How to Burst the Rice Bubble

Tom Slayton and Peter Timmer have an excellent brief out on which does much more than just explain why rice is so expensive right now: it also comes up with an elegant way of bringing the price down quite dramatically and in so doing save millions of people from potential starvation.

Because of its WTO commitments under the Uruguay Round Agreement, Japan imports a

substantial amount of medium-grain rice from the U.S. and long-grain rice from Thailand and

Vietnam… But

under WTO rules, the government cannot re-export the rice, except in relatively limited quantities as grant aid. So the Japanese government simply stores its imported rice until the

quality deteriorates to the point that it is suitable only as livestock feed and sells it to domestic

livestock operators…

Japan currently has over 1.5 million tons of this rice in storage… Most of this

rice is in good condition, and is incurring large storage charges. Japan would be very happy to

dispose of this rice to the world market, but it cannot do so without U.S. acquiescence.

Rice at more than $1000 a ton – that’s up from $375 per ton at the end of 2007 – constitutes a major humanitarian crisis. And although the Burma cyclone has hit global rice production, Slayton and Timmer do a good job of demonstrating that a lot of the price rise is speculative rather than based on fundamentals. If Japan was able to sell its 1.5 million ton rice hoard, the bubble in rice prices would likely burst, with the concomitant saving of an enormous number of lives. Let’s do this, people.

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