Not by Rice Alone

One must remember that the producers and the supermarket chains have already upped the prices during the past year, and the cost of raw materials constitutes only one-third of the price of the final project.

It was a simple plan: Scare everyone. Tell the public that food prices are about to rise sharply, and thus prepare it for the "inevitable" rise in the cost of living. And then, when the importers, the producers and the supermarket chains raise the price of rice, oil, tahini, pasta and coffee, the public will be understanding and will continue to consume at the same levels as before. Because, after all, there is no choice since "it is not up to us." Is that so?

Indeed, the prices for these products rose sharply over the past 12 months. The price of rice doubled, the price of wheat increased by 50 percent, and corn prices rose by 45 percent. But one must remember that the producers and the supermarket chains have already upped the prices during the past year, and the cost of raw materials constitutes only one-third of the price of the final project.

The restaurateurs are also taking advantage of the hysteria. They are actually wary about raising prices, because competition in the field is tremendous. They are using the media to disseminate their message. One of them said: "A drastic 15 percent rise in prices is required across the board; there is a limit to what we can sustain." Thus he is signaling his colleagues that they should raise prices together, and the public will have no choice but to pay up. This restaurateur is not telling the public that the cost of the raw materials is a mere 22 percent of the cost of his business, or that there is little connection between the price of rice and the cost of a main dish at a restaurant.

The global hysteria regarding food prices began when the president of the Philippines, Gloria Arroyo, declared there was a shortage of 1.5 million tons of rice in her country. This may be only 0.2 percent of the annual production in the world, but the statement led to panic. Speculators around the world began to hoard rice, which of course led to immediate shortages. Every trader and every importer understood it was to his advantage to buy rice now - lots of it, and quickly, because prices will soon go up. This is a self-fulfilling prophecy.

Of course, behind the rise in global food prices there are real reasons. Not everything is psychology and speculation. The main reason for the price increase is the growing demand for food in China and India as their standard of living rises sharply, following annual economic growth of 8-9 percent. The second important cause is the rise in the cost of fuel, of transportation, of fertilizers and pesticides. To this must be added natural disasters like the cyclones in Bangladesh, the floods in Vietnam and the long drought in Australia.

There are also reasons that are entirely man-made: the blatant interference of governments in agriculture, and it does not matter whether this is in France, the United States, the Philippines or Bangladesh. The state interferes. When that happens, the free market ceases to function, and crisis and shortages are just a matter of time.

Governments in South-East Asia and Africa believe they must subsidize the prices of foodstuffs and keep them artificially low to maintain calm and stability. They also limit food exports to keep prices down at home. The wealthy countries in the West also interfere in the market. The U.S. and the European Union block the import of food from African countries to protect their own farmers, who are politically powerful.

All these restrictions prevent the principle of the invisible hand in the market to send the farmers a message and as a result we sometimes have large surpluses and sometimes shortages. If, for example, Vietnam does not allow the export of rice, its farmers will be better off limiting the land used in rice production because demand is low and consequently its price in Vietnam is low. When governments determine the maximum price of food for long periods, the result is artificially low prices (like the ones of the past decade), which makes it less worthwhile to invest in developing new types of seeds, improving irrigation and storage. The upshot of all this interference is continuous decline in world food production until there is a crisis.

As always, the poor will suffer. The United Nations estimates that an additional 100 million people will join the millions already suffering from malnutrition and famine around the world, as a result of the price increases. In Israel, there will be no hunger, but the poor (the two lowest percentiles) will suffer more. They spend 19 percent of their income on food, while the rich (the two upper percentiles) spend only 11 percent of their income on food.

We, the consumers, do not have to play this game like passive observers. We do not have to accept the increase in the cost of living like some "force of nature." We can spend more time and effort in intelligent consumption: Check prices in several stores, negotiate and demand a discount.

For example, if we do not buy rice for a week, we will see the prices drop - with the same speed that they rose. It is possible not to surrender to scare tactics.