Asia to create emergency rice reserve

More than a dozen countries across Asia are preparing to create a massive emergency rice reserve.

The plan is designed to protect the region’s two billion people from environmental disaster and runaway inflation.

The proposal emerged last night as Russia imposed a ban on wheat exports that is expected to last at least until the end of this year.

Calls for a region-wide rice reserve have been amplified by warnings from crop scientists that grain markets may be poised for an era of near-permanent volatility.

One report published last week estimated that climate change and water shortages would reduce cereal production by the world’s 20 largest economies by about 70 million tonnes a year by 2020.

The prospect of the Russian wheat embargo – and the drought that prompted it – have pushed prices 50 per cent higher since June and triggered fears of broader contagion throughout global grain markets. It was a sharp spike in wheat prices that lit the fuse on the 2008 food crisis: the escalation from there to rioting, say analysts, was the result of political panic.

Karen Ward, HSBC’s senior global economist, reported last week that the recent spike in wheat prices exposed a market at increasing risk of sudden shocks.

She wrote: “This episode shows how volatile global agricultural markets have become and, in the longer term, climate change is likely to increase the frequency of extreme weather events such as heatwaves, flooding, and droughts with knock-on implications for food output.”

The idea behind the strategic rice reserve plan is two-fold. It will primarily act as an immediate source of relief if harvests are bad or destroyed by natural disaster. But it will also remove the motivation for governments to begin hoarding or imposing export bans at the first sign of price inflation.

The emergency reserve scheme, if approved this southern spring by the agricultural ministers of China, Japan, South Korea and the ten members of the Association of South East Asian Nations (Asean), would create an 800,000-tonne strategic store by 2012, to be administered from Bangkok.

The planned reserve is an extension of a pilot scheme run by Asean in the 2008 food crisis. Between them, the region’s major producers such as Thailand and Vietnam will donate about 90,000 tonnes, while Japan, China and South Korea will contribute a combined 700,000 tonnes.

The size of the reserve, one Japanese government official said, must be big enough to be useful in a crisis and to take the heat out of any sudden price inflation. Global stocks of grains are far higher today than they were before the last food crisis, when wheat reserves were at a 30-year low, as 2010 has so far been a good year for many producing nations. Japan’s domestic rice inventories stand at a seven-year high.

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