Mark Matthews is a Merrill Lynch strategist based in Hong Kong. Here is his analysis of the widespread reports about food riots in Asia. The following is excerpted from “Guanxi” (23 May 2008).

Food scares are exaggerated, but good copy for media

We noted on our European trip a high degree of concern over rising food prices and their impact in Asia. This concern is understandable, given media attention. The IMF warns of famine. UN Secretary General Ban Ki-moon said food shortages have reached emergency proportions. The World Food Program has issued an emergency appeal for funding in food aid. Many high-profile newspapers have dedicated front-page articles to the subject. Time magazine wrote about “The World’s Growing Food-Price Crisis“. A CNN article was headed “Riots, instability spread as food prices skyrocket“.

Wordage is deep and densely packed. In one article from a respectable newspaper recently, tensions, violence, eruptions, insecurity, desperate, and afraid all managed to be squeezed into nine paragraphs. Food-related riots have been reported in Pakistan, India, the Philippines, Indonesia and Vietnam. But when we called our offices and associates in each of those countries, each one told us there had been no riots. Photographs of machine gun-toting guards protecting rice supplies in the Philippines, for example, or crowds of jostling women at rice distribution centers in Indonesia, paint a thousand words. But visitors to the Philippines know that guns are a fairly common sight there. Contrary to press reports, there have been no riots in the Philippines. The Bangladesh Rifles were deployed to markets in that country. Not because there were riots, but instead to ensure an orderly disbursement of food, so that middlemen could not hoard it in order to push the price up.

And in Indonesia for example, Mr. Kevin O’Rourke, Jakarta-based author of the Reformasi Weekly political analysis newsletter, told us:

Tempe and tofu producers (who use imported soybeans) did indeed conduct a demonstration in front of the presidential palace, just after soybean prices had doubled, but I doubt that their numbers reached 10,000. From the pictures in the press it looked more like 1,000. I have not heard of food riots per se, or even of significant demonstrations.

At least two major daily newspapers have indeed featured front-page pictures of distressed women clamoring for food – but these were pictures of women queuing and bustling for hand-outs of steeply subsidized food items that the government provides to the poor, such rice, soybeans and cooking oil. Like everything in Indonesia, the distribution is poorly organized, so whoever pushes closest to the back of the truck has the best chance of obtaining a valuable hand-out, and so the situation becomes unruly – but I would not call that a ‘food riot’. Such scenes have been fairly typical for a long time, especially for hand-outs of heavily subsidized kerosene for cooking fuel.

There has been some journalistic embellishment, which actually exacerbates the problem. When people think prices are going up, they buy two bags of rice instead of one. Then, shelves start looking sparse, so people think they need some extra supply in the cupboard. Suddenly stores have empty shelves. Stores begin a policy of one bag only. This increases hoarding. A family of five each buys one bag. Soon there is talk rice can be sold on the black market for a profit.

That is where Asia got to in April. But in fact, the price of rice is down in Indonesia year-to-date. Those poor ladies in Jakarta were fighting not because the price has gone up, but because the distribution is bad. There will be 432m tons of rice grown globally this year compared to 427m last year, according to the USDA. When rice is adjusted for IMF world CPI, it is at the same price it was in 1992, as shown in the chart on the left. Was 1992 such a bad year for Asia? Did we hear of starvation and revolt?

Those who bought five bags now see there was no reason to – there is plenty of rice in the stores, profiteering the black market was a myth, and people discover that if they keep rice for a long time, they get weevils.

So fears of a Malthusian catastrophe are overdone. An op-ed by Robert Paarlberg the International Herald Tribune noted succinctly (“It’s not the price that causes hunger“, 23 April 2008):

Most of the world’s hungry peoples do not use international food markets, and most of those who use these markets are not hungry. International food markets, like international markets for everything else, are used primarily by the prosperous and secure, not the poor and vulnerable. In the world corn market, the biggest importer by far is Japan. Next comes the European Union. Next comes South Korea. Citizens in these countries are not underfed.

Sadly, very poor countries in Asia, like Burma and North Korea, will feel the brunt of the rising price of staples. But overall Asia is not as vulnerable to food prices as the press reports. We would anticipate a correction in rice, to remove the hoarding that has been imbued in its price, as it becomes apparent there is no need to panic.

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Previous posts about the food crisis

Plus: Archive of articles about the food crisis – includes excellent reports several from major international agencies.