The Thai phrase "to eat" translates as "eat rice." "Rice isn't just another commodity," says Robert Zeigler, director general of the International Rice Research Institute in Manila. "In Asia, rice has cultural, social and, in many places, even a religious role, so it carries much more psychological weight." Indeed, Asian nations have reacted to the mere prospect of shortage with something close to hysteria. The Philippines government has threatened to charge rice hoarders with economic sabotage a crime punishable by life imprisonment. In Manila last week, armed soldiers distributed cheap bags of rice from the backs of military trucks to residents queuing in the midday sun. In Thailand, the world's largest rice exporter, some stores are limiting sales to three bags per family to prevent shoppers from emptying shelves.
The world still grows plenty of rice, more than 420 million metric tons last year, according to the U.S. Department of Agriculture. But prices are spiking for several reasons: rising long-term demand in countries such as China and India, where millions of increasingly prosperous people are eating more; short-term supply shocks thanks to unusually cold weather and pest infestation in Vietnam, the world's second largest supplier of rice; and the diversion of a huge chunk of America's corn crop to ethanol production, which has boosted demand for other staples, including rice.
But economic dynamics, as they play out in national markets, can be even more complicated. Take India, for example, where rice prices are rising fast, contributing to 7% inflation last month, the highest in more than three years. The country is not suffering from a classic case of tight supplies. National rice production this year should hit 94 million metric tons, up more than 2 million metric tons from last year and more than 20 million metric tons from 2003's crop, which was devastated by a bad monsoon. Nor have shortages hit a government-run rice-distribution program that helps feed India's poor. That program bought 20.6 million metric tons last year. This year, procurement, from both domestic growers and importers, is expected to rise to 25 million metric tons, according to Manoj Pandey, a senior government official. "It's not a question of low production or low procurement," says Pandey.
What has changed is that, because of economic reform, the government has gradually eased its control over the rice trade during the past 15 years. India is now more open to the world and more exposed to global price fluctuations. Farmers and traders across India are now selling to the highest bidder. That means a lot of Indian rice that was once sold domestically is instead sold abroad for higher prices which in turn drives up domestic prices. The government, in an effort to keep as much rice as possible at home to quell inflation, has banned exports of nonbasmati rice and adjusted price controls to discourage exports of aromatic basmati rice. "In desperation, the government is trying to isolate the domestic market," says economist B.B. Bhattacharya, vice chancellor at New Delhi's Jawaharlal Nehru University.
The problem is that intervention usually has unintended consequences. In theory, the export ban should ease prices in India because more rice should be available. But because the global price remains a benchmark, Indian rice traders are resistant to selling their stocks for much less than they would get on the international market. That means less rice on the domestic market and higher prices for Indians. As economist Swaminathan S. Anklesaria Aiyar wrote recently in the Times of India, cutting exports is a form of national hoarding: "Governments would like to believe that hoarding by traders is terrible, whereas hoarding by governments promotes the public interest. But the impact on prices is exactly the same. Indeed, when governments start to hoard food out of panic, the panic itself stokes further inflationary fears."