Asia faces food inflation as price of rice soars

Supply pressure: A worker packing rice for sale in Bangkok. Countries worldwide are trying to secure rice after a partial ban on exports by India cut supplies by roughly a fifth. — AP

SINGAPORE: Rising global prices of rice and its substitutes could drive food inflation higher as early as the end of 2023 in Singapore and most of Asia, which consumes 90% of the world’s rice, economists warn.

At US$648 (RM3,012) a tonne, Thai white 5% broken rice, an Asian benchmark, is at its most expensive since October 2008, according to data from the Thai Rice Exporters Association.

The price of the common Asian staple has risen 20% in the past month alone, after India banned exports of its non-basmati rice on July 20.

“This means the current rise in food prices, should it sustain, would be reflected in higher Asia food inflation only towards the end of the fourth quarter or early next year,” Sonal Varma, Nomura’s chief economist of India and Asia ex-Japan, told The Straits Times.

BMI, a Fitch Solutions company, said corn and wheat prices have also risen higher in the aftermath of the expiration of the Black Sea Grain Initiative on July 17, adding that this is fuelling further upside pressure on the prices of rice and its substitutes.

As a net rice importer, Singapore could face some pressure as non-basmati rice from India accounted for 17% of the republic’s rice imports in 2022.

Varma said that while food accounts for a small share in Singapore’s consumer price index (CPI), rising global food prices would have some spillover on the country’s CPI inflation as Singapore imports more than 90% of the food it consumes.

The weighting of food in Singapore’s CPI is 21.1%, of which 6.82% is food, and 14.28% is food serving services. Rice has a weighting of 0.2% in Singapore’s CPI basket.

For now, the higher global food prices have yet to impact most countries’ inflation data due to a lag as a result of government interventions such as food subsidies and the release of buffer stocks.

“The lags differ across countries, but on average we find a six-month lag between global food price inflation and CPI food inflation in Asia, with lags ranging from three months in Indonesia to as long as nine months in South Korea,” Varma said.

Maybank economist Chua Hak Bin recently raised his 2024 inflation forecast for Singapore to reflect the hike in energy and food prices. He also factored in the impact from the goods and services tax hike and the higher carbon taxes from Jan 1, 2024.

Associate Professor in Practice Terence Ho, from the Lee Kuan Yew School of Public Policy at the National University of Singapore, noted that while the prices of certain food items including rice might be rising, Singapore’s overall and core inflation were moderating from their peaks earlier this year.

A recent study by the school showed that while food prices have been steadily rising in Singapore since 2007, they tend to be a lot more stable compared with global food prices.

It said Singapore’s growing economy made it better at insulating itself from global food crises.

“Singapore’s growing economy along with a relatively stable currency may have contributed to higher purchasing power in the world market, thereby providing a greater buffer towards global food price shocks,” the study said.

Singapore also maintains stockpiles of essential food items, including rice. For instance, the Rice Stockpile Scheme helps to ensure an adequate supply of rice and maintain price stability.

“These stockpiles are regularly reviewed to make sure they are sufficient to address emerging risks,” Ho said. — The Straits Times/ANN