The Food and Agriculture Organization of the United Nations (FAO) released its January "Rice Price Update," painting a grim picture. Over half the world relies heavily on rice, with even higher dependence in parts of Asia. This raises a critical question: are we on the brink of a humanitarian and economic crisis?
Rice is in dire straits. In the last 12 months, the FAO All Rice Price Index (FARPI) soared 21.1%, the highest since the 2008 Global Financial Crisis.
El Niño, the unpredictable Pacific weather phenomenon, emerges as a key culprit. Its severity and duration are notoriously difficult to predict, ranging from 9 months to 4 years in the past. For water-intensive crops like rice, rising temperatures significantly increase evaporation, depleting available water and escalating concerns.
El Niño's impact is evident in major producers like China and India. India has imposed export restrictions, placing tariffs on exports to ensure food security and control inflation. In contrast, China, once a top rice exporter, has become a net importer due to among other things, El Niño's effects.
This export market deficit has triggered a domino effect. Countries are building reserves, fearing a shortage is looming on the horizon, further driving up prices.
But El Niño isn't the sole villain. The FARPI has climbed 33% in the past two years, with a steady 16% rise throughout 2022. The Russian invasion of Ukraine in February 2022 played a significant role. While Ukraine isn't a major rice producer, it, along with Russia, supplies over 25% of the world's wheat. With Ukrainian land under occupation and extensive bans on Russian exports, global wheat shortages have further burdened rice as a substitute.
The Asia-Pacific region hasn't escaped the wheat shortage. China, the world's largest wheat producer, saw a 21% increase in wheat imports in 2023 to address its own shortfall.
The pressure is evident in Rough Rice Futures on the Chicago Board of Trade (CBOT). Prices for July 2024 deliveries currently stand at $18.28 USD/CWT, surpassed only by the 2008 GFC and the 2021 COVID-19 pandemic in the past 25 years. This raises a crucial question: are we experiencing a slow-burning crisis, unaware of its impending consequences?
For growers and traders outside El Niño's influence and the conflict's reach, the next 12-18 months offer significant profit opportunities. However, successfully navigating the complex shipping issues plaguing the bulk carrier market will be essential.
Investors and the world face a critical dilemma. Food insecurity can breed conflict and stifle developing countries' progress. Investing in consumer staples isn't just financially prudent, but also ethically responsible. It's a rare opportunity where benefiting your portfolio aligns with benefiting humanity.
This article is written by:
DAVID MARTIN F FIN
David is Chief Technology Officer at Australia's fastest-growing fintech media company, Grafa. As CTO of Grafa, David combines his extensive knowledge of financial markets with deep expertise in AI, data analytics and machine learning models to develop Grafa's patent-pending technology.
Before becoming the CTO of Grafa David held senior government positions, advising management and leading teams on critical issues like the Covid-19 response, revenue collection, and financial crime, earning numerous accolades for his contributions.
He was also an esteemed teacher of AI and Data Analysis at the University of Western Australia.
David has thrived at the intersection of finance and technology and has gained significant industry recognition for pioneering the use of Machine Learning at scale to empower investment decisions, presenting his insights at industry events.
He is a Fellow with FINSIA, a Full Member of the International Association of Marine and Shipping Professionals specialising in Shipping Finance, a Member of The Chartered Banker Institute, and a qualified Financial Advisor.
David's dynamic expertise, coupled with his passion for education and innovation, positions him as a leading figure in the ever-evolving financial and technological landscape.