Behind the Run on Rice

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However, with rice futures gaining 80% in the past year to $24 per hundredweight, the contract is seeing a lot of trading lately. (A hundredweight is the equivalent of 112 lb.) "I've never seen a rice market until this year in my three decades of trading grains," says a shocked Tim Hannagan, senior grain analyst at Alaron Trading in Chicago.

Allegations of Global Rice Hoarding

The outlook appears grim, especially for nations that are net importers of the grain and that have large rice-consuming populations, such as the Philippines and Iran. A recent international auction offers one glimpse into how tight the global rice market has gotten this year. On Apr. 15, according to the Agriculture Dept.'s Childs, the Philippine government tried to buy 500,000 tons of rice in the global market but managed to get only 320,000 tons, leading several rice trade groups to contend that producers are hoarding rice to see how much higher prices will rise. That news sent a jolt through wholesale marketers around the world.

Restaurants and consumers in the U.S. followed suit last week and started buying up their own future rice requirements. The Philippine government has announced that it plans to enter the rice market for another 100,000 to 600,000 tons. If it can't find the rice it wants to buy, that could signal a true crisis for the staple at a time when the world is already gripped by concerns about food prices and supplies of other staple products such as wheat and meat.

Aromatic Rice's Recent Gain in Popularity

Jasmine and basmati are both known as aromatic rice, because of the special aroma they emit while cooking, an attribute that has proven difficult to duplicate when grown in countries other than their origin. Because of this quality, they have always commanded substantially higher prices than other varieties of rice. Basmati is grown in India and Pakistan, while jasmine rice comes from Thailand. Their consumption in the U.S. has grown exponentially in the past decade, while overall rice consumption has kept pace with U.S. population growth, rising a mere 2% or so annually in the past decade.

Imports of jasmine rice from Thailand grew 78% in the last 10 years, to 394,000 metric tons in 2007, while basmati imports in the same period grew 112%, to 71,000 metric tons in 2007, according to the USDA. While both types are sold in India and Thailand, these highest-premium varieties are rarely consumed in their native countries and are produced mostly for export to Britain, the Middle East, Hong Kong, Canada, the U.S., and Singapore.

Clearly, consumers like California's Galviso prefer Thai jasmine rice. Her family eats rice at three meals daily and prefers the jasmine variety, calling it "the prized one, because of its smell." On Thursday, Galviso was willing to detour into Costco despite her several-hour commute into San Francisco, where she works. Still, to keep costs in check, she has resorted to mixing jasmine with other, less expensive varieties.

San Francisco's Costco sells 50-lb. bags of jasmine rice for $21.99, while other stores sell the same rice for about twice that. The company is trying to satisfy customers' demand for rice while keeping prices in check. It's anyone's guess how long the company can continue walking that fine line. "With every single truckload, the price goes up," says John Booth, a regional operations manager, who adds that he hasn't seen such great demand for rice in his nearly 22 years with the company. "We're seeing prices increase daily."

Gogoi is a contributing writer for BusinessWeek.com.