Have you noticed anything happening to the price of rice lately? If you haven't, you soon may. The price is on the rise. According to an article in TheNew Zealand Herald, some experts expect rice to double in value over the coming three years.
The cause is rather interesting. You've surely been aware of China's ongoing development, and you've probably considered it a good thing, because it may yield hundreds of millions of new middle-class consumers. Vietnam, too, is busy developing. But among other things, development has included plowing under rice paddies to build streets, homes, factories, towns, and more. Thus, the world's supply of rice is likely to shrink. And as we learned in Economics 101, that's likely to lead to higher prices.
That might not have a huge effect on many companies. But some firms will feel the pinch -- perhaps firms you've invested in. For example, think of Kellogg
According to a Bloomberg.com article, "Manufacturers are feeling the pinch. Kellogg of Battle Creek, Michigan, on July 27 said cost increases for fuel, energy and commodities in the second quarter were 'unprecedented.' "
Here are a few other facts from the Herald:
- "Rice inventories worldwide are already near a 26-year low and will drop further, says the U.S. Department of Agriculture."
- "Prices have jumped 48% in the past year, outpacing the 19% increase in wheat futures and the 8.3% gain in corn."
- "The world's largest exporters are Thailand, Vietnam and India, and the top importers are the Philippines, Nigeria and Iraq. China is the biggest rice consumer."
- "China has lost eight million hectares, or 6.6%, of its farmland in the past decade, a Ministry of Land and Resources survey found."
- "A developing El Nino weather pattern also threatens to reduce rice harvests."
If you're an investor in a company that uses a lot of rice, you may want to pay attention to this issue. As the price of rice increases, it will put pressure on companies' bottom lines, reducing profits. Therefore, companies will likely pass on cost increases to consumers by hiking the prices for their products. Still, that often takes awhile, and if the price of Rice Krispies doubles, some sales will surely be lost. Consumers won't accept major price increases without some reaction, such as reduced purchases. (Think of the rise in the price of gas: Most people haven't stopped buying it, but they're starting to be more careful about how much they use and are looking for ways to minimize the pain.)
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.
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