The Economist Magazine labels it “The Silent Tsunami.” The International Monetary Fund and World
Bank say it is the biggest threat to emerging markets – a greater risk even than the ongoing credit crunch.
What are they all talking about? The global food crisis and the impact it’s having on soaring inflation rates – and potentially slower growth around the world – particularly in developing countries.
As my colleague Eric Roseman has detailed, over the past year wheat prices have tripled and soybeans nearly doubled. Just since January alone, rice prices have sky-rocketed 141%.
That’s potentially devastating to the 3 billion plus in emerging Asia for whom rice is the most basic of staple food sources. While the IMF and World Bank are focused on "how to solve" the food crisis, I'm looking for ways to profit from those solutions.
Food “Hoarding,” Export Restrictions, Only Make Matters Worse
Many countries are responding to this food crisis by hoarding food supplies. The World Bank is currently monitoring 48 nations that have imposed some form of price controls or export restrictions designed to keep more grain at home. The inevitable consequence is that supplies available on global markets will be reduced even more.
The price of one variety of wheat shot up 25% in a single day amid news of export restrictions in several large wheat producing countries including Russia and Kazakhstan.
This will only worsen an already dire situation, driving grain prices higher still. With rice prices recently trading above $1,000 per ton for the first time ever, rice exporters including Vietnam, India and China have imposed export restrictions.
In other words, expect even higher rice prices ahead, thanks to these misguided protectionist policies.
There’s no end in sight either. Eric sees “powerful supply-side fundamentals pushing prices even higher over the next several years, there's no reason why grain prices can't double or triple from current levels.”
Is There a Silver-Lining to High Rice Prices?
Inside every dark storm cloud, you can usually find a silver-lining. There’s always a flip-side to every coin. For the global food crisis it’s no different. That’s because amid every “crisis” there’s usually and opportunity to profit too… if you look hard enough.
Amid the global rice crisis, the opportunity lies in the world’s leading exporter of rice: Thailand.
Thailand is a dynamic emerging market that has seen rapid growth over the past dozen years, but political turmoil in 2006 short-circuited Thailand’s bull market. A military coup ousted the elected government, throwing Thailand’s economy into chaos for about 18 months.
In March however, the Thai military stepped aside, and a newly elected government was installed in Bangkok… a government that’s pursuing pro-growth policies.
Perhaps in anticipation of these events, Thailand’s economy is now beginning to enjoy robust growth again. Job growth is picking up, and along with it consumption is expanding at a healthy clip.
The new government just introduced a package of personal and business tax cuts and other fiscal stimulus measurers that should spur the economy even more.
Kitchen of the World Enjoys a Golden Opportunity
Thailand’s exports are soaring again. Export growth surged 24% in the last quarter of 2007 leading Thailand to its fastest economic expansion in more than two years.
Since agriculture makes up 10% of exports, Thailand is also cashing in on rising food prices world-wide...especially Thai rice, which has tripled in price over the past year! This is the opportunity I’m talking about, which is the flip-side to the global food crisis.
Thailand is the world’s largest exporter of rice; the “kitchen of the world”. In fact, between November 2007 and February of this year, rice exports from Thailand were running at the rate of one-million tons a month – an “unprecedented bonanza” according to the Economist.
And Thailand’s new government isn’t talking about potentially damaging export restrictions or tariffs; instead they’re taking a free-market based view.
Thailand’s new prime minister says that high global prices are an “opportunity” for Thai farmers to export rice at higher prices. As a result, they're likely to grow even more Thai rice. That’s a smart market-based solution to this problem, rather than government intervention.
Although government policies often have the best intentions, we all know they rarely work as planned, and often do more harm than good. That’s the law of unintended consequences at work. Instead, Thailand’s prime minister says high rice prices are “a matter of supply and demand,” and that there’s “no need” for export restrictions.
So here you have, not only an up and coming emerging market, but one that’s poised to cash-in on soaring food costs as well. It's just another example of a rich profit opportunity that can be found amid crisis.
Dear Mr. Burnick,
Thank you for the refreshing analysis. It is a pleasure to read this amongst the myriad of pundits calling for further central planning and intervention. I have already proposed similar laissez-faire advice for my native Israeli
government, but, alas, I am simply the foreign media liason for an opposition party. If you wish to read my advice to the Israeli government on how to weather the storm, feel free to see: http://www.israelnationalnews.com/Articles/Article.aspx/7939 or my blog at electme.blogspot.com
Danny Hershtal,
Haifa, Israel
Posted by: Danny Hershtal | April 29, 2008 at 03:23 AM