Sunday, February 1, 2009

Rice in Africa

"Hoping to take advantage of high global food prices that brought many poor nations to the brink of chaos last year, farmers across West Africa are reaping what experts say is one of the best harvests in recent memory.

But after investing and borrowing heavily to expand their production, these farmers also run the risk of being wiped out as global food prices plummet.

The price of unprocessed rice in Senegal has steadily fallen from its peak early last year of more than $30 per 110-pound sack. The drop has not been as drastic as the ones experienced in corn and wheat markets across the world. But the price for rice needs to be at least $20 for farmers here to make a profit, and as the harvest approached late last year, the price was hovering at $22 a sack.

“I am worried,” said Mrs. Diop, a 57-year-old trader and farmer. “I can double my money. Or I can lose everything.”" (Thanks D.)

D. sent me this article from the NYT a while ago. But I was too immersed in the Gaza crisis to be able to post or comment. I asked my brother, who works in rice trading in Africa, to give me his opinion. He was sick with malaria and could not respond. But he is better now, and here is his take, from the expert's mouth:

Sorry for being so late, was really sick, malaria, barely recovering now, still very dizzy..Here is my opinion regarding the subject, not sure usable in your blog but good for your info
True, local farmers in African rice producing countries are investing in increasing acreage / yield because of a re-rise in international prices..They do risk a lot in this game: 1) This is expected to be short term, 2) this (price increase) affects mostly Thai rice for the time being, and 3) is expected to reverse upon re-entry of India in the export game, sometimes around April-May..4) local prices are not determined solely by international prices but by numerous parameters including local inventories in tonnes..this usually leads to conflicting price trends (international goes up and local goes down or vice versa)
About rice prices and volatility:
Rice prices are behaving unpredictably and all analysts went wrong in their forecasts
After the super surge peaking at >750$/MT for the thai parboiled rice (as an example), previsions were that it would go down to 400$ Q1 09 then 300$ Q2-Q4 09.
In reality, it went from 750 to 520$ then went up to 650$, after the intervention of thai government in price fixing / inventories hoarding (allegedly to protect local farmers) .
No one knows which trend prices will follow but one thing is for sure: it is a global market and local players in Africa (importers and producers alike) do increase prices of local stocks / crops whenever international prices increase, creating short term opportunistic wealth .
The thing about rice is that it is at the same time a) virtual, like a stock market, reacting to usual speculative actions and generating instant trading wealth, b) physical, since quantities are actually traded and moved along the supply chain down to consumption markets where physical supply (presence of rice stocks) and demand (willingness to consume) determine price equilibrium and commercial wealth generated and c) the basic commodity of 50% of humanity
3 goods things about last year’s commodities prices crisis, which I witnessed myself

- Production and consumption of local rice and rice-equivalent staple food (corn, millet, yam) increased a lot, responding to high rice prices by a consumption shift to local alternatives, making African population less imports-dependant

- Increased profit prospects from high rice prices pushed farmers to increase planted area (Burkina, Senegal, Ghana, Nigeria, Niger)

- Big players, exporters, importers traders alike lost loads of money when prices crashed and will still lose a lot till they clear all their current inventories of very expensive rice

Finally it is worth noting that no player along the supply chain, country or trader, has an interest in rice becoming cheap again

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