April 25, 2008
Warehouse Clubs Ration Rice
There apparently isn’t any shortage of rice in the U.S. but concern over how quickly current world supplies are being drawn down has given commodity speculators all the ammunition they need to drive the price of rice through the roof.
The price of rice from Thailand has nearly tripled since the beginning of the year and stands at record highs. Rice prices on the Chicago Board of Trade are up about 80 percent this year.
While U.S. government and trade group officials have maintained that there is no shortage on the horizon, buyers have been streaming into warehouse clubs to buy rice in bulk.
USA Rice Federation spokesperson David Coia offered an explanation to The Associated Press. “It’s possible that small restaurants and bodega-type neighborhood stores may be purchasing rice in larger quantities than they do typically to avoid higher prices,” he said.
Having seen this bulk rice buying activity take place, both Sam’s Club and Costco have stepped in to put a limit on bulk rice purchases.
Sam’s, which is limiting the sale of 20-pound bags of jasmine, basmati and long grain white rice to four per shopping trip, said it took the action to prevent large distributors from depleting its stock.
“We believe limiting rice purchases to four bags per visit is consistent with the needs of the majority of our members, including many restaurants,” Sam’s Club spokesperson Susan Koehler told Reuters in an email.
Discussion Questions: What do you make of the current run-up in rice prices? Will we be seeing this type of activity taking place in other food commodities? What are your thoughts on the steps taken by Sam’s Club and Costco to deal with concerns of apparent hoarding activity?
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Rice and flour are basic items for a lot of American families, many of whom have experienced food shortages in the past. When “news” or speculation of a potential food shortage occurs people of all walks of life tend toward hoarding, encouraged frequently by those controlling supply. If the media ever suggests that the “Big Mac” or pizza is in short supply, don’t let yourself get trampled in line at McDonald’s or the Pizza Hut. Human nature seems to has two prime instincts: Panic and survival.
This is a knee-jerk reaction to a perceived shortage, where none exists. These types of reactions produce a hoarding mentality which then feeds on itself. By restricting rice purchases, both Sam’s and Costco support this mentality and promote their position when they announce restrictions. The key to breaking this cycle (which then artificially raises prices) is to do nothing, and simply focus on a “business as usual.”
From time to time, there are rumor-driven runs on groceries. Years ago, there were several toilet paper panics. If the world runs short of rice, Americans will get plenty, because they’re richer than most of the folks in Asia.
In terms of the quantity limit, I can’t see how this affects any families. My family (6 people total) ate rice almost everyday for dinner (when I was younger) and one of those big bags would last ages.
However, for any restaurants or family run businesses who do their ingredient shopping at Costco, then it might be a hassle. But I’ve never seen any customer at a Costco place ever buy that much rice at one time, ever.
Sounds like a publicity stunt to curb attention away from price hikes.
Warehouse Clubs sell at wholesale prices, setting limits on number of bags of commodity grains per trip is sensible. The demand and hording of rice isn’t happening at the individual consumer level but at the small to medium sized business level.
This isn’t an interruption to the food supply and few consumers are being impacted by these “shortages.” We will all be impacted by higher prices across all consumer categories. These higher prices will lead to an increase in the demand for commodities (including rice, flour, etc) which in the short run lead to real shortages of product as producers/farmers struggle to keep up with the demand. This will in its own turn increase production and supply, ultimately reducing the upward price pressure and correcting the market over time.
The US produces only 2% of the world’s rice yet is also considered the world’s 4th largest exporter. We only grow 45% of rice domestically that can supply our own demand, and the other bulk of our rice comes from Thailand and India. India has closed its doors on all exports except for its highest grade rice. Thailand is struggling with whether to lock down exports. If Thailand goes the route of India, Vietnam, the Philippines and other countries closing exports, then we’ll have a true shortage on our hands.
I think restaurants have huge cause for concern when rice is such a staple on the table. The average consumer, if they don’t want a price hike from today’s prices, should buy what their families can relatively use in a 6-12 month period. I do foresee rice prices jumping again, not just because of media speculation but because there are real things that are happening in the market that are causing issues. Drought in Australia has caused the last rice processor there to shutter its doors, and because in the last 10 years there, farmers have seen a bigger net yield in profits for wine grapes, it’s unlikely that even if their drought ended, that they’d switch back to rice. And then, as farmland in developing countries is shrinking, a shortage of fertilizer…the list goes on and on.
And then like other food stuffs, when one item isn’t readily had, it puts pressure on other sources, in this case, rice could shove the wheat and corn markets higher.
We tend to look at these issues from our own US lens, but if one looks globally at the bigger picture and engages in the conversation about from where our food comes, they will be able to see a pretty good storm brewing.
As the world faces higher fuel costs and unexpected weather patterns, prices are going up at much faster rates than we have seen in years. No retailer likes to raise prices, because no consumer wants to pay more, so small retailers and consumers stock up on food staples to lock in today’s prices. By rationing rice purchases Sam’s Club and Costco are trying to make sure that every customer who wants rice can get some. It’s no different than toy stores rationing the holiday season’s hottest toys. It makes sense and is good for business.
Rice rationing by all accounts is to control hording, not a real commodity shortage. There may be some dislocation in the world rice supply, but Americans are paying higher prices and thus can expect to have adequate supply. Near term retailers can expect some consumer pantry loading. This will be driven by two factors.
First, a media driven short supply reporting will increase purchases, not consumption. Just the media reporting of rationing will increase sales in other retailers.
The second factor will be for inflation hedging. As food inflation works through the supply system, retailers can expect consumer pantry loading or forward buying to keep their costs down. Expectations are that this will only be for the base commodity, not finished product based.
Considering the state of world hunger, and how population is growing faster than the planet has resources to support, and people’s instinct to buy ahead in inflationary/difficult times, I am quite sure that in the months and years ahead we will see more of this. The real question is what to do about it, from a practical/pragmatic standpoint.
I don’t think the U.S. will do anything substantive about it until we hit real crisis mode. Then, we’ll all get a lesson to remember, like our depression-era parents (grandparents?). I wish I were more optimistic. Over the short haul, however, Sam’s, Costco and company are doing the responsible, wise thing.
One of the more ominous stories we’ve seen in some time. I heard a commentator yesterday opine that there really is no global shortage of food overall, but that there would still be 100 million or more people world wide who face a crisis. The problem is partly one of perception, causing net exporters of rice in Asia to limit or cease trade.
Prices are rising due to transport costs that reflect higher oil prices. It’s become clear that oil and food prices are interdependent–a new phenomenon that means as speculators game the oil trade and the dollar loses value, the rice trade is affected too. Meanwhile in the U.S. we have foolishly diverted corn production to ethanol, and shifted from wheat cultivation to corn, tightening the food supply. And China has quietly shifted from a large net exporter of grain to a net importer in the past few years, as its population acquires a greater taste for farm-raised meats.
With prices on an upward spiral, forward buying to lock in current prices starts to look like a good idea. So the rationing by our club stores may be largely symbolic, but it’s also a responsible policy, I suppose, since it will tend to deter hoarding. On the other hand, it contributes to the uneasy feeling we all get at the supermarket checkout.
I don’t think this is anything the media is blowing out of proportion. From what I’ve heard, this is driven by restaurants stocking up on rice due to price increases that have already happened and are anticipated.
For retailers, they really have to navigate a world of extremes–rice shortages and super premium chocolate introductions at the same time. They all need to have good PR departments because one perceived misstep can cause a lot of damage.
I think we see this in the sections of the country prone to severe weather. Every time there is a threat, the bread and milk aisles of our local market run bare. Is it human nature to hoard necessary supplies, either for the protection of the family, or possibly to sell to others for a profit?
But of course, always questioning the media, is the news making a bigger thing out of this than it really is? Is it causing a panic in countries where it isn’t a concern?
I also wonder how the green movement plays into shrinking food supplies? Have we thought about the changes in the efficiency of the land by new techniques being introduced to be more respectful of the land? I am not suggesting doing away with those more beneficial techniques, only questioning a balance between food production and eco-standards.
Rice has a two year storage life.
The story is suspect because Fox (“Fixed”) news is reporting so much on the story. There is probably some bill or it competes with something else or fertilizer, ethanol, etc. This may effect the price for a while (the life of whatever campaign it is) but not in the long run time of supply and demand.
Surprisingly enough, there isn’t a “beef” shortage which requires far more resources to produce.
Rice is also very healthy. A real shortage might develop when the world suddenly understands.
Oil is the real culprit in inflation and any shortages we may have. It’s those fat, stupid SUVs.