The Rice Crisis of 2008: A Lesson in Mismanagement

A rice farmer in Indonesia, one of the countries hit hard by the 2008 Rice Crisis. "Farmer harvesting rice, Kampung Rawa," accessed via Wikimedia Commons.

A rice farmer in Indonesia, one of the countries hit hard by the 2008 Rice Crisis. “Farmer harvesting rice, Kampung Rawa,” by user Crisco 1492, accessed via Wikimedia Commons.

2008 was a year of headlines. Barack Obama was elected president, China held its first Olympics, and the world financial markets came to a screeching halt. However, alongside these memorable events lies a largely forgotten one, the importance of which might not yet be fully realized. In 2008, world commodity markets experienced volatility unlike any seen in modern history. Throughout the year, the prices of many bulk food crops increased drastically, but it was the rice market that truly shocked the world. Over a six month period, the price of rice on world commodity markets increased by 200 percent. An increase of this magnitude is staggering and unprecedented. Disturbingly, the conclusion among experts is that market supply forces did not precipitate this rapid price change. Rather, market panic and misguided government actions were responsible for the violent increase. The elevated prices fell quickly after market intervention, but this dark episode in international trade history forms a parable about international food crisis mismanagement. Governments and international agencies can either learn from this episode, or ignore it with dire consequences.

Political barriers to feeding the world

What exactly is a food crisis? In its simplest terms, a food crisis is a shortage (either perceived or real) of food, whether on a local, regional, or global level. In much of the developed world, food shortages on the scale of historical famines are unthinkable. On a global scale, enhanced fertilizers and seeds have largely done away with the ecological phenomenon of famine. Even with the extreme population growth of the last half-century, research by the World Resource Institute demonstrates that humanity produces a large surplus of consumable calories each year. So in this modern age of diversified farming technologies and global calorie surpluses, shouldn’t hunger anywhere in the world be an issue of the past?

Unfortunately, that is not the case.In the developing world, food shortages remain a fact of life. Instances of famine in recent times, such as in the intermittent Sudan crisis or the current situation in parts of Syria, are less the result of ecological failures than failures of local policy. Farmers produce more than enough food each year to satisfy the dietary needs of every human. But the economics of food distribution are incredibly complex, with a byzantine set of trade restrictions and protocols governing how nations trade and sell food across the world. It was in this setting that the 2008 Rice Crisis began. There were no widespread crop failures in the planting season of 2007 that caused the misery of 2008. Instead, the price increases in the rice market were touched off by panics among the governments of India, Vietnam, and the Philippines, three of the largest participants in the international rice trade.

A food crisis in the modern era occurs because governments and institutions fail to properly address the secondary political and economic issues associated with the mass distribution of food through international food markets. In the case of the 2008 Rice Crisis, governments and institutions failed to allocate their stocks of rice well due to unfounded panic and rash protectionism. Economists David Dawe and Tom Slayton attribute this panic to several factors in their paper The World Rice Market Crisis of 2007-2008, published by the Food and Agriculture Organization (FAO) of the United Nations. At the time, suppliers were afraid that agricultural production would decrease globally in the coming months. These fears stemmed from an atmosphere of concern caused by a variety of smaller factors, none of which could have directly caused a decrease in the global production. Adverse weather in certain breadbasket regions had already caused a 67 percent increase in global wheat prices. Many farmers and government officials were concerned about mounting transport costs from oil prices, while the value of the US dollar was historically low. A general panic was setting in for all agriculture products, but rice seemed especially vulnerable due to its importance as a human calorie source. According to research compiled by Professor Andrew Gouldie in the Encyclopedia of Global Change, rice accounts for 40 percent of all global calories. This makes rice the largest source of calories for human consumption. Compounding these worries, the amounts of rice that national governments are willing to sell in international markets is set somewhat arbitrarily by politicians, if not already guaranteed by a trade agreement.

In many ways, rice is unlike any other crop. Whereas massive farms have taken over the cultivation of the world’s wheat and maize crops, rice is still in large part farmed in small community-based farms. And while enhanced fertilizer and seed use is common, it is not nearly as common as in its sister crops, wheat and maize. Despite the disparity in production technology, rice remains the most important crop for humanity in terms of calorie consumption. Of every calorie consumed by humans on a given day, that calorie was most likely the result of someone eating rice.

A factor behind the current dominance of rice is its historical role of rice as the staple crop of large parts of Asia. The population growth across East and South Asia is closely associated with a boom in rice production, enabled by the Green Revolution. According to the FAO, humanity now produces almost triple the amount of rice it produced fifty years ago. Wheat and maize have also experienced similar increases in yields, but their growth can be attributed to industrial use in biofuels and livestock. Much of humanity’s agricultural success over the last half century is the result of pioneering work by agricultural scientists such as Norman Borlaug, who, along with others, ushered in the “Green Revolution”. This period saw modern agricultural practices and products spread to developing nations such as India and the Philippines. The work of Borlaug and others brought about the current caloric surplus the world enjoys, a large part of which originates from rice grown in South and East Asia.

Rice is also unique in that it is often used as a stand in for wage pricing. In other words, rice is so fundamental to life in parts of Asia and the Pacific that worker wages can be expressed through the amount of rice that a given wage will buy.


Ultimately, Japanese reserve stocks relaxed the tension in international markets.“Rice drying after harvest. Kurihara, Japan,” by user Kinori, accessed via Wikimedia Commons.

Who’s to blame?

Although the 2008 Rice Crisis affected prices around the globe, the actions that directly caused it came from only a handful of nations. The crisis proper can be dated to an announcement made in India during the fall of 2007, when India’s government decided to ban the export of non-basmati rice crops. This decision stemmed from the weaker than normal wheat harvest, combined with the environment of anxiety from rising commodity prices. Rice-importing and rice-exporting nations alike received news of the Indian export ban with surprise. Vietnam, a major exporter, had already exhausted its yearly export quota of rice, which sent the Philippines, the world’s largest rice importer, into a panic as it hastily tried to build its domestic stockpile. A steady upward creep in market prices accompanied these events as other nations either banned exports or began to stockpile. Egypt and Cambodia both briefly banned exports, while Malaysia, another large importer, began to stockpile. China and India, the two most populous rice-consuming nations, were insulated from the market swing by their own domestic crops, which limited their international exposure. As the June 2008 market peak approached, Thailand, a massive exporter, made an announcement that would shock the world. Thailand did not announce an export ban like its fellow exporters. Instead, it petitioned for the creation of an Organization of Rice Exporting Countries to regulate supplies and prices in a cartel-like system akin to the Organization for Petroleum Exporting Countries for oil. Although the proposal fizzled shortly after the announcement, the words were enough to spook markets to a new high. Desperate to find relief from extreme prices, the Philippines pursued one of its final options – importing rice that Japan was holding in reserve. This separate stockpile was actually American rice, which had been exported to Japan under World Trade Organization agreements and therefore could not be re-exported beyond the Japanese market. It was in this tense moment when a US trade official made anonymous remarks that the American government would most likely allow the Japanese to abrogate their treaty and re-export to the hungry Philippine market. These anonymous remarks relieved importer nations and broke the panic that had enraptured the market. Over the next few months, prices subsided greatly, despite limited growth in the actual supply of rice in international markets. In fact, according to David Dawe of the FAO, Japanese exports actually decreased between 2007 and 2008, despite the desperate bargain made by the Philippines. The assurance of continued exports, rather than the fact of exports, managed to calm the market. After the market peaked and the dust settled, it became clear that the only supply shortages were artificial ones created by export bans and stockpiling.

Although panic, and not supply shortages, caused the massive price increases, people certainly suffered when food prices hit their high of over $1000 USD per ton in mid-2008. The ultimate result of the rice crisis and broader food crisis of 2008 was that millions of people close to or in poverty were further impoverished, while those already hungry became hungrier. And yet as terrible as these effects are, recent research suggests there may have been surprising political effects beyond the immediate suffering. Statistical analysis done by researchers at the New England Complex Systems Institute shows that the period of high food prices in 2008 and a later spike in 2011 directly preceded episodes of political and social disruption. In particular, the 2011 spike in food prices corresponds to the beginning of the Arab Spring protest movements in Libya, Tunisia, Egypt, Bahrain, and Syria. Political violence from protests can often be a destabilizing influence across a region, as is seen in the tragic case of Syria, where protests gave way to rebellion and the formation of the terrorist groups such as ISIS. When considering policy to address food prices, politicians would be wise to consider not only the obvious and terrible effects of starvation and poverty on their own citizens, but the potential for broader societal destabilization. As in the case of Syria, this destabilization often lends itself to further food suffering, and thus more destabilization in a vicious cycle of suffering.

Future crises

Rice is inescapably important to billions of humans in Asia. Although the plant itself is a hearty crop, with many varieties capable of growing across the globe, scientists and agriculture experts expect disruption in agriculture in the near future. This disruption could see the end of millennia-old farming practices that are struggling under the weight of billions of people. This system already had a hiccup in 2008. Climate change could be an earthquake in comparison. As global temperature patterns change in the coming decades, the current paradigm of rice could destabilize. The challenges posed by climate change demand integrity, openness, and international cooperation on the part of governments. These traits are almost completely absent in the manner which nations dealt with the 2008 Rice Crisis. Instead, an atmosphere of confusion dominated over a six-month timespan. Importer and exporter nations worked together to resolve the problem only after it became too large to ignore. In the 2008 crisis, the Japanese reserve stocks finally quelled the panic. But reserve stocks may not always be available. If the next crisis is induced by climate change, the global community may have to manage an actual food shortage, not a supposed one. In that case, there may be no simple answer.

After a review of the causes of the rice crisis, it is clear no single nation can be blamed for starting the panic that became the 2008 Rice Crisis. What else is clear is that the international market for rice was overly exposed to political pressures. In particular, the issue of national stockpiles propelled government officials to accelerate the price panic by making extremist policy choices to safeguard domestic food security (as well as their own political careers). What is not clear is if banning such food stockpiles, however unfeasible, is advisable or not. A laissez-faire view of economics might support this course of action. This situation could be seen as a case of too much government interference. Governments should only be the conduits through which the supply flows, and politicians should not have their hands on the valves to adjust supply as they wish. This prescription would apply to television sets or timber, but food is a strategic necessity, without which people will starve. Although this fact is true in the case of all food commodity items, it is especially true in rice, as rice is not as frequently used as a feed grain as some of the other cereals such as corn or wheat. If rice supplies dry up, cattle and pigs don’t starve, people do.

In his book Naked Economics, author and professor Charles Wheelan addresses the appeal of deregulated markets with a rhetorical question long loved by economists. Wheelan asks the seemingly simple question: “who feeds Paris?” The answer – that many millions of individuals interact with each other every day to bring exactly the right amount of food into the city – is impressive. But this answer sounds a little different when asking a natural follow up: who, then, feeds the world? In reality, the merchants and consumers of Paris rely on a legal complex to ensure the possibility of commerce. Rules must be followed and ordinances obeyed. You can’t sell rotten meat or hold a monopoly on string beans. And this system works quite well. Paris has not starved in decades, if not centuries, and the quality of food delivered is excellent. But the food affairs of states are more complicated matters, exactly because there is no government on high to set the ground rules. National governments don’t answer to a higher office. Their agenda is to make sure that their citizenry get fed, not the global population. Instead of a robust legal system, international trade works through patchwork trade deals between individual nations. Trade itself is only sometimes overseen by largely toothless international organizations. The fact of the matter is that even if nations surrendered their national trade apparatuses, crafting and enforcing meaningful regulation would be a daunting undertaking. Data collected by the World Trade Organization show that there was over $1.7 trillion USD worth of international agricultural trade in 2013. It would take a monstrous bureaucracy to police all this activity and set equitable rules. Handling the immense political challenge of fielding such an organization, which would require every nation to surrender their right to formulate their own food trade policy, would be another challenge all together.

Currently, the international organization most active in managing and directing global food trade would be the United Nations’ Food and Agriculture Organization, or FAO. Originally founded with the intention of reducing world hunger, the organization tracks agricultural development and trade levels across the globe. They play an integral role as a forum for international discussion on trade policy and for encouraging global food security. Yet they lack the authority to enforce a comprehensive agenda for global trade, presumably an agenda that could both guarantee food security and do away with world hunger were it followed. Ultimately, the FAO was unable to stop the food crisis of 2008 from unfolding, and it is unlikely it will be of much use in preventing a future crisis.

If international agencies cannot stop political pressures from triggering a food crisis like the 2008 rice crisis, and if strengthening these organizations is a political non-starter, what can be done to reduce the risk of future volatility? According to David Dawe, the world may benefit from the types of limited agreements such as the American-Japanese trade agreement that sequestered Japanese import stock from the global market. That agreement, which set aside Japanese import stocks from the rest of the international market, clarified the disposition of the world rice supply. If countries were more liberal in adopting these longer term, well-defined treaties, then ad hoc policies like India’s initial export ban and the Thai “Organization for Rice-Exporting Countries” proposal, both of which made the rice market more uncertain, would not be possible.

Rice importers and exporters alike panicked in 2008 because they believed that their own citizens would suffer due to a lack of food. Each nation had every right to be concerned with the affairs of their own populace. Concern for one’s own citizens over the citizens of other nations is prerogative of sovereign states. The anarchy of the international system preserves this attribute of nations. The governments of India, the Philippines, and the United States are beholden to Indians, Filipinos, and Americans respectively and no one else. But the international system coupled with the immense gains from international trade present a terrible paradox. Many nations cannot have food security without the gains from international trade, but these same nations cannot have secured trade if it’s international, as international trade will be subject to panics. Fortunately, clear and flexible policy can help fight panics as they occur. The international community must observe that the sluggish responses to the rice crisis of 2008 are unacceptable. Especially considering that the next panic might not be caused by uncertain yields, but by the certainty that yields will not be enough.

About Author

Steven Menelly

Steven Menelly writes and edits for the Features Board of the HIR.