Global Food Crisis Hits Home As Retailers Begin To Ration Rice
Global Food Crisis Hits Home As Retailers Begin To Ration Rice
As an unexpected consequence of rising commodity prices and the international food crisis, two American retail giants — Costco and Sam’s Club (a subsidiary of Wal-Mart) — have set quantity restrictions on purchases of bulk rice. Sam’s Club, who is now limiting purchases to four, 20 pound bags of rice per visit, claims that “it is a precautionary measure, aimed primarily at our business customers, making sure we have enough for everyone.” They say it is simply a reaction to “recent supply and demand trends.”
A spokesman from Costco tells a similar story:
We don’t want to create a panic where we don’t think there is a panic, if we weren’t able to get any more rice or any more flour that would be a different story but we’re able to continue to replenish our supplies.
So if there’s no panic, and no shortage in supply, then why are these mega-chains limiting rice? Most likely because the restaurant industry, whose profits have tumbled dramatically in the last twelve months, is looking for new ways to cut costs and save on expenses — particularly in light of the painful new fuel surcharges added on by their suppliers for warehouse-to-store truck trips.
Restaurant owners are therefore doing things like cutting back on sauces and portions, charging for extra condiments, and changing their food suppliers — instead of buying staples from delivery services, they are schlepping to the wholesale stores themselves. Sam’s Club and Costco provide another alternative, as both are known to cater to “small businesses including independent restaurants, nursing homes and day care centers.”
The USA Rice Federation seems to agree:
It’s possible that small restaurants and bodega-type neighborhood stores may be purchasing rice in larger quantities than they do typically to avoid higher prices.
Soaring inflation, poor harvests, and worldwide food shortages are causing other countries, such as Vietnam and India, to place temporary bans on some rice exports. American rice farmers appear to be taking advantage, holding back inventories in hopes of locking in bigger profits as worries about shortages continue to drive future prices. The U.S. accounts for only about 1.5% to 2% of global rice production, but it is the world’s fourth-largest exporter, behind Thailand, Vietnam and India. U.S. rice exports are forecast to increase 20% this year.
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5 Responses to “Global Food Crisis Hits Home As Retailers Begin To Ration Rice”
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This is due to differences in the supply chain between wholesale restaurant supply and retail consumer supply. The wholesale chain is shorter and generally has lower costs. However, when prices skyrocket the wholesale chain tends to adjust to the new prices much faster. Thus, a restaurant buying rice wholesale has already seen the prices go up. However, Costco, which buys in huge lots is still selling rice based on the prices they paid several weeks or months ago. For a short period of time the rice at Costco might actually be cheaper than that which is now coming through the wholesale chain. But, as soon as Costco needs to secure new supplies the prices should normalize.
The gasoline market seems to respond to price changes much faster. A gas station will sell the gasoline in their underground tanks based on the current price of gasoline supplies rather than on the price they actually paid for the gas. Thus we see gasoline prices change day to day and the companies rake in record profit by selling their inventory at a much higher price than they paid for it.
I see all of this as a coming shockwave. Some economists have marveled that the high cost of gasoline has not been reflected in the cost of every day goods like groceries and other supplies. While the costs at the grocery store have been on the rise, they have not matched the meteoric rise in gas prices. However, I believe things are about to normalize. Egg, milk, rice, and wheat prices are all going up. As the new prices for these raw ingredients hit the bakers and manufacturers we are going to see the price of groceries go up across the board.
April 25th, 2008 at 10:57 amThank your for this explanation. I cynically thought that this was a ploy by Sam’s Club and Costco to create a “run” on their rice by exploiting rumors of shortages.
April 25th, 2008 at 12:03 pmThere is no rice shortage in America. We use less than half of our annual crop. But the demand on these staples, dairy, and meat are pressuring prices.
April 25th, 2008 at 12:03 pmThere is a disconnect between global planning to feed our population, vanishing green fields, and infrastructure needed to keep and distribute food.
It’s easy to tsk tsk about famine in rural Africa, but will be a bit different when starving people take down cities and governments.
It is insane to convert fields to biofuels when they exacerbate the global warming and add pressure to the world food cost.
The cost to third world of the current policy is famine and death. To the developed world, is harm to the environment, added health care problems as diet degrades, inflation, and economic unrest.
While we grow more and more corn for bio-fuel we are growing less and less Wheat, Rye and Oats, we need to grow less corn for bio- fuel and grow more non-food sources for bio-fuel.Also China has more and more people in the Industrial sector than it used to so therefore they are farming less and less and possibly the same with India.
April 25th, 2008 at 12:23 pm“The gasoline market seems to respond to price changes much faster. A gas station will sell the gasoline in their underground tanks based on the current price of gasoline supplies rather than on the price they actually paid for the gas.”
Ummm, In NY that is illegal. Product currently on the shelves for sale, should be sold at that prince until the quantity made available is consumed. I have always wondered how the gas stations got away with this?
April 26th, 2008 at 8:45 pm