ROBERT SIEGEL, HOST:
From monetary policy, now to food policy. These days, our food comes through complicated global supply chains. It's a system driven by efficiency. But our next story is about a truly spectacular breakdown in that system. It happened in Asia and didn't affect Americans very much.
As Dan Charles with NPR's Planet Money team reports, the failure keeps experts awake at night because they don't know how to keep it from happening again.
DAN CHARLES, BYLINE: This disaster, and it really was a disaster for a lot of people, involves rice. It was the worst crisis involving food prices in half a century, but this one did not start with droughts or a bad harvest. There was plenty of rice in the world. This crisis started with a simple cost-saving decision in India. The Indian government decided to buy more rice for its food distribution programs instead of wheat, because wheat was really expensive.
And to make sure there was plenty of cheap rice on hand, they made it illegal for most Indian rice to leave the country. In October 2007, they banned rice exports.
PETER TIMMER: This was the trigger and we saw it, you know, the next day. The next day, prices in Bangkok go up $75 a ton.
CHARLES: Peter Timmer is an economist and one of the world's leading experts on the rice trade. The Indian decision set off a chain of reactions. Each one was perfectly understandable. But all together, they were destructive. The Indian ban on exports meant there was less for other countries to buy. That's why prices shot up. And then, people said, if rice is getting more expensive, we need to get our hands on some right now. Even smart economists like Peter Timmer were part of this. He was teaching at Stanford at the time.
TIMMER: I'd gone to Trader Joe's and picked up six boxes of rice because I knew it was going to be really expensive in about two weeks.
CHARLES: You were a rice hoarder.
TIMMER: I was a rice hoarder. I felt so embarrassed. But it's a perfectly rational thing for individuals to do.
CHARLES: That goes for governments, too. And in the rice business, governments really matter. Rice is so important in Asia, most governments at least try to control prices and how much gets exported. During the first four months of 2008, Egypt, Pakistan and Vietnam all started hoarding their rice crop. So, there was still plenty of rice in the world, but there was less for sale.
And that put the squeeze on countries like the Philippines. Those countries don't grow enough on their own. They need to go out and buy rice from abroad. Panicky government officials in the Philippines went on TV to tell people to eat less rice. So, of course, people went out and bought more. Prices surged.
Now, in a situation like this, if you're in a position of power and you're just looking out for yourself, this is a beautiful time. There's money to be made. This is what happened. The government of the Philippines went on a buying spree with taxpayer money. It bought a lot of rice, all from a state-run company in Vietnam called Vinafood at super high prices. These were corrupt deals, Peter Timmer says. This is how you line your pockets, buying high-priced rice.
TIMMER: You sign a contract with Vinafood in Saigon. Let's say it's $1,000. Vinafood is able to go back to Vietnamese farmers and pays them $500. So, now there's $500 of profit per ton, which you quietly split.
CHARLES: Those deals drove up the price by hundreds of dollars a ton. Rice fever spread from the Philippines across the whole continent.
TIMMER: What happened was people panicked everywhere. In Ho Chi Minh City, for heaven's sake, the center of the second-largest rice exporting surplus in the world, supermarkets and rice markets got cleaned out in two days.
CHARLES: During the first four months of 2008, the price of a ton of rice on the world market doubled, then it tripled. In countries that relied on imported rice, people got squeezed hard. Ben Flores, a janitor in the Philippines, says he just had to eat less.
BEN FLORES: Before that, I used to eat rice every morning. So, I really lost weight because of that.
CHARLES: This was just a crazy situation. People were going hungry. Lives were changed. Corrupt officials were getting rich. Even though there still was plenty of rice in the world. Two Americans hatched a plot to pop the bubble. Peter Timmer, the economist, and Tom Slayton, who follows rice markets for a living from his home in Alexandria, Virginia.
TOM SLAYTON: Peter and I decided we would, quote/unquote, save the rice market.
TIMMER: Tom called me up and said: Peter, there's one and a half million tons of very high-quality rice sitting in Japan, the WTO rice.
CHARLES: WTO as in World Trade Organization. To settle a trade dispute with the U.S., Japan has agreed to take in a lot of American rice that it doesn't really want. That rice just sits in warehouses. Japan is not allowed to export it unless the U.S. says it can. Timmer and Slayton started a lobbying campaign. They said to the U.S., let the Japanese sell this rice just this once.
In mid-May 2008, the U.S. agreed. And that announcement was enough. The price started to drop. By the end of the year, the price had fallen by half. In the end, none of the rice in Japan ever was shipped. The cause of the crisis was psychological and the solution was, too. But real people were hurt. And the fear that produced the crisis is still there. It's fear that the global system for delivering food to people who need it could go crazy again.
Dan Charles, NPR News.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.