The United States and Japan are poised to strike a deal that will remove one of the most widely reviled distortions in global rice markets and could send prices plummeting in the coming weeks.

The move, which will flood the market with an estimated 1.5 million tonnes of high-grade American rice that is sitting in Japanese silos, comes amid continuing rice export restrictions by some of the world's biggest suppliers and rioting in countries where the population cannot afford the price increases.

Senior government sources in Tokyo told The Times that Japan had received permission from Washington to begin exports from its giant, but largely hidden, mountain of unwanted American rice to countries that need it most. The exposure of the vast Japanese rice surplus has emerged as one of the chief imbalances of world rice markets and an effect of the complex and wasteful lattice of rules, subsidies and pacts that have knocked global agriculture markets so badly out of kilter.

Rice experts say that the move could defuse temporarily one of the principal catalysts of the food-price crisis - the perception that the world is running out of rice - and the panic and hoarding that has accompanied it. With commodities traders sniffing that a US-Japan deal was imminent, rice futures ended the Asian trading week in a dramatic nosedive as the prospect of a sudden supply surge and bullish harvest forecasts routed speculative money from the market.

The collapse came as think-tanks and food 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 (WTO) rules that obliges Tokyo to buy rice it does not need and that eventually rots in storage. The WTO rule, its many critics say, effectively turns millions of tonnes of high-grade American produce into feed for Japanese hogs and chickens.

Researchers at the Washington-based Centre for Global Development (CGD) said that if that distortion were removed, and the 1.5 million tonnes 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 surging up would be solved instantly. The centre has suggested that rice prices could halve by the end of the month.

Standing in the way of that, however, has been a rule that prevents Japan from re-exporting its reserves of US rice without permission from Washington, which has not been forthcoming until now because of the fear of domestic political repercussions from the US rice industry.

A concerted political effort, CGD researchers said, would prick the speculative bubble and the hoarding mentality that has sent rice prices into the stratosphere. They wrote: “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.”

Benchmark rice futures indices tumbled 5 per cent yesterday amid a frenzy of sell orders that pushed the key contract below the $20-per-100lb mark. Adding to the sharp drop were forecasts of a good harvest, which contributed to a 14 per cent fall in the rice price over the week.

Traders gave warning, however, that many of the factors that propelled rice prices to their recent highs remained in place. The cyclone in Burma has effectively turned that country from an exporter to an importer or rice, and export restrictions in India and Vietnam remain in place.

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