The return of the rice crisis

This is an audio transcript of the FT News Briefing podcast episode: ‘The return of the rice crisis’

Marc Filippino
Good morning from the Financial Times. Today is Monday, October 30th, and this is your FT News Briefing.

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Israel expanded its ground offensive in Gaza over the weekend. And just seven American tech stocks are driving global indices higher. Plus, you might not think about rice other than when you’re heaping some on your plate but we’re entering a global rice crisis and it’s affecting a lot of people.

Susannah Savage
So we’re talking about around half the world’s population. So that’s 3.5bn people, particularly in Asia, but also Latin America and west Africa.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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Israel has entered the second stage of its war with Hamas. That’s what Prime Minister Benjamin Netanyahu said over the weekend.

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Marc Filippino
A spokesperson for the Israel Defense Forces said on Sunday that combat operations were continuing in the north of the Gaza Strip. Some had expected a full-scale invasion of Gaza, but officials say the more gradual build-up is to try and reduce the likelihood that the Iranian-backed militant group Hizbollah will get involved. The Hamas-controlled health ministry said the death toll in Gaza has risen to more than 8,000 Palestinians since the start of the Israeli offensive. Israel has been bombarding Gaza since Hamas attacked the country on October 7th and killed more than 1,400 people.

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We’re in the middle of earnings season. And once again, US tech companies are showing just how strong they are. In fact, just a handful of tech giants have driven all of the gains in global stocks this year. They’re called the Magnificent Seven, and they consist of Apple, Microsoft, Alphabet, Meta, Amazon, Nvidia and Tesla. Without those companies, MSCI’s All-Country World Index would have declined over the past year, which raises the question: Are indices really the best way to get a read on the stock market and the broader economy? Here to talk about this is the FT’s Nick Megaw. He covers US capital markets. Hey, Nick.

Nicholas Megaw
Hi, there.

Marc Filippino
So why are these seven companies having such a huge impact on global stocks?

Nicholas Megaw
So there are two sides to it. The first is why these companies have done well. One of the big drivers of the Magnificent Seven’s strength this year has been excitement about artificial intelligence, which all seven have a link to in various degrees, whether that is making chips that power it like Nvidia, or being a big investor in the company behind ChatGPT like Microsoft. And then the reason it’s impacted markets so much is because, one, they were already very massive. So there’s just a kind of mathematical impact of a bigger company moving has more of an impact on the wider index than a small company moving. But also the broader environment for other stocks has been kind of tough this year. The economic outlook is uncertain. Interest rates have been going up, and although the US economy especially has been pretty strong, there’s been a lot of uncertainty about how long that will last. And so it’s been harder to make the argument for other companies.

Marc Filippino
Nick, what does that say about how investors see US stocks versus how they see stocks in the other countries?

Nicholas Megaw
So it’s been a key part of, although not the only part of this broader trend that’s been happening pretty much since the 2008 financial crisis of more and more of the global stock market is just being dominated by the US. There are some technical reasons that help it, like people are more inclined to invest in their home market and most stock market investors are in the US. There’s also just part of this broader view that US companies and the US economy are just being consistently better performing than alternatives like Europe.

Marc Filippino
Since this small number of companies has the power to skew indices so much, why do we even use them as a way to measure global stocks? I mean, is that even a good idea?

Nicholas Megaw
I mean, it depends what you’re looking for. Is it the MSCI All-World the best way to get an understanding of the state of the global economy? Or should you use the S&P 500 to understand the state of the US economy? Probably not. You know, there’s loads of people who work for small and midsized companies that are not publicly listed at all, never mind in the top indices. But if you want a snapshot of the financial markets, this is the reality of them right now. They are dominated by a few massive companies, and so it’s important to look at that. There are alternatives, like you can look at the equal weighted version of the indices to get a better sense of how the rest of the market is performing. But that doesn’t mean you should ignore the main ones.

Marc Filippino
Nick Megaw covers the US capital markets for the FT. Thanks, Nick.

Nicholas Megaw
Thanks.

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Marc Filippino
The cost of rice is up. Actually, it’s way up. It’s up in Nigeria. It’s up in Vietnam and it’s up in Thailand. And that’s having a massive impact on people who rely on rice. Susannah Savage has been looking into the issue. She covers commodities for the FT. Hi, Susannah.

Susannah Savage
Hi, Marc.

Marc Filippino
So tell me what’s behind the increase in the price of rice.

Susannah Savage
So the biggest catalyst of this is India, which is the world’s largest exporter of rice, has put a ban on exports of certain types of rice and tariffs on other types. Now, the reason they’ve done this is because Narendra Modi, the prime minister of India, he’s facing a series of elections this year and next year. And in India, food prices are a real hot-button issue. So he’s really trying to bring down domestic prices of rice in order to win over voters, essentially. So it’s really politically motivated.

But price increases also reflect worries about supplies as climate change has a big impact on rice yields. And this year, that’s particularly significant because of the El Niño weather phenomenon, which is associated with heat and drought across the Pacific Ocean, which has a big impact on rice-growing areas across Asia. And so we’re seeing growing conditions that may be too dry next year, and that will have a big impact on yields.

Marc Filippino
And just how big of an issue is this, Susannah? I mean, how many people rely on it for food?

Susannah Savage
So we’re talking about around half the world’s population. So that’s 3.5bn people, particularly in Asia, but also Latin America and west Africa and west African countries are especially impacted by India’s ban because they rely very heavily on imports. There, we’ve seen prices really fluctuate and rise.

Marc Filippino
Susannah, has this happened before? I mean, I can’t imagine that this would be the first time that we’ve dealt with a problem in the rice supply.

Susannah Savage
No, it’s definitely not the first time. For a lot of experts working on this, there are elements of déjà vu. We had a big rice crisis in 2007, 2008, when again India imposed an export ban and this was followed by other big rice-producing countries. And this had a big impact driving up inflation and sparking eventually civil unrest in parts of the world, including north Africa and the Caribbean. But at that time, really there was no shortage of supply. The shortage was created by these export bans and therefore it was resolved when countries like Japan, Thailand, Vietnam committed to boosting imports, whereas this time there actually are worries about the supply of rice because of worries about production.

Marc Filippino
So I guess I’m curious, Susannah, would the lessons learned from the 2008 rice crisis apply here?

Susannah Savage
In part, yes, because if India were to remove the ban on exports, that would have a big impact on prices. But in another sense, no, because we’re seeing increasingly climate change is creating problems with yields. And so we’re seeing more and more governments are going to be put under pressure as a result of climate change. And increasingly there are fears that they’re going to choose protectionist policies like the ban imposed by India, which has an impact on other parts of the world, for example, in this case west Africa. And as we saw in 2007, 2008, when food prices rise and people are hungry, they take to the streets and protest. And that’s a big political problem for governments.

Marc Filippino
Susannah Savage is the FT’s commodities correspondent. Thanks, Susannah.

Susannah Savage
Thanks very much.

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Marc Filippino
Before we go, cognac doesn’t seem to have the same je né sais quoi for American consumers anymore. The French spirits maker Rémy Cointreau is predicting its sales will fall by a fifth this year because US consumers are shunning cognac. An analyst told the FT that Remy’s lacklustre sales are raising questions about whether the US economy is really as strong as it seems, since alcohol is usually recession-resilient. It could be a canary in the coal mine.

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You can read more on all of these stories that have taken for free. You may click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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