According to the United Nations Food and Agriculture Organization (FAO), global rice prices in August were 31% higher than the previous year, reaching a 15-year high. This has led to concerns for the inflation-sensitive governments of Southeast Asia, particularly net rice importers like Indonesia, the Philippines, and Malaysia, as well as net exporters like Thailand.
There are several factors contributing to the surge in rice prices. Firstly, the region has experienced a severe El Niño effect this year, leading to hotter temperatures and a decrease in rainfall across Southeast Asia. This has resulted in a decline in agricultural output, with rice being particularly affected due to its reliance on monsoon rains.
Secondly, the ongoing war in Ukraine and Russia’s withdrawal from the Black Sea Grain Initiative in July 2022 have disrupted global supplies of wheat, cereals, and cooking oil. This has affected Southeast Asian states heavily dependent on wheat imports, as Ukraine is a significant producer and exporter of grain.
Thirdly, India, the largest exporter of rice in the world, announced curbs on rice exports due to the heat wave and food shortages caused by the El Niño effect.
Fourthly, countries like Cambodia and Vietnam have experienced rainfall shortfalls exacerbated by China’s retention of water in their upriver dams. This has led to record low water levels in the Mekong River, negatively impacting rice yields in the region.
Lastly, declines in rice yields in net-exporting states like Thailand and Vietnam have resulted in higher prices and hoarding.
The net rice importers, including Indonesia, the Philippines, and Malaysia, are facing immediate impacts from the rising prices. Indonesia, for example, has tripled its rice imports compared to the previous year and has implemented measures such as releasing stocks from strategic reserves to control inflation. The Philippines has imposed price caps and signed import agreements with countries like Vietnam.
Even net-exporting countries like Thailand and Vietnam have experienced instability in their rice markets. Thailand has benefited from surging prices but has also been affected by El Niño and decreased rainfall, leading to a decline in rice production. Vietnam, the third largest exporter in the world, has seen a significant increase in rice exports but is facing challenges due to changing weather patterns and other factors affecting the productivity of the Mekong Delta.
Overall, changing weather patterns are negatively impacting not only rice production but also other agricultural sectors in the region, such as coffee, palm oil, sugar cane, and corn. With the increasing likelihood of surpassing the internationally agreed climate change target, governments in Southeast Asia are implementing measures to stabilize prices, but the long-term sustainability of these subsidies remains uncertain.