Rice Crisis Looms: Global Shortage Expected To Reach 20-Year High. Time To Invest In Agriculture?

Rice is a staple food for more than 3.5 billion people around the world. And now, it’s facing a major shortage, according to a recent report from Fitch Solutions.

Analysts are forecasting a global rice shortfall of 8.7 million metric tons in 2022-2023, which would mark the biggest rice deficit for the world since 2003-2004, CNBC reports.

When supply can’t keep up with demand, prices tend to be elevated.

“At the global level, the most evident impact of the global rice deficit has been, and still is, decade-high rice prices,” Fitch Solutions analyst Charles Hart told CNBC.

The war in Ukraine, as well as lower production in China and Pakistan resulting from poor weather, have contributed to the supply shortage.

And that does not bode well for food security.

“Given that rice is the staple food commodity across multiple markets in Asia, prices are a major determinant of food price inflation and food security, particularly for the poorest households,” Hart said.

Of course, consumers have already felt the pain of food price inflation — even outside of major rice-consuming countries.

Check out: Private Market Agriculture Investments

Grocery Bill Blues

In the U.S., consumer prices increased 5% in March from a year ago, according to the U.S. Department of Labor’s latest report.

While headline inflation is down from 6% in February and a 40-year high of 9.1% last June, food costs remain a burden to many.

In particular, the food index in March was 8.5% higher compared to a year ago. The index for food at home was up 8.4% in the past 12 months, driven by a 13.6% increase in the index for cereals and bakery products and a 10.7% increase in dairy and related products.

The reality is that even though central banks around the world have been raising interest rates to tame inflation, consumers are stuck with paying higher grocery bills.

Shrinking Farmland

Other than wars and weather disruptions, another threat to food supply is the diminishing acreage of arable land.

In 2022, the U.S. lost 1.9 million acres of farmland, according to the latest Farms and Land in Farms report from the U.S. Department of Agriculture.

The trend is not new, and it’s happening around the world. One study showed that the world has lost almost one-third of its arable land in the last 40 years.

Meanwhile, population is on the rise. The United Nations expects the world population to grow to 8.5 billion in 2030 and then further increase to 9.7 billion in 2050.

That will be a lot of mouths to feed. If farmland acreage continues to shrink, food security could become a serious problem.

An Overlooked Investment

The supply and demand dynamics of agriculture makes it particularly intriguing for investors.

The sector also stands out because of its resilience through economic cycles: No matter what happens to the global economy, people still need to eat.

Investors can gain exposure to agriculture through exchange-traded funds (ETFs) like the Invesco Invesco DB Agriculture Fund DBA.

If you are bullish on specific agricultural commodities, you may want to check out names like the Teucrium Wheat Fund WEAT and the Teucrium Soybean Fund SOYB.

You can also invest in farmland itself — an increasingly scarce commodity. Real estate investment trusts (REITs) like Farmland Partners FPI and Gladstone Land Corp. LAND also specialize in farmland.

If you don’t like the volatility associated with publicly traded REITs, you can also look into platforms like FarmTogether, which allows individuals to invest directly in farmland assets through the private market.

Read next: Rooted In Stability: How Farmland Investments Have Outperformed in Uncertain Economic Climates