Nothing is more basic and simple than food. Yet it comes to us courtesy of a long, complicated supply chain that spans the globe.
That chain delivers food cheaply — but it can break. Four years ago, it blew up in most spectacular fashion, affecting hundreds of millions of people who rely on rice for sustenance. That crash — the great rice crisis of 2008 — was a true disaster for some of the poorest people in Asia and West Africa.
And the most frightening thing about it is that no one can guarantee that it won't happen again — because the decisions that created it were all, somehow, perfectly reasonable.
This crisis started with a simple cost-saving decision in India.
The Indian government decided to buy more rice for its food distribution programs, instead of wheat. (Wheat was really expensive at the time.)
To make sure there was plenty of cheap rice on hand, Indian officials made it illegal for most Indian rice to leave the country. In October 2007, they blocked exports of all non-Basmati rice.
"This was the trigger, and we saw it the very next day," says Peter Timmer, an emeritus professor of economics at Harvard who is one of the world's leading experts on the rice trade.
Even though there was plenty of rice available around the world because farmers in many places were harvesting record crops, the Indian ban on exports meant that there was less for other countries to buy. Immediately, the price of rice on world markets started to increase.
Then came the next reaction. People started hoarding. Even Timmer went to Trader Joe's and picked up six boxes of rice. "I knew it was going to be really expensive in another couple of weeks," he says.
Governments, in their own way, did exactly the same thing. Early in 2008, Egypt, Pakistan and Vietnam all started limiting the amount of rice that they would export. Government officials in Thailand, the world's leading rice exporter, started talking about setting up a cartel of rice exporters, similar to OPEC.
That, in turn, put the squeeze on countries like the Philippines, which don't grow enough rice for their own consumption. They need to buy rice from abroad.
Panicked government officials in the Philippines went on TV to tell people to eat less rice. That, of course, convinced people to go out and buy even more. Prices surged again.
On top of incompetence came corruption. Government officials in the Philippines spent taxpayer money on a series of sweetheart deals with a state-run company in Vietnam called Vinafood. They bought huge quantities of rice at ever-higher prices. Timmer says they didn't mind paying high prices, because the higher the price, the bigger the kickbacks from their Vietnamese trading partner.
Those deals drove up the price by hundreds of dollars a ton. At this point, panic in the Philippines had spread to countries across Asia. "People panicked everywhere," says Timmer. "In Ho Chi Minh City, for heaven's sake, the center of the second-largest rice exporting surplus in the world, supermarkets and rice markets got cleaned out in two days."
During the first four months of 2008, the price of a ton of rice on the world market went from $300 to $1,200.
In countries that relied on imported rice, from West Africa to the Philippines, people got squeezed hard. Ben Flores, a janitor in the Philippines, says he just had to eat less. "Before that, I used to eat rice every morning," he says. "I really lost weight because of that."
And remember: All of this was completely artificial. There still was plenty of rice in the world! Fear and self-interest was keeping it off the market.
Two Americans — the economist Peter Timmer and Tom Slayton, who follows rice markets for a living from his home in Alexandria, Va. — hatched a plot to pop the rice bubble.
"Tom called me up and said, 'Peter, there's a million and a half tons of high-quality rice sitting in Japan,' " recalls Timmer.
These stockpiles of rice exist because the World Trade Organization has forced Japan to import it from the U.S. But Japan doesn't want that rice, and most of it just sits in warehouses. Japan is not allowed to re-export it — unless the U.S. says it can.
Timmer and Slayton started a lobbying campaign, pushing a deal between the U.S. and Japan that would allow Japan to export that rice to the Philippines. In mid-May 2008, both sides agreed. And that announcement was enough; the price started to drop.
But a lot of damage remains, and so does some of the fear that produced the crisis in the first place. Neither ordinary consumers nor governments can be confident that the global food system won't go crazy again.
ROBERT SIEGEL, HOST:
From monetary policy, now to food policy. These days, our food comes through complicated global supply chains. It's a system driven by efficiency. But our next story is about a truly spectacular breakdown in that system. It happened in Asia and didn't affect Americans very much.
As Dan Charles with NPR's Planet Money team reports, the failure keeps experts awake at night because they don't know how to keep it from happening again.
DAN CHARLES, BYLINE: This disaster, and it really was a disaster for a lot of people, involves rice. It was the worst crisis involving food prices in half a century, but this one did not start with droughts or a bad harvest. There was plenty of rice in the world. This crisis started with a simple cost-saving decision in India. The Indian government decided to buy more rice for its food distribution programs instead of wheat, because wheat was really expensive.
And to make sure there was plenty of cheap rice on hand, they made it illegal for most Indian rice to leave the country. In October 2007, they banned rice exports.
PETER TIMMER: This was the trigger and we saw it, you know, the next day. The next day, prices in Bangkok go up $75 a ton.
CHARLES: Peter Timmer is an economist and one of the world's leading experts on the rice trade. The Indian decision set off a chain of reactions. Each one was perfectly understandable. But all together, they were destructive. The Indian ban on exports meant there was less for other countries to buy. That's why prices shot up. And then, people said, if rice is getting more expensive, we need to get our hands on some right now. Even smart economists like Peter Timmer were part of this. He was teaching at Stanford at the time.
TIMMER: I'd gone to Trader Joe's and picked up six boxes of rice because I knew it was going to be really expensive in about two weeks.
CHARLES: You were a rice hoarder.
TIMMER: I was a rice hoarder. I felt so embarrassed. But it's a perfectly rational thing for individuals to do.
CHARLES: That goes for governments, too. And in the rice business, governments really matter. Rice is so important in Asia, most governments at least try to control prices and how much gets exported. During the first four months of 2008, Egypt, Pakistan and Vietnam all started hoarding their rice crop. So, there was still plenty of rice in the world, but there was less for sale.
And that put the squeeze on countries like the Philippines. Those countries don't grow enough on their own. They need to go out and buy rice from abroad. Panicky government officials in the Philippines went on TV to tell people to eat less rice. So, of course, people went out and bought more. Prices surged.
Now, in a situation like this, if you're in a position of power and you're just looking out for yourself, this is a beautiful time. There's money to be made. This is what happened. The government of the Philippines went on a buying spree with taxpayer money. It bought a lot of rice, all from a state-run company in Vietnam called Vinafood at super high prices. These were corrupt deals, Peter Timmer says. This is how you line your pockets, buying high-priced rice.
TIMMER: You sign a contract with Vinafood in Saigon. Let's say it's $1,000. Vinafood is able to go back to Vietnamese farmers and pays them $500. So, now there's $500 of profit per ton, which you quietly split.
CHARLES: Those deals drove up the price by hundreds of dollars a ton. Rice fever spread from the Philippines across the whole continent.
TIMMER: What happened was people panicked everywhere. In Ho Chi Minh City, for heaven's sake, the center of the second-largest rice exporting surplus in the world, supermarkets and rice markets got cleaned out in two days.
CHARLES: During the first four months of 2008, the price of a ton of rice on the world market doubled, then it tripled. In countries that relied on imported rice, people got squeezed hard. Ben Flores, a janitor in the Philippines, says he just had to eat less.
BEN FLORES: Before that, I used to eat rice every morning. So, I really lost weight because of that.
CHARLES: This was just a crazy situation. People were going hungry. Lives were changed. Corrupt officials were getting rich. Even though there still was plenty of rice in the world. Two Americans hatched a plot to pop the bubble. Peter Timmer, the economist, and Tom Slayton, who follows rice markets for a living from his home in Alexandria, Virginia.
TOM SLAYTON: Peter and I decided we would, quote/unquote, save the rice market.
TIMMER: Tom called me up and said: Peter, there's one and a half million tons of very high-quality rice sitting in Japan, the WTO rice.
CHARLES: WTO as in World Trade Organization. To settle a trade dispute with the U.S., Japan has agreed to take in a lot of American rice that it doesn't really want. That rice just sits in warehouses. Japan is not allowed to export it unless the U.S. says it can. Timmer and Slayton started a lobbying campaign. They said to the U.S., let the Japanese sell this rice just this once.
In mid-May 2008, the U.S. agreed. And that announcement was enough. The price started to drop. By the end of the year, the price had fallen by half. In the end, none of the rice in Japan ever was shipped. The cause of the crisis was psychological and the solution was, too. But real people were hurt. And the fear that produced the crisis is still there. It's fear that the global system for delivering food to people who need it could go crazy again.
Dan Charles, NPR News. Transcript provided by NPR, Copyright NPR.