Sign of the Times

They looked at me kind of funny when I started taking close up pictures of their sign:

Andrew Leonard:

Japan's unwanted low-fat diet, Salon:  A drastic shortage of butter in Japan is providing the hook for some gloomy stories about the future of food in one of the richest nations of the world. Forget about Haiti or Kazakhstan -- Japan, too, is experiencing a food crisis.

From Australia's The Age:

While soaring food prices have triggered rioting among the starving millions of the third world, in wealthy Japan they have forced a pampered population to contemplate the shocking possibility of a long-term -- perhaps permanent -- reduction in the quality and quantity of its food.

From The Times:

Japan, its leading food importers say, will inevitably take a step backwards in the food it eats. "The time will come," says Akio Shibata, ... one of Japan's foremost experts on food supply, "when the Japanese people will realize that they will not have the quality, taste and prices of food they are used to."

The basic story line is familiar: a global surge in grain prices and animal feed... But there's an important twist. Just two years ago, a vast milk surplus in Japan forced local dairy farmers to literally pour raw milk down the drain and kill off excess dairy cows. According to the Asahi Shimbun, domestic production accounted for 86 percent of Japan's butter as recently as 2006, but after the painful resolution of the glut, butter production plunged.

The problem: You can pour milk down the drain in an instant, and kill off your herd of cows in a blink of eye. But you can't reverse the process so quickly. Building up a productive dairy herd takes years. The laws of supply and demand work slowly with food...

The combination of high oil and food prices and a burgeoning world population has everyone wondering whether humanity has finally reached the limits-to-growth end of the line. And sure, we must grant the possibility that the long, steady decline in the price of basic foodstuffs that has been a fact of post World War II life may have come to an abrupt end. But it's also true that a massive reconfiguration of the planet's productive capacity to produce desirable agricultural commodities, in response to current high prices, will take years to accomplish.

Kerry Howley:

Let Them Eat Carbs, by Kerry Howley: Wow:

“If part of our problem is that the Chinese are going to eat meat and you’ve got to have corn and soybeans to feed the Chinese their meat, then why isn’t it just as legitimate for the Chinese to go back and eat rice as it is for us to change our policy on corn to ethanol?” [Sen. Charles] Grassley asked in a conference call with reporters.

Not that this makes any sense economically, but it’s good to know that in Grassley’s calculus billions of people going without protein = some Iowans letting go of their ethanol subsidies.

The LA Times:

Rice in short supply at Costco, Sam's Club, LA Times: Worried about rising prices worldwide, customers have been stocking up, prompting Sam's Club to limit sales to no more than four bags. Costco is considering a similar move.
The global run on rice has hit U.S. shores but appears limited to big-box warehouse stores. Customers concerned about rising rice prices have been cleaning out the shelves at Wal-Mart Stores Inc.'s Sam's Club and Costco Wholesale Corp. stores.

Maybe things have changed since I left the rice country in Northern California, but let me make a few comments about rice in particular:

1. There are two varieties of rice, long grain and short grain (I'll include medium grain in here, as most people call it). They are produced in different geographic areas.

2. Short grain is grown in California and is mostly exported (e.g. Calrose is a popular variety in many areas of the world, though Koreans and Japanese turn their noses up at it - so substitution across varieties isn't always easy). Long grain is grown elsewhere, Louisiana used to grow a lot, but I haven't kept up. I think Louisiana does produce some short/medium grain as well. Long grain is largely consumed domestically.

3. So it's the demand for short grain rice that affects poorer countries much more than the demand for long grain (I think?). Is there a significant source of demand for short grain within the US? It turns out that there is, and one part of it is from beer producers  (A quick search gives figures in the range of 10% - 20% of total rice production in the US used in beer, but that includes all varieties of rice, so the percentage of just short grain would be higher). For example, Budweiser is vertically integrated and owns some of the bigger rice dryers in California. My mom worked in one owned by Budweiser for many years, and her job was to route rice by truck, train, ship, etc. from the dryer to its destination. A lot of it went through the Port of Sacramento.

4. Rice is also used in pet food. I don't have the figures in terms of how much is used, but I do know it is enough to have put upward price pressure on brewer's rice, so it's enough to matter.

5. The point is that is if want to reduce the demand for rice, perhaps our first efforts shouldn't be to convince people to give up eating long grain at meals, that won't help much, instead we need to look for ways to reduce the demand from industrial sources such as beer and pet food production to help keep down the price of short grain (pet food can substitute using other cereals if they are cheaper, but it's much harder for beer producers since substitution of other grains changes the flavor, so a reduction in overall demand for beer is the only way to bring this about).

[It's been a long time since I lived among rice farmers, and I'm doing this from memory. I think the general outline is correct, but if you know more about this, or can provide more precise details, please do.]

Note: Some of the statements above are being refined in comments, e.g. Arkansas is the number one producer of long grain and exports quite a bit.

Comments

[Bruce Wilder]

Some fairly vast areas of East Texas, suitable for rice, lie fallow for no particularly good reason other than to give money away to Republicans.

[kthomas]

Americans eat like...well, swine. We could use a diet.

[piglet]

Do you remember the article about "Japan's food security" posted here on February 27, 2007? Do you remember how it was suggested that Japan give up its domestic agriculture because relying on imports would actualy improve their "food security"?

[piglet]

Who is willing to do the calculation: how much surplus food would there globally be if Americans and Europeans reduced their meat consumption to the average Chinese level?

[Spectator]

This trend can't be a good. The inflation genie is out of the bottle and could get a lot worse. In poor countries that means people may die. All hands on deck needed to contain this.

Will the economics priesthood send a clear signal to these countries that they need to strengthen their currencies? Or will they continue to justify the currency debasement practiced here by Helicopter Ben?

[hari]

Indian Gov reportedly banned export of non-Basmati Rice exports (incl. wheat, pulses and edible oil). Rice is staple food in subcontinent. I notice Pakistan is trying to book imports of rice - mainly long grain.

I don't know exactly what happened in Philippines - along with Thailand, it is rice basket of Asia.

I read somewhere last week that +200 million Indians are eating second full meals nowdays -> demand is expanding faster than we can estimate.

[Winston]

I think that things may have changed somewhat since you left California in that there is much more consumer demand for short grained rice for direct consumption than there once was due to the increased popularity of foods that require it (sushi, and risotto). Of course my perspective may be skewed because I live somewhere with a very large Asian population and short grain rice is dominant on the store shelves around here.

[hari]

Indian Gov announced bumper wheat production for the year. So they have no need to book imports of wheat by FCI (Food Corp of India.

Rice consumption in Asia is mainly short grain - during feast days they go for long grain.

[spencer]

I use to go to an all you can eat sushi restaurant in L.A.
that would charge you extra if you did not eat all the rice ball. It was to keep you from just eating fish. I wonder if they are altering this policy.

But seriously, most Asians have to be very, very hungry before they will change the type of rice they eat.

[William SMith]

Arkansas is the number one grower of Long Grain in the US. It's used for both beer production and as a food staple. In fact, the Arkansas Congressional Delegation, including Rep. Bozeman, have met on multiple occassions with Fidel Castro about exporting rice to Cuba.

[ken melvin]

Can rice be used to produce ethanol?

God bless the child that grow his own rice, has his own production capacity, ...

[HB]

Shortages? Or Not?

For the last few months we've been hearing about food crises around the globe, and in the last few days, about "rationing" & "shortages" in the US.

We're told the shortages are due to "bad harvests," "ethanol production," "increased demand from the developing economies of China & India," & of course, the increasing price of oil.

Global warming, overpopulation & desertification are sometimes brought in to explain why rice (& other food commodity prices) suddenly spiked since 9/07 - nearly doubling, in some cases. (click on the rice futures chart):

http://ki-media.blogspot.com/2007/12/rice-prices-are-st...

So how bad is this rice shortage? Here are the production figures:

FAO global rice production stats as of 4/18

2005/06: 418.1 million tons
2006/07: 420.6 million tons

http://www.fas.usda.gov/psdonline/psdgetreport.aspx?hid...

OK, so what about the bad harvests in Asia & increasing demand from China & India?

China 05/06: 126.4 million tons
China 06/07: 127.8 million tons (up 1.1%)

India 05/06: 91.8 million tons
India 06/07: 93.4 million tons (up 1.7%)

China & India are among the top 5 rice exporters, BTW. They produce enough for their domestic demand, with some left to export.

The top 2 rice exporters are Thailand & Vietnam. They supply 50% of exports. How'd they do in '07?

Thailand 05/06: 18.2 million tons
Thailand 06/07: 18.3 million tons

Vietnamese production, though not included on this chart, was also up.

Where's the biggest drop between 06 & 07?

Not in China, not in India, the countries who supposedly are growing their incomes & demand: they're basically self-sufficient. India was planning to export millions of tons until the prices spiked; they restricted exports, not because they had no surplus, but to protect their domestic market from speculation - as did Vietnam.

http://www.livemint.com/2007/06/13013936/FAO-sees-rice-...

http://www.speroforum.com/site/article.asp?id=14900

The pullback in rice exports from big exporters like Vietnam & India came AFTER the quick rise in futures prices starting 9/07 - in effect, creating tightness in export markets where none previously existed.

So was there any big decline in rice production?

The biggest drop was right here in the US, & it wasn't because of bad harvests: it was because rice farmers planted less, & they planted less because world prices were too low to make it profitable to plant more:

US 2005/06: 7.1 million tons
US 2006/07: 6.2 million tons (-12.6%, or .9 million tons)

http://www.fas.usda.gov/psdonline/psdgetreport.aspx?hid...

http://www.aragriculture.org/agfoodpolicy/radio/may2007...

"2007 U.S. Rice Planting Intentions: USDA estimates that U.S. all rice producers intend to plant 2.64 million acres, 7 percent below 2006 and 22 percent below 2005...this would be the lowest U.S. planted rice acreage since 1987...due to the added cost of production, lack of adequate pricing opportunities, other crop alternatives...On lack of pricing opportunities rice prices never reached or stayed at a level sufficient to encourage additional planted acreage."

So on the whole, this is what the picture looks like to me: there was some tightness in the rice export market, but it's fueled mainly by the drop in US (one of the top 5 exporters) production.

But the tightness was no greater than in previous years. In fact, the forecasted gap between supply & consumption was actually less than in any of the previous 5 years: see chart: "Global Consumption Continues to Outpace Demand":

http://www.fas.usda.gov/grain/circular/2006/05-06/Rice%...

However, once big exporters halt exports, it leaves importers scrambling for supply, putting further pressure on prices & inducing hoarding by buyers & sellers alike.

Why did exporters reduce exports? To protect their home markets in the face of international price spikes. Why the price spikes in rice futures, starting in September of 2007? The supply/demand picture at the time doesn't seem to justify it.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x38042

[James Killus]

It's awfully hard to change land that is used for rice production over to corn production. It's even harder to see how ethanol production from corn can cause commodities like metals to increase in price over the same period (and by similar amounts) as grains.

A colleague of mine, who is something of an expert (and hence inevitably biased) tells me that the principle use of corn is to boost the protein content of livestock, and that ethanol production results in "distillers grains," which is basically corn with the starch removed (and actually a bit protein boosted because of the yeast), a higher quality animal feed than the corn itself. He also has tales of some state-of-the-art cattle feedlots/ethanol production facilities that use methane from the cattle manure to produce all the energy used by the feedlot, including what is needed to distill the ethanol.

As I say, he is no doubt biased. However, his story makes a bit more sense than blaming increased in rice prices on ethanol production, and a lot more sense than arguing that ethanol production is to blame for increases in the price of cobalt. Some might hold out for a different underlying factor.

[anonymous]

"But there's an important twist. Just two years ago, a vast milk surplus in Japan forced local dairy farmers to literally pour raw milk down the drain and kill off excess dairy cows."

A) Have the Japanese no sense of the western concept of "CHEESE"?

B) Can anyone say "Commodity fetishism"?

[dilbert dogbert]

If I remember correctly our policy in WW2 was to starve the Japanese. I think we almost got that done when the bomb ended the war.
In 1967 I was in Japan working for the army and the team took a trip from Tokyo to Sagami and what I remember most, besides the cute Japanese school girls, was how every open space in Tokyo and the country side had something edible growing on it.
I think the WW2 starvation had a big impact on Japanese food policies. Of course the politics of town and countryside had something to do with those policies also.

[Noni Mausa]

"But there's an important twist. Just two years ago, a vast milk surplus in Japan forced local dairy farmers to literally pour raw milk down the drain and kill off excess dairy cows."

And at this very moment, Canada's New and Improved Govnerment (TM) is paying farmers to get out of the hog business -- kill off the piglets and sows and shut down their hog operations for three years, because of pressure on the farmers due to high feed costs and low prices, and to a lesser extent because hog barn effluent is really hard to contain and hard to treat. They hope to get about 10% of the farmers out of hogs.

Three years ago a slaughter company was fighting like heck to build a slaughterhouse here in town (with tax money to help them out, natch). This project was eventually defeated.

Ten years or more ago, the government was pushing hog production for all it was worth, citing a huge export market and demand.

And now this. Sometimes I think we should just pay farmers a stipend, maybe a per capita guaranteed income of $35k, everything above that taxed, provided they grow and sell food, and then just leave them the hell alone.

Noni
~getting in line for a pony of her very own~

[Phil G]

That photo is ridiculous.

The amount of rice in a side order was probably 10 cents at most prior to the 'doubling'. So it's now 20 cents. Big Deal. In the scope of a Western Restaurant it's a specious argument to say that they now need to charge 2 dollar to cover the 10 cent rise in cost. It's you who should have been laughing at their ridiculous poster, not them at you.

Now, in the developing word, that same 10 cents worth of rice doubling to 20 cent IS a big deal. Particularly the 1 billion people at 1 dollar per day or less.

I just got back from Laos where 1 kilo of good quality rice was 5500 Kip (USD$ 0.63) as of 4/15/08 in a local market. I don't know what it was 2 months ago, but if it has doubled, that would have put it at about 30 cents for a kilo earlier this year.

Does anybody really believe that a standard side order of rice in an American Restaurant really used to cost 1 dollar in raw costs??? With fuel, they would call this price-gouging.

[Alex Tolley]

"Can rice be used to produce ethanol?"

Yes. It's called saki.

[NPOV]

Phil G, how do you know the previous price for a side of rice wasn't, say, $1.80?

[baileyman]

And Mark asked, "The price of the rice content in a side dish is up $2?"

[reason]

Has anybody else noticed this, but if you read the GMU blogs (Marginal Revolution and Econlog) you wouldn't get any idea that there are serious crises in the real world presently. Do ideological libertarians have any connection to the real world?

[piglet]

Noni Mausa: you may want to have a look at

Modern Swiss agricultural policy

Manfred Bötsch, Director, Swiss Federal office for agriculture

After an intensive political debate, an overwhelming majority of the Swiss electorate voted in favour of a new constitutional mandate for agriculture. According to the constitution agriculture must in a sustainable manner contribute substantially to
− the provision of the population with food,
− the conservation of natural resources,
− the upkeep of rural landscape as well as
− the decentralized settlement of the territory.
The Government therefore has the task to define a policy mix which ensures that agriculture can fulfill these multifunctional tasks. Their fulfillment results in the production of public goods, externalities and marketable goods. The reform is implemented step by step, we are now in the third period and are preparing the fourth
one. The reform’s main feature so far has been a dramatic shift away from the internationally criticized market support instruments towards direct payments not linked to production but to a wide range of ecological requirements (ecoconditionality). (...)

[Tom L]

Soy beans supply relatively good quality protein, and Sen. Grassley doesn't know that.