Rice feels 'bullwhip effect'

Shortage - real or perceived - pushes prices up, causes hoarding

By Joyzelle Davis, Rocky Mountain News (Contact)

Friday, May 9, 2008

Barry Gutierrez / The Rocky

Xu Chu Chen double-checks the price of a 50-pound bag of rice Thursday at the Pacific Ocean International Supermarket in Denver. Rice has turned into a precious commodity, and some warehouse stores began rationing premium varieties last month.

Prices are crossed out and new ones penciled in at the Pacific Ocean International Supermarket as the Asian grocer tries to keep up with the rising cost of rice. Thai jasmine rice nearly doubled in the past month.

Barry Gutierrez / The Rocky

CSU professor Jan Leach, an expert on rice genomes, examines genetically engineered rice growing in her greenhouse at the university. Her research focuses on looking for genes that can help rice become more tolerant of floods, drought and disease.

The wall at Pacific Ocean International Supermarket tells the story of what's happened to rice in the past few weeks.

The $23.99 price for 50 pounds of brown rice has $27.99 scrawled above it. Kohuko Rose Japanese rice's $32.99 printed price is scratched out, and it's now going for $4 more a 20-pound bag. Most dramatic of all is the price for Thai jasmine rice, which nearly doubled in the past month to about $41 for a 50-pound sack, said Kevin Lam, general manager of the Asian foods grocery store on West Alameda Avenue.

Rice, a staple for centuries, has suddenly turned into a precious commodity. Warehouse stores Sam's Club and some Costcos last month began rationing the premium varieties, such as jasmine, long-grain white rices and basmati, because some individuals and restaurant owners bought most of the stock on fears that prices would march higher.

"People were walking out with eight or 10 bags of 50-pound rice," said Kyle Nagai, owner of Pacific Mercantile Exchange downtown.

Nagai said the 66-year-old store, founded by his grandfather, hadn't seen customers stock up like that since the days farmers made sporadic trips into the city.

Hoarding rice is just the latest twist in what the World Bank is calling a "crisis" of soaring food prices. Around the world, prices for rice routinely notched new highs in the first four months of the year: Thai jasmine rice, the most popular export, is hovering above $1,000 per metric ton, up from around $300 at the end of 2007. In recent weeks, however, the prices have begun to ease back.

Shortage grew quickly

Rice experts have known for a long time that an imbalance between global demand and supply was brewing, but no one expected it to happen so soon or so suddenly, said Jan Leach, a professor at Colorado State University's College of Agricultural Sciences.

The run on rice accelerated dramatically in recent weeks because of artificial supply shortages. India and Vietnam, the world's second-biggest exporter after Thailand, have curbed rice shipments to shield their populations from the effects of soaring food costs. With only 30 million tons trading on the global markets, that news frightened net importers like Bangladesh and the Philippines.

"These Asian (exporting) nations know that if they don't keep their prices down so people can eat, they'll have chaos on their hands," said Leach, whose research focuses on looking for genes that can help rice become more tolerant to floods, drought and disease. "This is really an unsustainable situation because it means that the African countries have nothing to import."

Rice is the major food source for more than half the world's population and feeds 1.1 billion people who live on less than $1 a day. Shortages and soaring prices of wheat have caused protests in 34 countries, and deadly riots have broken out from Haiti to Egypt, according to the U.N.'s World Food Program.

When news of rice rationing at Sam's Club and Costco broke in late April, the global run on food had finally made its way to the U.S. - even if it only applied to purchases of 20-pound sacks at warehouse club stores.

Rice officials were quick to point out that there's plenty of rice in the U.S., and the Agriculture Department forecasts that American farmers will plant 2.8 million acres of rice this year, up slightly from last year.

Many consumers probably wouldn't have even been aware of the run on rice if the warehouse stores hadn't limited how much people could buy, said Lisa Ellram, chairwoman of the management department in CSU's College of Business. "The average Joe hears that you can only buy two bags of rice, he thinks, 'I might need some later' and buys it," she said.

That phenomenon is called the "bullwhip effect" because of the rippling panic that can occur in distribution channels when there is a real or perceived shortage of a product, Ellram said.

Such distribution quirks happen frequently, but they rarely trickle down to the consumer level, she said.

These largely psychological panics typically unwind when consumers regain confidence that supplies remain plentiful. That was the case at Pacific Ocean, where the frenzied buying of two or three weeks ago eased recently, Lam said.

Sticker shock

That doesn't mean that prices have relaxed.

"Twenty dollars! It used to be $12 or $15," exclaimed Denver resident Pauline Hopkins as she inspected the stacks of 20-pound rice at Viet Hoa Supermarket on Alameda Avenue. "Of course, the price of everything has gone up."

In fact, the nation is contending with the worst bout of food inflation since 1990. The cost of groceries is climbing at an annual rate of about 5 percent this year, on top of a 5 percent increase in 2007, according to the Agriculture Department.

Rice is not the only food in short supply. Commercial bakers are worried about running out of high-gluten flour, which is used in pizza crusts and bagels, as well as specialty rye flour. Microbrewers are worried about a shortage of hops.

The supply problems with flour are tied to global shifts in the commodity markets, where prices of corn, wheat, rice and soybeans have hit record levels in recent months. As corn prices have gone up, partly because of the demand for ethanol, farmers have shifted to that crop and out of specialty products like rye and hops. Also, a severe drought hit the wheat-growing regions in Australia, and disease damaged the Ukrainian crop.

Richard Reinwald, vice president of the Retail Bakers Association, said rye flour is being imported from Europe for the first time - usually, the shipments go the other way. The shortage and accompanying soaring prices mean that bakers like Reinwald, who owns Reinwald's Bakery in Huntington, N.Y., are opting to run out of rye and semolina bread instead of having loaves left over at the end of the day. "Our local food pantry isn't very happy," he said.

davisj@RockyMountainNews.com or 303-954-2514

Feeling the pinch

Rocky readers tell us how they are cutting back to cope with higher food and fuel costs.

Jeff Grebe Centennial

* We traded in a Honda Pilot, which gets 18 mpg, for a Honda Accord, which gets an average of 30 mpg.

* We terminated Dish TV and got Redbox/Netflix.

* We purchased a less-expensive house last year.

* We piggyback vacations onto business trips to cut down on travel expenses.

Cindy Garcia Lakewood

* For birthdays (especially for out-of-town relatives) I like going online and ordering books from Web sites that will gift-wrap my purchase. Most of the time the shipping is free. This saves time and money.

* I don't buy many books for myself, and if what I want to read is available at the library, I check it out there.

* I've cut back on magazine subscriptions even though it has been painful because I love magazines.

* I run errands when I have several places to go to, and, if possible, I do them all in one day.

* We don't eat out except on Sunday, and we always think of a restaurant that is on our way home from church.

* When grocery shopping, I use coupons and use the "buy-one-get-one-free" offers.

* I don't buy soda to serve to guests; I make iced tea instead.

Bill Huffor Woodland Park

* I think everyone is cutting expenses unless they are extremely wealthy. Some of the things we are doing:

* Clipping more coupons and going to a King Soopers in Colorado Springs where they double them!

* Sticking to the grocery list like never before.

* Walking more to run errands - lots of benefits there.

* Unfortunately, we've had to stop our charitable giving to the Red Cross and to others we used to donate to.

Jan Poorman Littleton

* I'm a shopper, and I used to run out to some store and browse pretty much every day. No more. Now I make a list of stores to visit one day a week and determine the best circular route to save money on gas. I've gone from buying a tank of gas every month to buying a half tank every month. Not going out has made me gloomy and is not nearly as much fun.

* When shopping, I pretty much pick out items I think I want and place them in the basket. Then at the end of the tour of the store, I return some or most items back to the shelves rather than actually purchasing them.

* I'm a lot more careful with discretionary funds for clothes, craft items, holiday stuff or gifts to spoil the grandchildren. I now give the grandchildren either cash or a shopping card, and I am more inclined to buy the kids and grandkids what they need rather than what they might want - which has removed us from the "favorite grandparents" list!

* I seriously think about items I'd like to purchase whether online or through a catalog. Now I either use the wish lists or fold the corners down on the catalogs and review the following month to see if they're still of interest.

* Used to travel; now we don't, nor do we have plans to. We have been using the money for home improvements, paint, carpeting cleaning, window treatments and repairs.

* My husband used to golf weekly; now he doesn't. We used to go to Black Hawk once or twice a month; now we don't. We used to entertain; but we don't do that much any more either. Not fun! And life should be fun!

* We have gone to generic medications and mail-in prescriptions to cut costs.

* We're not as generous with our chosen charities as in past years and they're mostly local charities too, which is heart-wrenching.

* We're trying to put away an extra but small sum of money for any needs that may arise.

Maleesa Davis Denver

* I am a 55-year-old single women with a college degree working a third job as a banquet server with a local hotel along with others. I no longer go to the beauty shop but do it myself. The cost of hair color just doubled at the grocery stores. I hope men prefer brunettes because the blond locks may be the next sacrifice.

Larry Sourbeer Arvada

* My wife and I dine out once a month instead of once a week.

* We decreased our monthly credit-card payments by using our economic stimulus payment to pay down our debt.

* We refrain from making any credit-card purchases except for unexpected emergencies.

* We examine affordable ways to make our home more energy- efficient to lower our monthly utility bills.

Ardy Smith Denver

* As a retiree on a fixed income, if I have to run an errand and it's a mile or less, I walk or take RTD. On Wednesdays, I pore over the grocery store inserts for specials that interest me and items I can use coupons with. When I go downtown, I always use RTD. I buy books of tickets because it's cheaper than paying cash. Any other of my shopping needs are done at thrift stores. I use my vehicle as seldom as possible and I take advantage of discounts whenever and wherever possible.

Are you cutting back?

Let us know how at business@RockyMountain News.com.

• May 10, 2008

  10:40 a.m.

  Suggest removal

  SASQUATCH writes:

  The Grapes of Wrath, Tobacco Road and 1929 all wrapped up into one neat package--the end is near, repent.

  And just who is responsible for $125 crude, $4 at the pump, no ANWR, no outer continental shelf, no coal, no nukes, no coal gasification, no natural gas, no new nuke power plants or crude refineries in over 30 years and the corn that is now stockpiled in Ft. Knox--you whiners, pissers and moaners ought to know. You voted for them, put them and their policies into office and now you are getting exactly what you voted for! Enjoy the many benefits of your windmills, your solar and your biofuels. I hope it hurts!

  DDHHUUUUUUUUUUUUUU!

• May 10, 2008

  6:29 p.m.

  Suggest removal

  windbourne writes:

  Hank/Sasquatch. The reason that we do not have enough windgenerators, and solar is because we have had 16 years of neo-cons like you. The bio-fuel is also coming from neo-cons.
  Clinton and Poppa bush pushed the AE but you neo-cons put us back on oil.

• May 11, 2008

  2:31 p.m.

  Suggest removal

  greenleaf writes:

  Squatch,

  It looks as though you just had another seizure at the end of your rant! It might explain your lack of logic??? I'd see a doctor while you still have a brain cell or two left!