Rice prices nosedived today as Japan moved closer to unlocking its massive hidden surplus and bullish supply forecasts routed speculators.

The price collapse came as commodity experts called on Japan and the US to urgently unwind one of the biggest “invisible” distortions in global rice markets: a quirk of World Trade Organisation rules that obliges Tokyo to buy grain it does not need and effectively turns millions of tons of high-grade American rice into feed for Japanese pigs.

If that distortion were removed, said researchers at the Washington-based Centre for Global Development (CGD), and the 1.5 million tons of unwanted US rice were released from Japan’s storage silos, the crisis that has sent the price of the crop that feeds half the world would be instantly solved. Rice prices, suggested the group’s forecasts, could even halve between now and June.

Standing in the way of that, however, is a rule that prevents Japan from re-exporting its reserves of US rice without permission from Washington – permission that has not been forthcoming until now, but which The Times has learned may be just hours away from being granted.

A concerted political effort, said CGD researchers, would “prick the speculative bubble” that has recently sent rice prices into the stratosphere. “What’s needed now is a sudden surge of unexpected supplies…to reassure anxious countries and poor people around the world that there is indeed enough rice for everybody,” they wrote in a new report.

Benchmark rice futures indexes plunged 5 per cent on Friday amid a frenzy of sell orders that pushed the key contract below the $20 per 100lb mark. Traders in Tokyo and Hong Kong described a wave of panic among the “new money” that has streamed into global soft commodity markets in recent months.

Behind the sharp drop, which contributed to a 14 per cent collapse in the rice price over the week, were forecasts of a good harvest and suggestions that some of the recently imposed export restrictions on rice might be relaxed. Pakistan today said that it would allow 1 million tonnes of rice to be exported.

Traders warned, however, that many of the factors that have propelled rice prices to their recent highs remain in place. The destruction of Cyclone Nargis has effectively turned Burma from an exporter to the global rice economy to an importer and export restrictions from India and Vietnam remain firmly in place.

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