Rice prices surge, but restaurant operators see limited impact for now

A SURGE in the prices of some varieties of rice could have a wider-ranging impact on food costs, analysts have warned. For now, however, restaurant operators in Singapore are saying that the impact on their supply costs is limited.

Listed restaurant operators who spoke to The Business Times said the sources of their rice supply have been largely unaffected by a jump in the prices of Thai white rice as well as India’s export ban of non-Basmati white rice – the South Asian giant’s largest rice export category.

Catalist-listed Japan Foods Holding said it primarily uses short-grain rice from Japan and is therefore not particularly affected by the increase in rice prices. 

Chief executive Takahashi Kenichi said prices have been “fairly stable”, with most increases due to inflation. 

While Japan Foods has other sources of rice besides Japan, Kenichi said neither Thailand nor India are among them. 

“Most of our restaurants serve mainly ramen, so changes in rice prices (haven’t) had much impact on our costs,” he added. 

Amy Kuan, operations director of Katrina Group , said the group manages price increases by locking in prices with its distributor for a “fixed duration of time”. 

The group, which is also listed on the junior board of the Singapore Exchange, uses Thai jasmine rice sourced through a Singapore distributor, who works directly with a Thai supplier.

Kuan believes the impact of price increases has been minimal due to the group’s “strong relationship” with the distributor.

Katrina Group operates restaurants in Singapore and Indonesia offering various cuisines, such as South-east Asian, Chinese and Japanese food.

Rice prices recently climbed to the highest level in nearly 15 years.

The Thai Rice Exporters Association stated that prices for Thai white rice 5 per cent broken, an Asian benchmark, jumped to US$648 a tonne in early August – the highest level since October 2008.

The Food and Agriculture Organisation (FAO) All Rice Price index rose 9.8 per cent on month in August to 142.4 points. FAO, the food agency of the United Nations, tracks rice prices through this index.

The figure has gone up 31.2 per cent over the past year and is at a 15-year nominal high.

The increase has been led by the surge in prices in Thailand.

Market watchers said the price jump was likely due to the authorities in Thailand encouraging farmers to switch to crops that require less water – in preparation for the approaching El Nino weather phenomenon, which will result in drier conditions.

Thailand is the world’s second-biggest exporter of rice, dwarfed only by India.

India in July implemented a ban on non-Basmati white rice, due to late but heavy monsoon rains. The Indian authorities said this sent prices up by 3 per cent.

In August, India imposed a 20 per cent duty on exports of parboiled-grade rice, which refers to rice that has been partially boiled in the husk. 

It has since scaled back on some of the curbs.

Traders can now ship out their non-Basmati white rice cargoes that were stuck in ports, as long as duty was paid by Jul 20. Some countries have also been allocated export quotas for the agricultural staple. 

Singapore, which relies solely on imported rice, was granted some relief on Aug 29, when India’s Ministry of External Affairs allowed exports to the country in light of the two countries’ “close strategic partnership”. 

Singapore was allotted an export quota of 50,000 tonnes to help meet its food security requirements. 

While specific rice types have been singled out in the recent price increases, some analysts noted that prices of various rice types tend to rise and fall in tandem, due to similar weather conditions in most rice-cultivating countries. 

“For example, El Nino, associated as it is with drier-than-usual conditions across much of South-east Asia, is a negative development with regard to expected rice crop yields, regardless of variety,” said Charles Hart, agribusiness analyst at BMI, a unit of research house Fitch Solutions.

Nomura’s analysts hold a similar view, and they expect the drier conditions to worsen over the rest of the year.

“Although food prices have so far been tame, there is no room for complacency,” Nomura said in an August report.

It estimated that India’s rice sowing is 4.7 per cent below normal levels, while Thailand’s early estimates suggest a 5.6 per cent drop in rice production caused by the drought.

OCBC’s senior Asean economist Lavanya Venkateswaran, however, cited the FAO as saying that rice output was affected in just two of the last six El Nino episodes since the turn of the century.

On a broader scale, she cautioned that rising rice prices would be “a thorn in the inflation picture” for the Asean-5 economies, including Singapore. This is despite the weight of rice in Singapore’s CPI basket standing at the lowest among regional peers, at 0.2 per cent.

Analysts pointed out that a lower supply of one variety could eventually lead to higher prices across other varieties, as countries and suppliers opt to substitute rice types.

Sonal Varma, Nomura’s chief economist of India and Asia ex-Japan, said substitutions will likely affect prices of rice in other countries and across varieties, but only after some time.

“With India’s export ban lifting rice prices for Vietnam and Thailand, new contracts at higher prices are being negotiated with existing customers in August,” she added. “So we expect spillovers across most rice importers, over a period of time.”

Japan Foods’ Takahashi agrees that this scenario is a possibility. He said long-grain rice consumers may swap to short grain and affect costs, for example.

The company is monitoring the situation and speaking with its suppliers from various sources to best manage its costs, he added.