Rice could keep Asia’s food inflation risks from getting worse

Russia’s invasion of Ukraine has delivered a global-scale disruption that is set to cascade through food supply chains and worsen hunger, but Asia’s love for rice could limit the fallout.

Rice is more popular with many Asian consumers than wheat, which has seen supplies cut off from one of the world’s breadbaskets, said Jules Hugot, an economist at the Asian Development Bank. Rice prices have been relatively stable, and it’s easy to swap one staple for the other, he said.

“These are sources of starch and there’s substitution between them,” Hugot said in an interview, though adding there’s spillover from the rally. Wheat has jumped to an all-time high, while rice is near the highest since May 2020.

Russia and Ukraine together account for a quarter of the global trade of wheat, used in everything from bread to noodles and livestock feed. The conflict shuttered ports in Ukraine while trade with Russia has been stifled by sanctions. The elevated prices are accelerating food inflation across the world and raising concerns for countries reliant on foreign supply.

Asian buyers should be able to find alternatives for trade flows disrupted by the war, Hugot said, citing the examples of wheat from Kazakhstan and palm oil from Southeast Asia to replace Black Sea shipments of sunflower oil. “It is possible to diversify as these are homogeneous goods,” he said.

Food inflation is relatively contained in Asia, thanks to the popularity of rice and falling pork prices as China expands the world’s biggest hog herd. Supply chains have also become more resilient following the pandemic and nations are pursing diversification as a strategy to bolster food security, Hugot said.

Less clear is how long the disruptions will last. There are already expectations the invasion will deter Ukrainian spring planting of crops like corn and sunflower, extending the supply shock on the global market.

It’s also putting fresh pressure on skyrocketing fertilizer prices. India relies heavily on imports, and disruptions to trade flows from Russia — an important global producer for all major fertilizers — is bound to have a significant impact on the South Asian nation, Hugot said.

Rising costs for farmers could spur a scaling back of fertilizer use, triggering lower crop yields and pushing up food prices even higher. Developing nations such as India will feel the strain as food tends to make up a higher share of spending and the consumer price index, said Hugot.