The United Nations Food and Agriculture Organization estimates that world production of cereals was a record 2,108 million tons in 2007, and will hit a new record of 2,164 million tons in 2008. Rice production will rise by 7.3 million tons and wheat by 41 million tons. World cereal consumption has been growing slightly faster (3%) than production (2%) for a decade, so global stocks have fallen to 405 million tons. But this is not a disaster scenario, and it hardly explains skyrocketing prices.
In the U.S., one‐fifth of the corn crop has been diverted to ethanol, and in Europe, some vegetable oil has been diverted to biodiesel. These ill‐conceived policies have induced farmers to switch significant acreage from wheat to corn, soybeans and rapeseed, but world wheat output has nevertheless risen from 596.5 million tons in 2006 to an estimated 647.3 million tons in 2008. Corn‐based ethanol cannot explain the runaway increase in the price of rice, which grows in very different conditions.
Biofuels caused an initial spike in prices, which then led to panic, export protectionism and speculation in commodities futures — and these latter factors have increased prices much further. To protect domestic consumers from rising world prices, dozens of governments have curbed the export of rice and wheat — principally Argentina, Brazil, Russia, China, India, Ukraine, Vietnam, Cambodia, Pakistan, Egypt, and Indonesia.
Export controls have reduced the amount of rice and wheat available for world trade. The FAO estimates that world trade in rice will fall from 34.7 million tons in 2007 to 28.7 million tons in 2008, and trade in wheat from 113 million tons to 106 million tons. Actual trade may fall even more, as more and more countries impose export controls. Absent these limitations, it would be inconceivable for trade in grain to contract so sharply after record world harvests.
Countries limiting exports hope to reduce hoarding, which could send prices even higher. India has set limits on the stocks that each trader can hold.