Introduction Rice is the most important staple food in Asia, and it is central to the region’s food security. It provides more than a quarter of calorie intake in the region and about 40% of calorie intake in Southeast Asia. Approximately 90% of rice is produced and consumed in Asia. The livelihood of hundreds of millions of smallholder Asian farmers depends on growing this crop. Since the beginning of the pandemic, consumers were benefiting from a relatively stable rice price. However, the international rice price index rose almost continuously in 2022 and reached its highest level in the last 11 years in January 2023. A continued uptrend in prices can pose a serious threat to food security in the region, especially with more frequent extreme weather events and other impacts of climate change. Policy makers should increase the role of the private sector, strengthen regional cooperation, and increase investment in sustainable production to build a resilient rice market. Analysis Contrasting movement in the world rice market International food prices fluctuated substantially since the second half of 2020, buffeted initially by a combination of supply chain disruptions due to the COVID-19 pandemic, various weather disturbances, and energy and fertilizer price shocks. However, from early 2022, the ramifications of the Russian invasion of Ukraine, including additional energy and fertilizer price shocks, further tested the resilience of world food markets. From August 2020 to March 2022, the Food and Agriculture Organization (FAO) food price index increased by 67%. Since that time, however, it has declined almost continuously.  From August 2020 to August 2021, large price movements came from international wheat and maize markets, but the FAO rice price index fell by 14% (Table 1). From August 2021 to August 2022, wheat and maize prices increased 18% and 13% respectively. The FAO rice price index reversed course and rose 11%. This was largely led by price increases in the aromatic and Japonica submarkets, which are of less concern for food security than for price increases in the indica rice submarket. Indica is the major type of rice grown in the tropics and subtropics. From August 2022 to March 2023, the FAO indica rice price index increased 14.3 %, while wheat and maize prices declined slightly during this time. Indica prices increased due to weather shocks, such as drought in the People’s Republic of China, severe floods in Pakistan, and substantial uncertainty over the monsoon season in India. These weather shocks led India to impose a 20% tax on exports of non-Basmati and non-parboiled rice, as well as a ban on exports of broken rice, in September 2022. These provided additional upward momentum to average rice prices. Table 1: Percentage Increase in FAO International Rice Price Index, Wheat and Maize Prices, and US CPI Aug 2020 to Aug 2021 Aug 2021 to Aug 2022 Aug 2022 to March 2023 All rice -13.5 10.8 11.7 Indica -12.5 5.0 14.3 Aromatic -17.5 33.0 1.9 Japonica 11.0 25.7 12.9 Glutinous -40.2 10.8 12.6 Wheat 46 18 -3 Maize 72 13 -3 US CPI 5.3 8.3 1.9 Sources: Food and Agriculture Organization of the United Nations, World Bank, and International Monetary Fund. Price volatility in the world market The world rice market can offset fluctuations in domestic production and thereby help to stabilize domestic prices. On the other hand, if a country is open to international rice trade, price fluctuations in the world market can be a source of price shocks. This possibility has been a traditional concern for policy makers. During the 1970s, rice prices were highly volatile (Figure 1). This behavior gave the world rice market a reputation for being highly unstable rather than a force for stabilization. Since the 1970s, however, world rice prices have become much more stable (especially for indica), relative to both the 1970s and present-day wheat and maize markets. Figure 1: Volatility of Monthly Rice, Wheat, and Maize Prices Note: Volatility calculated as the standard deviation of the monthly difference in the natural log of real prices. Sources: World Bank and International Monetary Fund. Despite the geographical concentration of rice production in Asia, there are several offsetting factors. First, while rice production is concentrated on one continent, there are multiple production ecosystems and weather patterns within the continent that are not correlated with one another. Second, irrigation helps to stabilize production, and a much larger share of rice area is under irrigated conditions—62% for rice compared to 32% for wheat and 20% for maize (Portmann et al., 2010). Furthermore, Asian rice production is largely grown under double or triple cropping ecosystems, which allows for rapid recovery if one of the crops suffers from shortfalls. These factors lead to much lower annual production volatility at the global level for rice, relative to wheat and maize. The share of global rice production that is internationally traded has been continually rising over time, more than doubling from around 4% in 1990 to 10% today. This has certainly played a role in reducing the volatility of rice prices. Nevertheless, the share of global rice production that is traded on international markets is still less than the share for wheat and maize. Price transmission to domestic rice markets While the world rice market is an important potential stabilizing force, food security concerns may arise if price transmission to domestic markets takes place. Price movements in international markets may not be reflected in domestic markets as exchange rate fluctuations can offset (or exacerbate) changes in international prices that are quoted in US dollars. Trade barriers, such as tariffs and export bans, can also prevent the private sector from moving supplies so that domestic prices can equal international prices. “Natural” barriers to trade, such as transport costs, have similar effects. What has happened to exchange rates and domestic rice prices since August 2022 when world market indica rice prices started to rise? The first column of Table 2 shows the percentage change in the nominal world price in US dollars based on the most recent available data. The second column shows the percentage change in the nominal world price in local currency (LC) terms, as mediated by the exchange rate for each country. From August 2022 to March 2023, exchange rate movements were small in most countries, so the percentage changes in the first two columns are relatively similar. The most notable exception is Pakistan, where the currency depreciation substantially magnified the change in the world price. The third column shows the percentage change in the domestic price. The changes are less than the percentage change in the world price in local currency as many countries have policies that reduce transmission of world prices to domestic markets. These policies blunt the food security impacts of world price increases, although such policies also have costs, depending on how they are implemented. For example, a high domestic rice price in importing countries increases the level of food insecurity. It may also amplify the impacts of domestic production contraction on the domestic price. Table 2: Cumulative Percentage Increase in Rice Prices from August 2022 to February or March 2023 World price (USD) World price (LC) Domestic price (LC) South & Central Asia Bangladesh 21 30 -4 India 21 26 9 Kazakhstan* 24 18 20 Nepal* 24 30 18 Pakistan 21 55 51 Sri Lanka 21 10 -14 Uzbekistan* 24 29 50 East & Southeast Asia and the Pacific Cambodia 10 8 2 China, People’s Republic of 10 12 0 Indonesia* 14 16 11 Japan* 14 12 1 Lao PDR* 14 23 21 Philippines 10 8 1 Samoa* 14 14 7 Thailand 10 6 7 Viet Nam 10 12 15 Notes: * Data are through February 2023; otherwise, data are through March 2023. World price refers to India 25% brokens for South and Central Asia and Thai 5% brokens for East and Southeast Asia and the Pacific. All price changes are in nominal terms. Source of raw data: FAO. For three of the world’s five largest exporters (Pakistan, Thailand, and Viet Nam), the changes in world and domestic prices are nearly identical because they do not have policies in place that create substantial wedges (e.g., export taxes) between world and domestic prices. In India, a tax on exports of non-Basmati and non-parboiled rice (as well as a ban on exports of broken rice) implemented in September 2022 led to lower domestic price increases relative to world prices. There were substantial domestic price increases in some countries, especially Pakistan (51%) and Uzbekistan (50%). In many of these countries, wheat is the main or an important staple food. Rising wheat prices in these countries encourage consumers to shift to rice, putting upward pressure on domestic rice prices. Emerging climate risks El Niño. World rice prices fell from February to March 2023, as there are good prospects for second-season crops in both India and Thailand, and the winter-spring crop in Viet Nam is being harvested. Nevertheless, there is also the potential for some price increases in the months ahead. Indonesia recently announced that it will import 2 million tons of rice later this year, and the Climate Prediction Center of the National Oceanic and Atmospheric Administration (NOAA) has issued an El Niño watch, with a 55% chance of a strong El Niño event this year (NOAA, 2023). El Niño events tend to bring dry conditions to Southeast Asia, especially Indonesia and the Philippines, and the Indian subcontinent, which can lead to lower rice harvests. El Niño also increases the probability of more tropical storms and typhoons in the Pacific Ocean. Declining yield growth. By 2050, global rice demand is expected to increase by 30%. However, rice yield growth is declining in many countries in Asia. For example, between 2002–2012 and 2012–2022, the average annual rice yield growth declined to 1.7% from 3.7% in India; 0.8% from 2.5% in Viet Nam; 0.1% from 0.9% in Thailand; and -0.2% from 0.5% in Indonesia. More frequent extreme weather events, degraded natural resources, and limited public investment in rice production research and development constrain rice productivity growth in many countries. The potential demand and supply gap can lead to high rice prices in the medium to long term. Recommendations Increase the role of the private sector. A more market-oriented rice trade—especially allowing the private sector to import—can supplement the domestic production loss and improve access to affordable rice in importing countries. For example, the Philippines reformed its rice tariffication law in 2019 and now allows rice importation by the private sector. This minimized price fluctuations and led to lower domestic farm and retail rice prices. Likewise, Bangladesh allows the private sector to import rice, and its role was very important during the “flood of the century” in 1998 when domestic rice production suffered a major decline. The Bangladeshi private sector responded quickly by importing large amounts of rice from India to stabilize domestic prices. Greater private sector engagement in food reserve systems can support government efforts to ensure more resilient food supply chains. The development of a warehouse receipts system could, to some extent, mitigate the shortage of working capital loans faced by processors, wholesalers, and retailers. Deepen regional cooperation. Promoting dialogue on food security issues helps build understanding of the situation in neighboring countries and prevent surprises. Collaborations on developing early warning systems to forecast precipitation, temperature, and typhoons can also alert governments, farmers, and traders of changes in meteorological conditions that will affect rice production. These systems will be increasingly important as the impacts of climate change continue to threaten the stability of rice production in the region. Increase investment in sustainable productivity growth. Rice paddy is responsible for 12% of global methane emissions and 1.5% of global greenhouse gas emissions. In Asia, rice irrigation consumes more than half of freshwater resources. Scaling up investment in sustainable productivity growth in the rice sector is crucial to meet the growing demand for rice. Policy makers in the region must design agendas that leverage climate-smart agriculture and water-saving irrigation.  The FAO food price index is a measure of the price movements of various food groups (e.g., cereals, meat, dairy, vegetable oils, and sugar). The price movements refer to international market prices, not domestic market prices. Resources F. Portmann et al. 2010. MIRCA2000—Global Monthly Irrigated and Rainfed Crop Areas Around the Year 2000: A New High-Resolution Data Set for Agricultural and Hydrological Modeling. Global Biogeochemical Cycles. Vol. 24, Issue 1. NOAA. 2023. El Niño/Southern Oscillation (ENSO) Diagnostic Discussion. Ask the Experts David Dawe Consultant David specializes in agricultural and food policy analysis, much of it concerned with the Asian and world rice economies. Most recently, he served as regional strategy and policy advisor and senior economist at the FAO’s Regional Office for Asia and the Pacific. He has published books and research articles in the areas of trade and markets, domestic price policy, production and natural resources, and nutrition. He was formerly an editor of the Global Food Security journal. Shingo Kimura Senior Natural Resources and Agriculture Specialist, East Asia Department, Asian Development Bank Shingo is responsible for ADB’s operation on sustainable rural development and food security in East Asia. Prior to joining ADB, he was an economist and an agricultural policy analyst at the Organization for Economic Co-operation and Development (OECD) in Paris. He also served at the Ministry of Agriculture, Forestry and Fisheries of Japan, contributing to policy planning and implementation in the areas of rural development, farmland regulations, and food safety. Follow Shingo Kimura on Asian Development Bank (ADB) The Asian Development Bank is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance. Follow Asian Development Bank (ADB) on Leave your question or comment in the section below: View the discussion thread.