Monday, January 26, 2009

The Rice Crisis, Revisited

The NY Times has an article today on the effects of rice prices in Senegal. Last year's high rice prices caused rice farmers there to increase their acreage:

It is a great thing that local growers are finally expanding production, he said, but their investments are incredibly fragile.

“We don’t have any control of the market,” he said. “There is huge volatility, and that makes it very difficult to protect their investments.”

If farmers lose a lot of money this year, they are unlikely to risk planting again, Mr. Ly said, which could prove catastrophic.

In a report released in November, the Food and Agriculture Organization of the United Nations warned that low prices this season could create an even worse replay of last year’s crisis by discouraging planters from producing.

“If prices were to remain depressed in 2008-9 and plantings for next year are affected,” the report said, “a similar, if not more pronounced, price surge may be witnessed in 2009-10, unleashing even more severe food crises than those experienced in the current season.”
In a nutshell, this is the economics of farming field crops. Farmers are "price takers", with no ability to adjust production to meet demand (unless organized into a cartel, like OPEC or the tree crop growers). Good prices one year brings expanded production the next, leading to boom and bust cycles, which are very hard on the individual farmer, particularly the small, young, and/or struggling one.

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