Asia grain mountains swell as governments fret over food security

Asia grain mountains swell as governments fret over food security

5:12pm EDT

By Naveen Thukral

SINGAPORE (Reuters) – Towering grain mountains in Asia, already large enough to feed China for eight months, are set to grow even bigger as governments persist in shoring up their safety buffers against hard times. Haunted by a 2008 food crisis that sparked unrest and panic buying, states will keep piling grain into reserves despite the strain on their finances and storage problems, buoying prices that have been hit by expectations of bumper harvests.“The most populated countries, especially in Asia, will be very reluctant to see their inventories go down,” said Abdolreza Abbassian, senior economist at the United Nation’s Food and Agriculture Organization in Rome.

“Lessons learnt during the 90s and 2007-08 have convinced policymakers that the international market is important but it cannot be relied on 100 percent for food security.”

With hoarding the name of the game, Asia’s top grain-buying states have accumulated a whopping 100 million tons of rice and 90 million tons of wheat since a combination of high energy prices, bad weather and growing demand for biofuels sent grain prices soaring in 2008.

India halted rice exports at that time, when global prices for the staple grain jumped to an all-time high of $1,050 a ton, triggering similar restrictions from other suppliers and panic-buying in importers such as the Philippines.

“Higher grain stocks reflect the government’s priority of having a more-than-sufficient buffer to avoid any shortage and to run its welfare food programs,” said N. R. Bhanumurthy, a professor at the National Institute of Public Finance and Policy in New Delhi.

“The entire stock will evaporate if one single crop fails.”

India was forced to start exporting grains in 2011 after scenes of wheat and rice rotting in open fields grabbed international headlines. But half-hearted attempts to sell grains have not had much impact on stockpiles.

India’s rice stocks at government warehouses stood at 21 million tons on September 1, against an official target of 9.8 million tons, thanks to four consecutive years of good monsoon rains. It had 38 million tons of wheat against a target of 17.1 million tons.

ALL EYES ON EXPORTERS

Asian nations with large populations to feed will not reduce their stockpiles unless they see inventories rising in top exporting countries such as the United States, Australia and Russia.

“I don’t think people are comfortable with grain supplies just yet,” said one Melbourne-based analyst. “As of now, stockpiles have merely shifted from producers to buyers.”

World supplies have been tight in the last six years, as the global grain market lurched from one crop crisis to another, including a devastating drought in the United States, Brazil and Argentina in 2012.

In contrast to Asia’s giant reserves, the United States – the world’s main corn exporter – ended the marketing year in August with its lowest stocks in 16 years.

Australia, the No. 2 wheat exporter, was left with 3.7 million tons of wheat at the end of last month, just half of year ago closing stocks of more than 7 million tons.

And the grain storage situation in Asia is only going to worsen with near-perfect weather likely to boost stocks.

India, which already has some 12 million tons of rice and wheat stored in the open, covered with just tarpaulin sheets, will see up to 30 million tons of rice added to its stocks by the end of the year.

India’s rice production is forecast to reach close to last year’s all-time high, while good monsoon rains have left ample moisture for wheat to thrive in the months ahead.

AIRPORT HANGARS?

In Thailand, the government is extending its controversial rice intervention scheme for a third year. The scheme supports farmers by paying them above market rates, making supplies uncompetitive and costing the country its title as the world’s biggest rice exporter.

The populist move will add about 10 million tons by year-end to existing stocks estimated at 16 million currently, or roughly half of annual global trade. With warehouses bursting at the seams, Thai officials are considering renting air force airport hangars for storage.

Although wheat stocks in China have fallen in the last few years, the country is seen emerging as the world’s No. 1 importer as it rebuilds depleted reserves and meets a shortfall in domestic supplies.

China is expected to buy around 9.5 to 10 million tons of wheat in the year to June 2014, according to the U.S. Department of Agriculture and traders.

In addition to piling up reserves, the Philippines is striving for self sufficiency in rice supply by the end of 2013.

“Our target is to increase our inventory to ensure food security and stable prices,” said Orlan Calayag, an administrator at the National Food Authority. “We are prepared to spend more to improve and expand our storage facilities.”