Reason of Price Rice. Explain in
detail
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Answer:
A rapid increase in food grain prices in the
first half of 2008 has diverted global attention to
the food crisis. Rice, the staple food of millions
of Asia’s poor, is not only an economic good
but also a political commodity. The price of
rice escalated in May due to a number of short-
and long-term factors, with the export price
exceeding USD 1000 per ton.
Keeping the price of rice low, thus making
the commodity affordable to the poor, is critically
important in reducing poverty. Poor households
spend a substantial portion of their incomes on
rice; an increase in rice price is equivalent to a
reduction in their real incomes.
This paper analyzes the factors that have
contributed to the rapid rise in rice price and
assesses the impact of price upsurge on poverty.
A scenario analysis on rice prices was conducted
through projection of long-term demand and
supply of rice. The final section of the paper
includes short- and long-term solutions to the
price crisis.
EVOLUTION OF RICE PRICE
It is now well recognized that rapid
production growth in the wake of the Green
Revolution led to a long-term decline in rice
prices. In 1970-1990, rice production in Asia
grew at the rate of 2.71 percent per annum (pa),
with growth in yield being the major source of
this production growth. Except for the price
spike in 1972-1974 caused by production
shortfall in several countries and the oil crisis,
rice prices sustained a decrease over time until
2001 (Figure 1). During this period, the world
rice market went through a major structural
change that helped maintain a low and stable
rice price during the 1990s (Dawe 2002). This
was conducive to the expansion of the rice trade
as importing countries could obtain the required
quantities of rice cheaply from the world market.
The low and stable rice price also contributed
to poverty reduction—directly by raising the
income of rice farmers, and indirectly by raising
the real income of poor consumers.