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Why is rice more expensive today than it was a year or so ago? The answer is multifaceted, and it includes reference to international political policies and global trade issues that affect every modern market, offering insights for other supply chains as well.

A key force driving the rising prices is the massive decrease in demand, brought about by Thailand’s radically revised rice-buying policies. Specifically, the central government, in an attempt to prop up the revenues of its local farmers, began buying massive amounts of rice from them at around twice the going rate. The goal was to infuse its economy with cash and encourage consumer spending. But the program did not reach the intended outcomes—and its failure even appears to have been a factor leading to the military overthrow of the nation’s democratically elected government.

Following these events, Thailand radically cut back on its rice inventories, stockpiling less than half of what it once held. In addition to reducing its purchasing, Thailand began selling much of what it had in stock, so the global market for rice suddenly was flooded with a new source, competing with producers who had grown accustomed to a certain (no longer applicable) level of demand.

The fluctuations in the market led to a situation in which prices changed constantly, attributable mostly to demand at that very moment. Such uncertainty tends to drive prices higher, especially in combination with the other factors that inevitably disrupt supply chains for grain products (e.g., weather conditions, spoilage threats).

Discussion Question:

  1. How can actors in the rice market price strategically to deal effectively with fluctuating demand, supply, and price levels?

Source: Lucy Craymer, “Rice Prices on the Rise as Inventory Shrinks,” The Wall Street Journal, June 28, 2017