What's the deal with Rice???

Despite bumper crops in Vietnam and India, export limits and bans have created a global shortage and driven up prices

At the Costco in San Francisco, rice is all the rage. Not long after the 10 a.m. opening on Apr. 24, the warehouse club was well on its way to selling out the day's supply of Thai jasmine rice. Within an hour, customers cleared three pallets loaded with 50-lb. bags of Super Lucky Elephant brand jasmine rice from Thailand. Real estate broker Mary Jane Galviso snapped up two bags—the limit imposed by this particular store. "This is very frightening," says Galviso, who hails from Orosi, a rural community in California's Central Valley, more than 200 miles southeast of San Francisco. Her local grocery, which specializes in Filipino foods, has run out of Thai jasmine.

In a dramatic development for U.S. consumers this month, shoppers and Asian and Indian restaurant owners started panic-buying two of the highest-premium varieties of rice—Thai jasmine and Indian basmati. That led many grocers to run out of the rice, and warehouse clubs including Costco and Sam's Club imposed limits on how much rice shoppers can buy.

The restrictions placed by Issaquah (Wash.)-based Costco (COST) vary across the country, while Sam's Club, a division of Wal-Mart Stores (WMT), limited its customers to four 20-lb. bags of rice. "We've heard of cases where restaurant owners are hoarding three weeks' supply of rice in their basement, which is obviously more than they currently need, which makes the situation even worse," says Richard Galanti, Costco's chief financial officer.

Record High Prices for Rice

In a statement Apr. 24, Sam's Club said its rice limits "are designed to prevent large distributors or wholesalers from depleting our stock. We believe limiting rice purchases to four bags per visit is consistent with the needs of the majority of our members, including many restaurants…. We will continue to work with our suppliers to manage inventories to meet demand."

The rice rationing in the U.S. comes as the torrid pace of commodity price increases has led to violence over food supplies and costs in several nations. Globally, rice prices are starting to hit record highs, following a host of other commodities. However, experts are clear: There's currently no shortage of rice. "Vietnam and Thailand have had record rice crops in the past year, and India too has had bumper crops," says Nathan Childs, a senior economist who follows the global rice market at the Economic Research Service of the U.S. Agriculture Dept.

Instead, what's driving the price of rice so high are widespread worries about food inflation in many rice-growing nations. "In poorer nations, a large share of people's earnings is spent on food, and big price increases in other kinds of food are harming consumers," Childs says. So to protect their supplies of rice—a staple food in much of the world—several countries have imposed export bans or sharp limits. That has led to a sharp reduction of rice available for trade in the global market. In 2007, India and Vietnam, two of the world's biggest rice exporters, reduced their rice shipments. Since then, Cambodia, Egypt, and Brazil have all halted rice exports. And many observers worry that Thailand, the world's largest rice exporter, might jump on the bandwagon.

Lots of Action in Rice Futures

Prices have soared to eye-popping levels in recent weeks: U.S. long grain rice has doubled, to $800 per ton. Indian basmati rice prices are up 182%, to $2,400 a ton, so far in April, compared to $850 per ton a year ago, while Thai jasmine has more than doubled in price since last year, from $559 per ton to $1,125.

The runup has been especially sharp since January, when Thai jasmine rice was trading at $625 and basmati at $1,300 per ton, respectively. At the Chicago Board of Trade, rice futures have historically been one of the most thinly traded contracts.