Supply and demand is one of the oldest laws of business, but it doesn’t always mean it makes logical sense. When artificial factors affect supply, it can do funny things to both demand and price. Suddenly for instance, you can start experiencing shortages.
The financial crisis is making for some interesting shortages recently. None of them are good signs for an economy rapidly spinning down the drain, and they indicate that what may be a curious news story today may become a way of life tomorrow.
First, we have growing signs that the world rice shortage is affecting US buyers.
Retail chain Sam’s Club will limit the sale of large quantities of rice amid a dramatic increase in the global price of rice.
The store will limit customers to four 20-lb. bags of jasmine, basmati and long-grain white rice, the company said in a statement. Its restriction mainly will affect businesses that buy rice in bulk, but the company said “a typical Sam’s Club Business Member does not buy more than 80 pounds of rice in one visit.”
“We currently have plenty of rice for Sam’s Club members,” the statement said. “This temporary restriction does not apply to retail-sized rice for sale in Sam’s or elsewhere at Wal-Mart stores.”
Quite a few Asian and Indian restaurants and small businesses deal with Sam’s Club for their rice stocks. Jasmine and basmati rice especially are suffering from major import shortages. If even the mighty Wal-Mart powered Sam’s Club stores are restricting sales, there are serious problems in the supply chain worldwide.
This move follows Costco’s move to limit rice sales as well. Rice is reaching record prices worldwide.
Anxiety about rice prices has permeated Asian restaurants in Seattle’s International District, forcing some to reluctantly charge customers more for rice and others to worry about hoarding and shortages.
At Aloha Plates on Wednesday, an employee said her boss was out shopping for rice, because he couldn’t find it at one of his normal sources. At Ga Ga Loc, one longtime worker said the restaurant’s owners were worried about having to charge customers an extra quarter for a box of rice.
“What is going on with the rice?” said one man at a Thai restaurant, as he waited for his to-go order. He said he used to buy white rice in bulk at Costco Wholesale Corp. for his family but recently stopped, because he could never find it. He now buys it at an Asian store on Beacon Hill.
A visit to the Costco in Sodo on Wednesday confirmed the lack of white rice.
“Oh, that’s going to be a tough one,” a clerk said, cringing, when asked where to find the rice. Four pallets held sacks of brown and basmati rice, but not white. “There’s Minute Rice,” she offered. Another employee said the store hasn’t had white rice for “about a week and a half now.”
How many Chinese, Japanese, Thai, Mexican, Spanish and Indian restaurants and stores are where you live? Here in the KY suburbs of Cincy, there’s dozens. Could you imagine your favorite sushi, burrito or vindaloo joint running out of rice? How does that happen in a place like the US?
U.S. rice futures soared to an all-time high Wednesday as investors bet that surging world demand will continue to pressure already dwindling stockpiles. Rice for the most actively traded July contract jumped 62 cents to $24.82 per 100 pounds on the Chicago Board of Trade, after earlier rising to a record $24.85.
Relentless demand from developing countries and poor crop yields have pushed rice prices up 70 percent so far this year, raising concerns of severe shortages of the staple food consumed by almost half the world’s population.
U.S. production of long grain and medium grain rice is strong, and the global crop is larger than ever, said Nathan Childs, an economist and rice expert with the U.S. Department of Agriculture. But with some of the principal exporters of the higher-priced rices, such as India and Vietnam, shunning foreign sales to control prices at home and the cost of food generally going up, the price of rice has been climbing to new heights.
Camille St. Onge, spokeswoman for the Washington Restaurant Association, said restaurants have not experienced supply problems here. Those that go through large quantities of rice, though, “are buying in larger amounts because of the expectation for rice prices to continue to rise.”
At Saigon Bistro in the Seattle Uwajimaya store, where rising rice prices have affected the cost of Vietnamese rice noodles, owner Larry Ly unhappily raised the price of his popular pho noodle soup by 25 cents. “I don’t want to do it, but I have to cover my costs,” he said.
Stocks are dwindling, so people are buying more rice…causing stocks of rice to dwindle and the price to increase and sellers like Sam’s Club and Costco to limit sales, further driving up prices and demand. It’s a classic commodity run situation. With rice going at an unheard of $4 a pound at the trading level, the cost to sellers and consumers will increase as well.
Pay attention to the “rice crisis”. It’s meaningful to billions who depend on it as a food and not a commodity, but even here in the US we’re feeling the pinch. The lessons here can be applied to any necessary commodity: wheat, corn, oil, even water. Speculation and profiteering on these basic items are causing misery worldwide. Basic greed is trumping basic decency, and now we’re paying the price.
Even in the food-rich US, where our idea of a “shortage” is “Best Buy is out of Nintendo Wiis this week” we’re starting to see the opening salvos of the coming resource wars. The era of low-priced food is coming to a nasty end.
What has become clear is that in a short time, soaring food costs have shaken some long-held assumptions about food and fuel, especially in the U.S.
Food has been cheap in America for nearly 60 years, and Americans set aside less of their incomes for food than any other country in the world, devoting just 11 percent of disposable income to it, compared to double that percentage in Europe. Keeping food costs low has been one of the great economic achievements of the last century. The low food costs, combined with rising incomes, “have been two of the primary sources of prosperity for American consumers,” said John Urbanchuck, an agriculture industry analyst for LECG, a global consulting firm.
Until now, Americans had the luxury of worrying about food due to its abundance. Concerns have centered on childhood obesity and an epidemic of diabetes. But new problems with food are already surfacing, as rising prices begin showing up at the grocery store. More expensive corn means people pay more for eggs and poultry, and still higher meat and milk prices are on the horizon. Record high oil prices are adding to price pressures, since transporting food costs more.
If prices stay high for a long time, the poor will be hit the hardest, since they spend the largest percentage of their incomes on food. Efforts to reduce hunger, like food stamps and free and reduced lunch programs, will become more costly, said Otto Doering, a professor of agricultural economics at Purdue University in Indiana. Asking taxpayers to pay more for them won’t exactly be politically popular, since food prices could also take a greater bite out of middle-class budgets. And paying more for food will mean having less to spend on things like big-screen television sets and iPods, putting a dent in the kind of consumer spending that has kept the economy growing for the past two decades.
Consumers won’t be the only ones feeling the squeeze. Hog producers in the Midwest expect to lose hundreds of millions of dollars in just the next six months due to corn price hikes, Doering said.
Who goes hungry in America, you might ask. Yet millions do daily. As healthier fresh food gets more expensive, processed food becomes the only choice for a lot of folks. Yes, we spend 11% of our income on food, less than just about anyone else on Earth. But there’s no slack for the American family anymore, and increases all over the place are hurting hard. It’s a lot worse elsewhere.
The haves versus the have-nots has never been more volatile worldwide, and it’s only going to get worse. The unintended consequences from America’s worst financial excesses are affecting people globally now.
The situation will only get worse from here on out.
Be prepared.
Update [2008-4-24 9:38:46 by Zandar1]: It’s not just rice, either.
Already feeling the pinch from soaring wheat and flour prices, U.S. bakers are now beginning to experience some supply shortages.
Rye flour stocks have been depleted in the United States, and by June or July there will be no more U.S. rye flour to purchase, said Lee Sanders, senior vice president for government relations and public affairs at the American Bakers Association.
“Those that are purchasing it now are having to purchase it from Germany and the Netherlands, and that’s very concerning,” Sanders said.
She attributed the shortage to high demand for rye flour, which is used to make rye bread, and less acreage devoted to rye grain than in the past.
It’s getting ugly out there, folks. Parsley, sage, rosemary and…well, rye, and rice, and wheat, and…
I barely was a zygote during the gas lines of the 70’s. We’ve got a whole generation here who have never experienced shortages of anything other than video game consoles and Hannah Montana concert tickets. The drop in people’s standards of living over the next few years is going to come as a painful shock to many, many Americans. We’ve lived in an era where Americans constantly improve how they live, where one generation improves upon the next. That’s not going to happen anymore. My generation is going to have to tough it out. We have to a small extent, but we thought “We’ll break even, at least. We’re Americans.” Nope. That disaffected 18-35 vote is going to have a hell of a lot to say about the folks running this country I think. It’s not going to be pretty.
