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Hi Students
1. You have been advised to post your stage 2 analysis on the same Padlet wall where you have posted for stage 1. Suggest that you do this once you receive my comments.
2. Good attempt has been made to analyze the impact of Covid-19 Pandemic on the rice industry in China.
3. You have made some attempts to describe the prevailing macroeconomic conditions of China. However, you will have to analyze how these macroeconomic factors directly or indirectly would affect the rice industry in China. You may want to do more research on this, discuss, analyze and start writing the report for stage 3.

Cheers!

Josh Nathan

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It appears that the official surveyed unemployment rate for urban workers in China rose to historic levels in midst of the COVID-19 Pandemic, touching a nearly two-decade high of 6.2% in February 2020. Since then, the figure has gradually retreated to near pre-pandemic levels.

Back in February, the surveyed jobless rate stood at a whopping 6.2% , afterwards fluctuating and ultimately declined steeply to 5.2% in November, which is equivalent to a 15-20% increase in the total number of unemployed people based on the National Bureau of Statistics (NBS).

China’s official jobless indicators are released on a monthly or quarterly basis, but there are some downsides to it. These indicators only mentioned urban unemployment, but there were no mentions of rural. For instance, the 6.2% in February is only representative of urban areas. (China's unemployment rate graph attached at the bottom for reference)**

The results shown will not be very comprehensive as the system ignores149 million self-employed business owners and nearly 300 million migrant workers, who regularly travel from their rural hometowns to find employment in urban areas.

Hence, the the survey data probably only accounts for 60% of the total workforce. Therefore, it is hard to gauge the real state of China’s unemployment situation as the system used only covers a part of the workforce.

Main Reasons for the rise in unemployment rate & Impact on Workforce

There was a significant decline in employment under the tourism and service sector, as well as slower employment in large enterprises as a result of the COVID-19 pandemic and a slow down in foreign trades.

Declining employment in the tourism and service sectors contributed to the worsening employment image of China. For the first half of the year, total retail sales of consumer goods fell by 11.4%, and since the tourism and hotel sectors were badly hit as well, the domestic tourism revenue was barely equivalent to just 31.2 percent of last year’s numbers.

Additionally, China's foreign trade was also badly hit for the first half of the year. But as China took the lead in resumption of work and production globally, the total imports and exports are down just 3.2 percent year-on-year.

Furthermore, the vast majority of industrial workers in China are migrant workers and their main source of income comes from employment in urban areas, in manufacturing or service jobs. During this crisis, migrant workers may experience recipitous drops in income.

To add on, the China government has strict requirements that employers has to follow if they were to hire a full-time worker, where the employers has to provide insurance schemes that covers pension, health care, unemployment, work injury and maternity leave – as well as a housing fund for every employee.

These harsh requirements that the employers has to adhere, would cost them a fortune if they were to hire a worker, nonetheless to say hiring thousands of workers. This leads to employers or companies to hire temporary or under-reporting salaries to get away from the law. This means that most of the workers are not full-time workers and are very vulnerable to losing their jobs anytime. In addition to the pandemic, companies are not able to operate at maximum capacity and earn big profits, or worse still losing money. For companies to keep themselves alive, the first thing they will do is to sack or fire workers, especially temporary workers to lessen their expenditure and save more money and this leads to many more being unemployed.

The number of temporary jobless workers in China in 2020 could have ranged between tens of millions and 250 million.
(Based on rough estimates)**

Impact on China's Economy

China posted its first economic contraction in more than 40 years during the first quarter of 2020 when it was badly hit by COVID. After the outbreak, the already difficult task of stabilizing employment became more complicated and harder to manage.

China would be said to have experienced Cyclical Unemployment. Cyclical Unemployment is caused by the lack of jobs during a recession. It is undeniable that the outbreak of COVID has plunged the global economy into a "recession". China, as the first country to experience the outbreak, was badly hit many people started losing their jobs due to companies closing down, tourism and hospitality facilities are banned from usage, as well as many retail workers suffering job losses from the lockdown and quarantine  measures.

With a number of unemployed people already out there, the COVID outbreak caused a significant rise in the surveyed unemployment rate. As a recession hits China, the production of goods and services will decline and the demand for input (eg. labour) will go down.

Impact of COVID on Rice Production

In terms of staple grains such as rice, the pandemic shocked the early rice most in China. February and March, the worst time of the pandemic, are the sowing period of early rice. Some lockdown policies have delayed seeding and transplanting of early rice in South China for about 10 days, and farmland plowing in Central China.

Additionally, the risk of production reduction raised concerns among the government and the public. China's huge population resulted the demand for staple grain to be very inelastic. Reduction in supply of rice a a result of delayed seeding and transplanting of early rice may lead to soaring prices. Worse still, this pandemic may accelerate the shift of the rice cropping system from the “double seasons” to “single season”, which is believed to be a threat on the total production in the long term.

Furthermore, due to the COVID-19 Pandemic, the production costs for rice are on the rise. In a survey with 22 representative grain producers and farmers, it was claimed that the price of pesticides and fertilizers increased by 200 yuan per ton, 20% higher than the prices before the pandemic. Similarly, cooperatives in Fujian province also claimed that the price of pesticides and fertilizers increased by 20%, and the price of seeds increased by 10%. Without enough money, farmers will have no incentives and capacity to continue farming.

For the foreseeable future, China will be required to have a GDP Growth rate of around 5% for 2020 in order to stabilize employment. However, at the moment, this is something hard to achieve.

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To define inflation, it is a sustained and continuous increase of goods and services in the economy. This occurs when they price increases steadily over a period of time rather than a one-off occurrence.

As of 2019, China's inflation rate ranged at 2.9%, which is a 0.82% increase from the previous year, 2018. China's inflation rate has been relatively stable since 2012 at 2.65% to 2019 at 2.9%.  Thereafter, its inflation rate is forecasted to remain flat at 2.6% from 2021 onwards.

On a global scale China's inflation rates have been the lowest of emerging countries in 2019. However,  its inflation rates still range above countries such as the United States.

Rice is a part of the basket of goods used to measure consumer price index which contributes to its inflation rates.
The average price per unit of rice in China has increase from  US$ 1.44 in 2012, to US$ 1.86 in 2019 and is expected to increase further to US$ 2.04 in 2025. This shows that inflation where the prices of goods has increase has eroded the purchasing power of money.

The increase in price of rice in China is the result of several factors such as decline in arable land, looming water crisis, climate change, shortage of labor and an increase in demand of high quality rice.

Not to mention, the COVID-19 pandemic has also taken a toll on rice production in China in 2020. Farmers are not able to work at full capacity due to the lockdown regulations due to the deadly virus spreading around, that caused millions of death. Many had to work from home, however farming being a physical job itself, farmers are not able to continue producing and harvesting rice. This leads to lesser production of rice even though the demand for rice remains high. These two factors results in a cost-push inflation as there are not enough goods to meet the demands, this puts pressure on cost of production which increases the general price level of rice.

As China's GDP Per Capita increases and is more wealthy, it increases the demand for rice as is a staple for all Chinese.  Therefore, leading to an increase in the price of rice and thus causing inflation.

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Gross Domestic Product (GDP)
https://www.thinkchina.sg/impact-covid-19-agriculture-sector-china

Inflation
https://www.statista.com/statistics/270338/inflation-rate-in-china/

https://www.statista.com/outlook/40060200/117/rice/china#market-volumePerCapita

Unemployment
https://www.scmp.com/economy/china-economy/article/3110193/china-unemployment-rate-how-it-measured-and-why-it-important

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7369589/

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As COVID-19 struck the world since December 2019, it has impacted the market for rice. The Quantity demanded and Price increased. Particularly in China, there are several factors which led to a shortage of rice in China.

Decrease in Rice Supply in China
The supply of rice has plunged due to the COVID-19 situation and the recent flood in China, according to one of the articles attached. As China is one of the biggest suppliers in the world, when there is adverse impact to the rice market, it will cause a significant shortage of rice, regardless in China or other countries such as Singapore and Malaysia. COVID-19 is an example of the adverse impact, it had caused the manpower to decrease tremendously. Current technology could not cover up or mitigate the shortage of rice caused by the plunge in manpower. Thus, in the article, president Xi JinPing emphasised to upgrade the technology and increase the manpower to ramp up the production of rice in the next five years.

In August 2020, Southern China suffered from flooding, affecting 5% of China rice could not be produced and harvested. This not only caused China's revenue to decrease, but also led to the plunge in supply in rice. Fortunately, China still can meet its local rice demand.

With these two factors, the supply curve will move to the left, which means the supply of rice decreased or worsened.

Increase in Rice Demand
Due to the COVID-19 pandemic, people are afraid of food shortage such as rice. To prevent this from happening, they chose to stockpile rice at home. Rice is one of the main staple products people stockpiled at home. As the people stockpile rice, it caused the quantity demanded for rice to increase significantly. Looking at China, its locals know that the production in rice decreased, they stockpiled a lot of rice at home for emergency purposes. This is to ensure that they are prepared for the worse situation, which is the severe shortage of rice.

China imposed export restriction in rice is because rice is one of the main food sources for them. To ensure that the supply of rice can meet the increased demand in its people, China decided to impose restriction to decrease the export of rice.

With this, the demand of rice increased more than expected, which is proven by the right shift if the demand curve.

Demand and Supply Curve Analysis
These factors caused the supply of rice to decrease and demand to increase. However, the decrease of rice supply is less than the increase in rice demanded. As people do stockpiling amid COVID-19,  they tend to buy more rice than expected, which leads to the demand curve to shift more to the right. As for the supply, only 2 factors, which is COVID-19 pandemic and flooding caused the decrease in supply of rice. This suggests that the drop in supply of rice is not as much as the increase of demand in the people.

Thus, the shift in demand and supply curve caused both the price and quantity demanded to increase. According to the article attached, the price of rice has increased to seven-year high due to stockpiling. Another article suggests that the quantity demand of rice also increased due to the pandemic.

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Good selection of key information and attempt to apply the various concepts learnt over the topics.  Would be good if you could put both DD and SS factors together to discuss the impact on China' s market for rice.
- Mr Matthew Pon

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1) Necessity vs Luxury
Rice is a necessity as it is an important source of survival. During the COVID-19 pandemic, many people stockpiled staple products such as rice to prepare for circuit breaker. Despite the increase in the price of rice, people are also buying rice in bulk, which leads to higher quantity demanded. Thus, rice is considered inelastic since it is a necessity.

2) Proportion of Income
As income is one of the factors to be considered, income level is imperative. The higher the level of income, the more inelastic it will become. For example, in Singapore, people can still cope with the price increment because their household income is higher as compared to other countries like India and Vietnam, where the increment did not affect them too much. This suggests that in Singapore, price of rice is still inelastic, which means the quantity demanded will not decrease significantly.

3) Habit
As China produces the most rice, as compared to other rice producing countries such as India and Thailand, they also consume the most rice at the same time. In 2019, China consumed 143 million tonnes. This suggests that rice is the main source of food in China, and they are used to eating rice, which becomes their habit. This makes the price elasticity demand to be inelastic, where people will not respond much to the increase in price. Even if the price increases, the demanded quantity will not decrease much. It might even stay constant.

4) Availability of Substitute
As there are no good substitute for rice (Due to the COVID-19 Pandemic and with declining rice brands out there especially from China), there are fewer responses from the people. In Singapore, due to stockpiling and forward buying strategies, price of rice imported from Thailand had increased due to the socio-economic and unfavorable weather condition. Most of its citizens purchased rice imported from Thailand previously, capping at 90% for sales mix. However, citizens are not able to source for good substitute, so they chose to buy rice imported from other countries instead of Thailand. The fact that the price of rice all around the countries increased, it left them no choice but to purchase the similar product from other countries.

5) Time Period
Thus, consumers are less responsive to price changing of rice because it has no good substitute. It was mentioned that supermarkets in Singapore has seen a plunge in sales mix if rice imported from Thailand due to the price increase. Instead, they see an increase in sales mix for rice from other countries. This shows that consumers have no choice but to choose rice imported from another country since they cannot find any good substitute. For example, they cannot change rice to noodles as these two types of products are different.
Moreover, it requires long time to change the eating habit, as evident in China, where they consumed 143 million tonnes in 2019, which shows that they are used to eating rice where it has become their norms. Thus, it is impossible for them to change their eating habit immediately.

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China's food supply has come under scrutiny ever since the COVID-19 pandemic outbreak hit, and President Xi Jinping's declaration of 'war on food waste' earlier this year as well as recent flooding in the country resulting in rice losses have brought the matter back into the spotlight.

Although rumours of food insecurity have not been formally acknowledged, the country's National Food and Strategic Reserves Administration (NFSRA) have recently been on a 'Flourish Grains Flourish Storage' streak, with the agency announcing plans to focus on science, technology and manpower upgrades over the next five years to ensure local food security.

"The next five years will be a crucial period [for China] to strengthen grain and supply reserves - we will need to revolutionise, develop and innovate, and to do this it is obvious that the role of science, technology and talented manpower are crucial support that is needed," ​ NFSRA Director-General Zhang Wufeng said at a high-level seminar.

"The entire food system needs to [prioritise] upgrading and deepen understanding of science, technology and operational manpower so as to confidently devise new [strategies] to help food supply flourish. ​

"We will need to make comprehensive plans to cultivate an innovative system that [can lead to] high-quality development of grain and supply reserves - and here, only the innovative and revolutionary will stand a chance, which is why [we are emphasising on] science, technology and new talents who can master these in order to get good results." ​

A major area of focus, given the lessons learnt from COVID-19, will be to upgrade the preparedness and 'far-sightedness' of the entire system - which again leads back to the use of technology and will be implemented across three major pillars, said Zhang.

"First is to utilise scientific and technological innovation to reduce food loss and optimise operations in order to comprehensively improve the nation's ability to react to emergency situations," ​ he said.

"Next will be to move to quickly promote high-quality food research and projects, including the acceleration of a strong local grain sector to meet consumer needs for high-quality foods; whereas the last will be to improve institutional mechanisms, operational standards, management procedures, business development and promote overall modernisation." ​

NFSRA also released draft strategies to strengthen food supply in accordance with these areas, which highlighted technologies such as 5G technology, artificial intelligence, cloud computing and more to be used by the food industry in areas such as granary security and management to strengthen local food supply.

Food woes in China​

In early August, massive floods consumed rice fields across Southern China, affecting an estimated 11.2 million tons of food, or 5% of China's rice, according to local brokerage company ShenWan HongYuan.

The Chinese Ministry of Agriculture and Rural Affairs has maintained that the nation's crop production can meet local demand despite this, stating that local rice consumption stood at 143 million tonnes and wheat consumption at 125 million tonnes, whereas production for these staples were 210 million tonnes and 134 million tonnes last year.

The Ministry of Emergency Management added that just 1% of cropland was destroyed so the impact on production will be 'limited' and an agricultural expert also said that the outlook was 'cautiously optimistic' ​.

"I think the floods have not affected the rice production much and the main structure of grain production would continue to be good,"​ China Agriculture University professor Fan Shenggen told CGTN. ​

"I'm more worried about the vegetables and meat products, these are areas where we should really put incentives to make sure that producers have access to seeds, to markets and so on." ​

Indeed, meat has been mentioned far less in terms of food security despite China facing massive issues with pork supply due to the African Swine Flu attack where it had to cull millions of pigs. According to The Pig Site ​ data, the price of wholesale pork in China was close to CNY50 (US$7.30) per kg in July 2020, as opposed to around CNY25 (US$3.65) per kg in July last year.

China has attempted to keep prices low by importing more pork - a total of 3.5 million tons in 2019, as opposed to 2.1 million tons the previous year, but it is hard to imagine this strategy working for the long term, as pork is very much a staple food in the country, and a system secure in grain but insecure in pork would be hard to satisfy locals.

Food waste​

Food waste is China's other current major food security issue, with even President Xi calling for locals to 'put an end to shameful food wastage' ​ earlier this year.

"China needs to maintain a sense or crisis and urgency about food supply and security especially after COVID-19 even if we had a good harvest last year [and can meet consumption]," ​ he said in a public speech.

Xi's sudden interest in reducing food waste has led to speculation that China's food supply is actually less secure that the government is making it out to be, especially with laws even currently being discussed to control this.

One of the most controversial is what has been dubbed the 'N-1' system, where customers at foodservice establishments would only be allowed to order one less dish than the number of diners present - a system which would be counterintuitive in a country where 'ordering more' is a cultural norm representative of hospitality and generousity to guests.

"We would strengthen management of all aspects [to prevent food waste] including grain production, purchase, storage, transport, processing and consumption,"​ said the National People's Congress Standing Committee's Legislative Affairs Commission official Zhang Guilong as per SCMP ​.

"Specifically, [we would] advocate a reasonable and healthy dining culture and establish a long-term mechanism to stop food waste." ​

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'Critical period': China looks to secure national food supply by focusing on technology and manpower upgrades

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China's food supply has come under scrutiny ever since the COVID-19 pandemic outbreak hit, and President Xi Jinping's declaration of 'war on food waste' earlier this year as well as recent flooding in the country resulting in rice losses have brought the matter back into the spotlight.

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Gross Domestic Product (GDP) is defined as the market value of all final goods and services produced in the economy during a calendar year. GDP is the most widely reported measure throughout the world of a nation's economic performance or the health of its economy. GDP per capita is defined as the average GDP per person which gives an indication of the living standards of a country.

A higher GDP means that more goods and services have been produced, which shows that the economy is growing.

China's Overall Economy
China has been among the world's fastest-growing economies, with a GDP of USD14.4 trillion and real annual GDP growth averaging 6.11% in 2019, a pace described by the World Bank as 'the fastest sustained expansion by a major economy in history'.

There has also been a rapid increase of the GDP per capita from 2000-2019. The country's GDP per capita was below USD1,000 in the year 2000 and the GDP per capita reached USD10,276 in 2019. The primary reason for this quick growth was the greater buying power as the economy has been boosted by the increase in manufacturing and consumption.

However, after four decades of stellar growth, China's economy is having a bad year as it face hits from the COVID-19 pandemic.

China experienced an economic recession of 6.8% in the first quarter of 2020 due to the lockdown efforts that halted production of goods and services. However, having been first into recession, China was first out. Because China implemented a stringent lockdown at the beginning of the pandemic, factories were able to reopen relatively early in the year and resume production. The increase demand for personal protective equipment (PPE) and electronics has boomed in China as many of its Western trading partners endured pandemic-induced lockdowns. As a result, China's economy grew by 3.2% in the second quarter and 4.9% in the third quarter of 2020.

As China's economy recovered quickly from the economic recession in the first quarter of 2020, it experienced a "V" shape recovery which shows the effectiveness of the government policies and the early lockdown measures.

Rice Production in China
Rice production in China is an important part of the national economy as it accounts for 30% of all rice production. In the past two decades, the market has been growing at a fast pace, with rice production reported to be 209.61m tons in 2019.

However, early rice yields in the first quarter of 2020 fell as continuous heavy rains hit some regions in the south, destroying all crops on farmlands. Additionally, the impact of the pandemic induced lockdown and labor shortages delayed the supply of planting of early spring food crops, such as rice.

Despite that, production of rice in the following months increased and came after Beijing doubled down on its focus on food security, urging farmers to finish spring planting on time even as it was emerging from a coronavirus-led lockdown in the first quarter of the year. The area planted with rice increased more than 5% after the government stepped up its support for China's staple food crops after the pandemic began.

As a result China's rice output increased by 1.1% from 209.6 million tonnes in 2019 to 211.86 million tonnes in 2020.

Hence, the effective government policies and support to the agriculture sector contributed to the surge of China's rice production after a challenging start. This increased the overall output produced by China in 2020, which aid the country's recovery from an economic recession.

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The price of rice - a staple food in Asia - has hit 7-year highs due to the coronavirus outbreak as importers rush to stockpile the grain while exporters curb shipments.

According to the Thai Rice Exporters Association, price of the 5% broken white rice - the industry benchmark - rose 12% from March 25 to April 1. Rice prices are now the highest since late April 2013, according to Reuters data.

The rise in prices is due to expectations of higher demand for Thai rice after fellow top exporters India and Vietnam both face export disruptions of the strategic staple food due to the outbreak of the coronavirus disease, formally known as COVID-19. Asia produces 90% of the world's rice supply and consumes the same amount.

In India, rice traders have stopped signing new export contracts as labour shortages and logistical disruptions hamper the delivery of existing contracts, Reuters reported, citing industry officials. The Vietnamese government meanwhile has put in export curbs.

Even before the March spike, rice prices had started climbing in late 2019 due to a severe drought in Thailand and strong demand from Asian and African importers. Thailand is the world's second-largest exporter after India and ahead of Vietnam.

The gain in prices comes despite expectations of robust production this crop year and carry-over stocks of rice and wheat being at all-time highs, said Samarendu Mohanty, Asia regional director at the Peru-based International Potato Center, a non-profit group researching food security.

The Thai Rice Exporters Association assured in a weekly report that rice stocks are ample, but acknowledged difficulties in procuring labor amid the virus outbreak as Cambodian laborers head home due to a nationwide lockdown.

That could make seasonal farming activities difficult and hit future harvests, said Mohanty in a blog post.

"Unlike other sectors, agriculture is heavily affected by the timing of the lockdown rather than the duration because of the strict planting and harvesting calendar," he wrote last week. "If the planting season is missed, there will be no crop for the season or for the entire year."

North America, Europe and China are now facing labor shortages and supply line disruptions for spring planting, he added. "If they miss the planting window, they are done for the entire year."

In other parts of the world like India and other South Asian countries, it is now harvest time for winter crops such as wheat, potato, cotton and some fruits and vegetables. Farmers need migrant workers to operate machinery and perform other manual work like loading and unloading the produce.

"Although import buying of some commodities has accelerated in recent weeks, logistical challenges are being reported as movement constraints and quarantine measures become widespread," the International Grain Council said in a recent report. It also acknowledged a sharp upturn in near-term demand, especially for rice and wheat-based foods.

Wheat prices are also higher

It's not just rice, prices of wheat - a staple grain used to make pasta and bread - have also risen recently.

Benchmark wheat futures on the Chicago Board of Trade were hit by the coronavirus outbreak earlier this year, but have seen gains since mid-March.

The price of wheat futures also rose about 15% in the second half of March due to panic buying by consumers and crop concerns arising from lockdowns in North America and Europe.

Rice and wheat prices will remain supported in the coming weeks, said Fitch Solutions in a note.

"Supply is currently tightening due to the impact of the Covid-19 (coronavirus) pandemic on demand and trade as well as to the aftermath of bad weather in key producers (severe drought in South East Asia and Australia)," said Fitch Solutions.

Although prices ofwheat and riceare currently low in absolute terms as compared to historical averages, they are still significantly higher on-year, it noted.

"This implies food price inflation will accelerate further in 2020, continuing on from 2019 when the African Swine Fever outbreak led to a prolonged spike in meat prices," it added.

Food industry associations and organizations are urging countries to keep trade open.

"One cannot blame countries for ensuring their domestic food security during this trying time, but countries need to be extra careful in taking unnecessary policy measures that could create panic in the market," said Mohanty. "Countries should be aware that enough grains exist in warehouses to feed the world for more than four months. But these grains are of no use if countries resort to trade restrictions."

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Rice prices surge to 7-year high as coronavirus sparks stockpiling

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The price of rice - a staple food in Asia - has hit 7-year highs due to the coronavirus outbreak as importers rush to stockpile the grain while exporters curb shipments. According to the Thai Rice Exporters Association, price of the 5% broken white rice - the industry benchmark - rose 12% from March 25 to April 1.

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1) Technology
Covid-19 has taken its toll on the agriculture industry in China. As such, China's supply of rice has come under scrutiny and to counteract the effects of it, China has drafted promising strategies. These strategies were drafted in relation to technologies such as 5G, artificial intelligence and cloud computing. With the aid of such technological advancements, fewer resources would be needed for production. Thus, enabling China to increase its supply of rice for exportation while maintaining its price.

2) Expectation of sellers
Furthermore, the outbreak of COVID-19 has led to  India and Vietnam  facing export disruptions. Since both these  two countries are the main exporters of rice, the supply of Thai Rice, another rice alternative  will be expected to increase as time passes on.
As such, many sellers and exporters will expect a surge  in demand for Thai Rice and see this as an opportunity to hold onto their existing stocks of Thai Rice in order to sell it a higher price in the future. Thus, causing the supply of Thai Rice to decrease.

3) Number of sellers
Additionally, COVID-19 has also made assistance to farmers even more challenging. For instance, newspaper reports in Laos and Myanmar have suggested that government loans and microfinancing institutions have ceased. Consequently, rice farmers in such countries are unable to raise funds to continue farming. Without proper funding, many rice plantations may go out of business over time.
As such, when the total number of rice exporters decrease due to insufficient funding,  the total supply of rice would also decrease.

4) Price of Related Goods
On the other hand, COVID-19 has not only caused the prices of rice to increase but also the prices of wheat. In comparison between the price of rice and wheat in March 2020, the price of rice increased by 12%  while the price of wheat increased by 15%.
As such, farmers may increase acreage for wheat as it yields a higher profit than rice. This would thus reduce the supply of rice as farms only have limited amounts of space and devoting more land to wheat will leave less land for rice to grow.
Therefore, if the price of a substitution product increases which in this case is wheat, the supply of rice would ultimately decrease.

5) Factor
On a global scale, COVID-19 has caused a decline in the workforce available in the agriculture industry. A shortage of workers would adversely affect the stages of rice farming. Some of this stages include transplanting, weeding and irrigation control. With the lack of workers to carry out these stages, the global supply of rice would therefore decrease.
As a result, the only way to increase the amount of manpower would be to increase workers' wages.

However, the increase in cost of labor would discourage and make rice exporters less determined to hire workers. Hence, with lesser labor, the global supply of rice would decrease .

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Analysts say that countries are now looking to India - the world's largest exporter of rice - as exports from China decrease due to the COVID-19 outbreak. CNA correspondent Rebecca Bundhun with the report.

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COVID-19 outbreak: Greater demand for rice from India as Chinese exports decrease | Video

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Share this content Analysts say that countries are now looking to India - the world's largest exporter of rice - as exports from China decrease due to the COVID-19 outbreak. CNA correspondent Rebecca Bundhun with the report.

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As stated in our research, the increase in demand and decrease in supply has led to an increase in both price and quantity demanded. This has led to a shortage in China's market for rice.

Even before the pandemic, the demand for rice has always been high, with China being one of the biggest suppliers. However, COVID-19 has pose a challenge for China's market for rice. The export for rice in China has decreased due to the COVID-19 outbreak. However, people started stockpiling rice at home as they are afraid that the shortage of rice is due to the import restrictions implemented by the government , which increases the quantity demanded. When the supply cannot meet the quantity demanded, it leads to a shortage in  China's market for rice.

Equilibrium graph for China's rice market

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SINGAPORE: Singapore's imports of Thai rice can be easily met by alternative sources, said the Ministry of Trade and Industry (MTI) in response to CNA queries about recent reports of severe droughts in Thailand that had affected rice production there.

"Singapore's demand for rice is very small compared to total global rice production. For example, we account for only 1.2 per cent, 1.2 per cent and 0.6 per cent of Thailand, Vietnam and India's total rice exports in 2018 respectively," an MTI spokesman told CNA.

"Over the years, we have been deliberate in our diversification strategy. Besides Thailand, Vietnam and India, we also import rice from Myanmar, Cambodia, Japan and the US. Some of these source countries, such as the US, are less affected by domestic shortages and will alleviate any shortages from other source countries."

According to MTI, the Rice Stockpile Scheme (RSS) ensures an adequate supply of rice in the market during supply disruption, and all white rice, basmati rice, ponni rice and parboiled rice are classified as stockpile-grade rice.

"Importers are required to store two months' worth of imports in government-designated warehouses," said the spokesman.

An NTUC FairPrice spokesman told CNA that socio-economic factors and unfavourable weather conditions have affected supply and prices of rice from Thailand over the past year.

The spokesman said FairPrice has limited the price increase over the past year to about 5 per cent on average, across its range of housebrand rice from Thailand.

"This is due to various strategies such as stockpiling and forward buying to protect consumers from supply and price fluctuations."

NTUC FairPrice also imports rice from Vietnam, India, Australia, USA, Pakistan, Japan and Cambodia, said the spokesman.

The supermarket chain has seen "growing acceptance" from its customers for rice from countries other than Thailand.

"For example, the sales mix for Thai rice had decreased from about 90 per cent 10 years ago compared to about 75 per cent today. Concurrently, we have seen increased popularity of rice from Vietnam, which makes up about 15 per cent of our rice sales today," the spokesman added.

For now, consumers in Singapore can still cope with some price increases because of the country's relatively higher household incomes compared to most other countries, said Professor Paul Teng, adjunct senior fellow of food security in the S Rajaratnam School of International Studies at Nanyang Technological University.

But the big threat to Singapore's food security comes when large importing countries like China and Indonesia also suffer shortages in their food (rice) production, he added.

"They will be in the market then to import huge volumes of rice and take up almost all that is available in the marketplace."

Only a small amount of rice, or 7 to 10 per cent of total global production, is traded, so any natural or man-made phenomenon that reduces rice production in main rice exporting countries like India, Vietnam and Thailand has implications, said Prof Teng.
FOOD SECURITY VULNERABLE TO CLIMATE CHANGE
"Importing countries like Singapore, Philippines and Indonesia will all be competing for the reduced amount of rice. The problem is exacerbated if rice crops in the big importing countries like Indonesia and the Philippines are also affected by climate change and production in those countries are also reduced," he added.

The Singapore Food Agency (SFA) noted that the country's food security is vulnerable to global driving forces and trends, such as population growth, rising urbanisation and incomes, disease outbreaks, resource scarcity and increasingly, climate change.

"Singapore imports over 90 per cent of our food. We are exposed to global price and supply fluctuations as well as threats of food supply disruption and food contamination internationally," said an SFA spokesman.

"These vulnerabilities will become more acute overtime; as global crop and fishery yields are estimated to decline with the changing climate."

Citing January 2018 when Malaysia's leafy vegetable production was affected by a monsoon, the spokesman said Singapore's supply of vegetables from Malaysia decreased by about 20 per cent as compared to the same period the year before. According to the SFA, Malaysia supplied about 70 per cent of Singapore's total leafy vegetable import in 2017.

"Nevertheless, there was no significant impact to Singapore as importers have alternative sources like Thailand and China that were not affected by the monsoon to meet local demand and stabilise supply," said the SFA spokesman.

Aside from diversification, the spokesman said SFA also focuses on growing local produce as well as overseas.

"Local production will help mitigate our reliance on imports and serve as a buffer during supply disruptions to import sources. Our agri-food industry needs to transform into one that is highly productive and employs climate-resilient and sustainable technologies," said the spokesman.

"We envisage farming to become more like manufacturing - where production takes place within a controlled environment with a defined input. The result is an assured and consistent output, and a predictable way to address the effects of climate change and extreme weather."

Venturing overseas also opens up new markets and helps local farms overcome land constraints, said the SFA spokesman.

"Produce from local farms, which are established overseas could also be exported back to Singapore, contributing to our food security."

Prof Teng said "time-tested actions" like building stockpiles, diversification, farming overseas and technology-enabled indoor farming of selected food types in Singapore could boost food security.

He noted that the government could put early warning systems for food insecurity based on monitoring and computer modeling, to give Singapore a head start on sourcing for supplies.

"It is also imaginable that indoor farms to enable more community-based farming be supported by the government so that more citizens take ownership of their food security for some food items," he added.

Prof Teng noted that in the longer term, climate change will affect the types of crops and animals that Singapore's traditional food sources can grow, as well as the nutritive value of the exported food.

As for rice, he believes the real problem will surface when total global rice production has decreased due to climate change, but rice consumption continues to increase due to population growth and more people switching to eating rice, away from their traditional foods like taro, maize and plantain.

For alternatives, Prof Teng said wheat and potato are better for the environment as they require less water to produce the same amount, compared to rice.

"In the longer term, while rice remains the preferred staple food for most Singaporeans, it may behoove us to consider reducing our per capita consumption of rice and replace it with more wheat and potato."

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Singapore's imports of Thai rice 'easily met' by alternative sources but climate change could affect food security

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(Updated: ) Share this content SINGAPORE: Singapore's imports of Thai rice can be easily met by alternative sources, said the Ministry of Trade and Industry (MTI) in response to CNA queries about recent reports of severe droughts in Thailand that had affected rice production there.

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As governments around the world are realizing the multiple connections between the COVID-19 health crisis and the global and local food systems, they are contemplating an array of policy decisions or already implementing preventive measures to protect food supply. In most cases, these measures are taken in autonomy and with little consideration for the global food systems and their interdependence.

Understandably, governments feel a sense of urgency to act. This arises from the rapid spread of the health crisis and the exponential rate of contamination of people by the coronavirus. Although there are established linkages between health and food systems, they are not the same. They operate under different timescales and conditions. In times of crisis, there is a need to look at the big picture and get a sense of proportion, possibly relying on market foresight.

In table 1 we show that the market fundamentals are robust. In the short term, there is no reason to expect supply problems. The last rice harvests were good or even better than expected globally. Stocks are high and much higher than what they were in 2008 and 2011. In China, which is both the main producing and importing country, the USDA estimates that rice stocks (unused rice kept in storage) have reached a record of 113 million tons just below the level of annual consumption. In India, the second-largest consumer and the first world exporter of rice, stocks are sufficient to cover several months of consumption. Hence, a shortage of rice is unlikely in the short run.
Table 1: Main rice market indicators
Source: USDA-PSD.

However, there is a need to distinguish short term and medium term issues. In the medium term, any shock on production that could result in a lower than expected harvest could trigger a price crisis. Likewise, a massive surge in demand fueled by panic buying and hoarding could also trigger a price rise in the medium term. Decisions like limiting the flow of rice within and between countries, including export bans and other trade restrictions as well as excessive buying, can all precipitate a surge in rice price in spite of good market fundamentals (see table above).

On the demand side the behavior of China requires attention. If the country decides to massively import for reasons related to a disappointing forecast on harvest or to build up strategic rice reserves, it could have considerable consequences on world markets. On the supply side, policy decisions aiming at keeping domestic prices low such as export bans or export restrictions could also result in price spikes. In India, there are growing concerns that the breakdown of the supply chain after 2 weeks of lockdown could cause a shortage of food as well as other essential goods in the market. The Indian government has decided to restrict the movement of non-essential goods, but the lack of clear definition of an essential good has generated massive slowdown and, in some cases, interruption of the flow of goods including food.

Similarly, export restrictions or a dramatic increase of the international price of rice could have devastating effects in Africa, a continent that relies on imports to meet its food requirements, especially on rice. Nigeria imported 3.4 million metric tons of rice in 2019, making it the second largest buyer after China. The combination of supply and demand side effects could result in another price crisis in the rice sector after that of 2008 and 2011.

In Figure 1, we show the potential impact of export bans on the world reference price of rice (Thailand 5% broken price) under four scenarios, using the IRRI Global Rice Model (IGRM). When Vietnam and Cambodia impose export bans, world rice prices would increase by 19% ($84/MT) and 23% ($100/MT) respectively, from the baseline. In the scenario that India also bans exports, the price spike is more pronounced with world rice price rising by 52% ($230/MT) from their base level. In the worst case scenario, rice price could spike well above the maximum level reached during the 2008 crisis. Therefore, price is the main variable that will determine if a rice crisis is looming or already underway.
Figure 1: Price effects of various scenarios under COVID19
In the medium term, there are three main channels that need to be monitored:

(i) The primary channel through rice production could be impacted is labor, due to shortage and/or rising labor cost, especially in countries where mechanization is low. If the COVID19 pandemic evolves into a protracted crisis, it could mean that the workforce available in agriculture could decline. This would result in higher costs of labor when this already represents a source lack of competitiveness in most countries (Philippines, Indonesia). A shortage of or prohibitive cost of labor could affect the critical stages of transplanting, weeding, and irrigation control (stages that are very labor intensive) and negatively impact the next harvest. The role of women in rice production is essential, in particular for transplanting and weeding. COVID-19 may limit the time they can spend in the field as they also are traditionally responsible for the care of children, the sick, and elderly. This also means they could have increased exposure to the virus, with ripple effects on rice production and nutrition (meal preparation). It is also the case that rice farmers tend to be older than average in most Asian and African countries because youth have often migrated to urban areas. Older farmers are more vulnerable to the coronavirus.

(ii) The secondary channel to watch carefully is the logistics. The COVID-19 pandemic has primarily disrupted transport and distribution networks. These logistics issues could impact the supply of inputs for agriculture, like seeds and fertilizers. There is growing evidence that the supply chain in and outside agriculture could be massively impacted by the current crisis. This could have significant consequences on planting and crop management.

(iii) The third channel to consider regards the capital flow or shortage of liquidity to the agricultural sector, which could constraint credit to farmers for the growing season. The main risk is associated with the cost of credit (short term interest rate) as not all governments can afford to design and implement a quantitative easing monetary policy to maintain the level of liquidities and keep interest rates low. It is well known that in the rice sector many types of credit are not transacted through a bank, but are the result of informal lending. Farmers may have to face prohibitive interest rates in times of shortage of liquidity and volatile financial market conditions.

Lessons can be learned from the previous global food price crises in 2008 and 2011. We know that there is a risk of collective action problems, whereby the decision made by one government to improve its own situation in the short term can make the situation worse for others. There is also the risk that when one government decides to adopt a "competitive" rather than "cooperative" policy, it will be followed by other governments, triggering a chain reaction. When governments take unilateral decisions they can fuel the problem of rising food prices.

By contrast, we have also learned that policy coordination and trade facilitation can relax the tension in markets. This is the main reason that pushed the G20 to establish the Agricultural Market Information System (AMIS), which is jointly implemented by FAO and the OECD.

We need to carefully monitor policy decisions. We need to encourage governments to talk and coordinate their actions. The current global outbreak of COVID-19 has the potential to disrupt agriculture and food systems, and the rice sector in particular. To address this challenge effectively, learning the lessons from the past is paramount.

It is equally important to recognize the need for informed and science-based decision making. Governments need to support the collection and dissemination of timely and credible information and its analysis by reputable institutions. Evidence can help governments avoid disproportionate responses to perceived threats that could aggravate the problem.

Ultimately, ill-conceived decisions and uncoordinated actions on food policy will invariably affect the food and nutrition security of the most vulnerable. The most concerning issues at the moment regard the lack of willingness for coordinated action among governments. The COVID-19 pandemic can also be turned into an opportunity to identify and address the major vulnerabilities and inequities in our food systems, with a view to make them more resilient to the next crisis.

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Is COVID19 a threat to the stability of rice price and supply?

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As governments around the world are realizing the multiple connections between the COVID-19 health crisis and the global and local food systems, they are contemplating an array of policy decisions or already implementing preventive measures to protect food supply. In most cases, these measures are taken in autonomy and with little consideration for the global food systems and their interdependence.

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1) Supply Factors
Technological advancements has decrease the amount of resources needing during the production stage of rice, which helps increase the supply.

However, COVID-19 has posed certain challenges for the rice market. In the production stage, there has been a decline in the workforce available in the agriculture industry and a surge in the price of wheat. This export disruption will decrease the supply of rice. In the retail stage, the decrease in supply has led to an increase in the price of rice as sellers see this as an opportunity to hold onto existing stock to sell at a higher price.

2) Demand Factors

The demand for rice has always been high as people view it as a staple food.
However, the pandemic has led to a significant impact in China's rice market as supply of rice decreases and the price of rice increases. This has led to consumers seeking for alternatives in other Southeast Asian markets. However, most Singaporeans can still cope with the price surge and the demand for China's rice remains high. Thus, rice is considered price inelastic.

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1) Many sellers in the market

When it comes to rice retailers, there are many of them in the market. Just by taking a look at Singapore itself, there are already more than 20 brands of rice sold. On a larger scale, it will be equitable to say that the market comprises of thousands of brands and companies selling rice all over the world. With a huge number of rice retailers/sellers, this translates to higher competition in the market.

2) Products similar but differentiated

Since rice retailers are apart of monopolistic competition, they will try to ensure product differentiation to gain some sort of market power. Though rice retailers sell a common staple product (rice), factors such as "Location", "Services", "Physical Difference", and "Product Image" can help to differentiate the rice products from various competitors. Examples of product differentiation includes having unique brand logos and packaging to represent the various brands,  selling different types of rice (eg. white race, basmati rice, ponni rice, parboiled rice) to differentiate brands, location of sales of brands are some ways that firms adopt to differentiate their rice products.

3) Imperfect Information

Buyers will be able to compare the prices of rice products from various brands due to the number of sellers in the market and the ease of accessibility to such products. With more information, they will be able to determine the best deals and gain an advantage. However, since sellers are competing with one another by selling products that are not homogeneous from one another (eg. by branding, quality, types of rice sold etc.), there will hardly be perfect substitutes for buyers to obtain, in addition to persuasive marketing.

The level of information between sellers and buyers will determine if the sellers will be able to mark up/set higher prices. Since the information between the 2 parties are semi  adequate, sellers will find it difficult to mark up their prices due to the number of substitutes available.

4) Barriers to Entry is easy
5) Little degree of Market Power

The barriers to entry is set at easy, same as perfect competition, where new sellers entering the market will be a piece of cake as there are barely no restrictions to enter or leave the market. Additionally, since there are many firms in the market, each firm takes up a small portion of market share. As new firm emerges, the amount of market share each firm takes up will decrease and will be distributed to the new firms.

Since each firm now takes up even smaller shares (even minimal) in the market due to new entries, it translates to lower market power for existing firms. And with lower market power, the power to set / mark up higher prices will be harder.

However, though perfect competition has zero to little degree of market power, monopolistic competition has market power to a small extent due to product differentiation. Firms can mark up/ set prices without a completely elastic response by consumers due to the special features that distinguishes them from their competitors' products. Hence we say that firms in this market structure does have a small degree of market power.

6) Price is Elastic

We say  that prices of such staple products are elastic due to the number of sellers in the market. There are so many brands to choose from and even if one of the brands were to mark up prices, the response from buyers will not be that major / less responsive as they can still purchase from other brands / substitutes with lower prices, which will not really affect the buyers to an extent.

However, there can be exceptions. This year, due to the COVID-19 pandemic which very first struck China, many buyers were skeptical and worried that purchasing staple products from China (One large rice exporter) is not safe due to the virus spreading and with little knowledge of how far the virus can spread. Hence, the demand shifted towards India, the world's largest rice exporter to purchase their staple products. With the buyers all shifting to India in demand for staple products, we can say from there the price elasticity of the products will be inelastic as the availability of substitutes has decreased and options are narrowing down.

7) Economic Profits (short run)

Since the barriers to entry for this market structure is relatively low, there may be potential entrance from other firms with similar business concepts. New entrance translates to market shares taken and each existing firm will take up a smaller share. A smaller market share will translate to lower profit for all the firms. Hence, we say that firms in this market structure can earn economic profits but not for long as it can be affected from new entrances.

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1) Numerous Sellers in the market

There are many farmers who harvest staple products such as rice and wheat out in the market. It was found that Asia produces 90% of the world's rice supply, mostly coming from India, Thailand, China, some of our largest exporters of rice in the world. Many countries such as Vietnam, Australia, USA, Pakistan, Japan, Cambodia, Laos have also joined the bandwagon of becoming rice exporters, relying on their farmers to carry out the harvest jobs. The greater the number of sellers, the greater the competition. In this case, there is high competition in the agricultural industry.

2) Products Uniform

In the agricultural industry, all rice farmers will harvest the same and identical raw product, and that is rice. There are no physical characteristics or any type of differentiation method to determine rice except the color and the type of rice harvested. One cannot find rice with different sizing or shapes out there. Hence we say that these products are all uniform during the harvest stage.

3) Perfect Information

Buyers in this industry (importers and exporters) have all the relevant information to make rational decisions on the harvested rice to purchase to sell due to the large number of sellers in the market. Buyers will have the capability to compare prices and determine what are the best deals out there based on research.

Sellers in this case, will not be able to take advantage as there is high level of information between sellers and buyers, where buyers can find out many things before purchasing. This makes it harder for sellers to mark up or set high prices as the buyers can determine the worthiness of the deals.

4) Barriers to Entry is easy
5) Zero to little degree of Market Power

The barriers to entry is set at easy, where new sellers entering the market will be a piece of cake as there are barely no restrictions to enter or leave the market. Additionally, since there are numerous firms in the market, each firm takes up a small portion of market share. As new firms emerges, the amount of market share each seller takes up will decrease and will be distributed to the new firms.

Since each firm now takes up even smaller shares (even minimal) in the market due to new entries, it translates to lower market power for existing firms. And with lower market power, the power to set / mark up higher prices will be very difficult and tough. Hence, we say though it is easy to enter the market and leave later on, but new entries can cause existing firms to have zero or little degree of market power due to the portions of market shares taken up by new firms and existing firms combined.

6) Price is Highly Elastic

We say prices of these staple products (rice, wheat) are highly elastic due to the number of sellers in the market. There are so many sellers to choose from and even if one of the brands were to mark up prices, the response from buyers will not be that major / less responsive as they can still purchase from other brands with lower prices, which will not really affect the buyers to an extent.

However, there can be exceptions. This year, due to the COVID-19 pandemic which very first struck China, many buyers were skeptical and worried that purchasing staple products from China (One large rice exporter) is not safe due to the virus spreading and with little knowledge of how far the virus can spread. Hence, the demand shifted towards India, the world's largest rice exporter to purchase their staple products. With the buyers all shifting to India in demand for staple products, we can say from there the price elasticity of the products will be inelastic as the availability of substitutes has decreased and options are narrowing down.

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1) Price of Related Goods
Due to the COVID-19 pandemic which originated from China, the agriculture industry in China was greatly affected. With the lockdown the country, farmers could not continue with their harvest, missing the golden period and furthermore it was harder to export their goods out.
With that, the supply of rice face a downfall and the demand all around the world continues to increase. This results an increase in price of rice coming from China, which leads to people looking for similar alternatives such as rice from India or Thailand, where the price of rice is lower.

2) Taste and Preferences
Furthermore, since the virus came from China and the knowledge on the transmission virus was not clear, people fear in many ways on how the virus may be transmitted. Thus, they might prefer buying goods, in this context, rice from another country that does not have such high number of cases. This causes the demand of rice coming from India to surge significantly.

3) Number of Buyers
Additionally,  with lesser export of China rice supply, people still needs rice as food for survival, especially in the Southeast Asia region, people would start looking for similar products. This leads to an increase of demand on India's and other countries rice supply as the spread of number of buyers becomes more concentrated on these countries due to one of its fellow country not meeting the demand.

4) Expectations of Buyers
It comes to no surprise that the global climate condition has worsen drastically over the years, this causes the severe droughts in Thailand where the rice plantations are affected. The plantations in Thailand can't produce as much rice as they would like to meet the demands from people world-wide. With the heighten climate change people expects a shortage of rice from countries that faces extreme weather conditions. This would lead them to buy rice from other countries or brands, which increases the demand for these countries that doesn't face extreme environment conditions.

5) Taste and Preference
Additionally, it was mentioned that the supermarkets in Singapore has seen more people accepting to buying rice from countries other than Thailand. This change in taste and preference of  buyers will cause a decrease in Thailand's rice demand but an increase for other rice producing countries.

6) Money Income
However, having said that,  most of Singapore's population can still manage with the price increases on Thai rice as the country have a relatively high household income when compared to other countries. This shows that even though there's an increase in the price of rice but the people of Singapore still have the  ability to cope with the increase, the demand of Thai rice will remain high.

image source:https://www.delish.com/cooking/a20089653/how-to-cook-rice/