(Corrects Bangladesh population in ninth paragraph of story first published on Feb. 25.)
Feb. 25 (Bloomberg) -- Bangladesh, South Asia’s biggest rice buyer, is in talks with India to buy grains on a regular basis to bolster food security as governments seek to avoid a repeat of the unrest that broke out when prices last soared.
A long-term agreement will protect Bangladesh from possible defaults by private traders, who sometimes fail to meet their commitments if prices gain, Muhammad Abdur Razzaque, the nation’s food minister, said in an interview yesterday. “Rice prices rose this year in our country; people are suffering as they have limited income,” Razzaque said by phone from Dhaka.
Bangladesh’s plan underscores a drive by governments to strengthen their reserves to help manage the impact of food prices that advanced to a record last month, beating the jump in 2008 that spawned riots from Haiti to Egypt. This year’s surge has driven millions into extreme poverty, according to the World Bank, and contributed to unrest in the Middle East and Africa.
“When we go for international tenders and prices suddenly rise, private suppliers sometimes fail to fulfill their commitments,” Razzaque said. “They don’t supply us and put us in trouble. It has happened.”
Wheat, corn, soybeans and palm oil have surged in the past year on increased demand and supply disruptions, driving the Food & Agriculture Organization’s World Food Price Index to an all-time high in January. The jump has boosted inflation, adding to the case for higher interest rates worldwide as central banks also contend with rising oil prices spurred by a revolt in Libya.
“It’s definitely crucial for Bangladesh and it makes eminent sense for India,” said Atul Chaturvedi, chief executive officer of Adani Wilmar Ltd., the nation’s biggest farm-goods trader. Neighboring India has a surplus of rice, while Bangladesh has a deficit, Chaturvedi said by phone today.
India’s rice output may increase to 94.01 million metric tons in the year to June 30 from 89.1 million tons, the agriculture ministry said on Feb. 9. State warehouses held 27.8 million tons of rice on Feb. 1.
Higher commodity prices are “leading to riots, demonstrations and political instability,” Nouriel Roubini, the New York University professor who predicted the financial crisis, said last month. Costlier food “can topple regimes,” he said.
Bangladesh has a population of about 156 million, with 32 percent aged less than 15, according to Bloomberg data. Slightly smaller than the U.S. state of Iowa, it ranks 196th among nations when compared by gross domestic product per head on a purchasing-power-parity basis, according to the CIA World Factbook. The country is often hit by cyclones that form in the Bay of Bengal.
Governments around the world will “take preemptive measures to prevent increases in food prices,” Alan Winney, chairman of Emerald Group Australia Pty Ltd., has said. Bolivia will tap central-bank reserves to stockpile food and spur farm production, Finance Minister Luis Arce said on Feb. 10.
Thai rice prices, the benchmark for Asia, have gained over the past six months. The price of 100 percent grade-B white rice, which is set weekly, was $550 a ton on Feb. 23, according to the Thai Rice Exporters Association. Last year’s low in July was $458 a ton. Thailand is the world’s biggest rice supplier.
Increased purchases of rice by Bangladesh from India may cut Thai prices, according to Rakesh Singh, a trader at Emmsons International Ltd. Bangladesh has agreed to buy 300,000 tons of Indian rice and 200,000 tons of wheat, Razzaque said on Feb. 9.
Surging food costs hit the most vulnerable hardest as they spend a greater share of their money on food, World Bank President Robert Zoellick said earlier this month. People in developing countries devote half or three-quarters of their income to food, “so they’ve got little margin,” Zoellick said.
Coarse rice in Dhaka, the Bangladeshi capital, climbed to 34.93 taka (49 cents) per kilogram in December, 42 percent higher than a year earlier, the FAO said in a Jan. 17 report.
Bangladesh has doubled its rice-import target to cool local prices as consumers and farmers hoarded supplies. The country will buy 1.2 million tons in the year to June 30, from a 600,000-ton target set in November, Badrul Hasan, director for procurement at the Directorate General of Food, said last month.
The government may buy as much as 2.5 million tons of rice and wheat in the year to June 30, while private companies may import 2 million tons of wheat in the period, Razzaque said. If the planned Indian purchases happen “our imports will exceed 1.2 million tons this year ending June,” he said yesterday.
The price of rice may increase as a rally in wheat drives consumers to seek alternatives, Robert Zeigler, director general of the International Rice Research Institute, said on Feb. 11. Wheat in Chicago has surged 56 percent over the past 12 months.
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