But it made eight million rice farmers -- and Pheu Thai voters -- happy
Just a year after Thailand's Pheu
Thai government introduced its controversial rice subsidy program, it has done
exactly what economists said it would do. It has resulted in Thailand's
possible loss of its position as the global leader in rice production, added
millions of tonnes to government warehouses, and kept the country's 8 million
rice farmers blissfully happy.
Now Thailand must try to figure
out what to do with its surplus rice. If it puts large amounts onto an
already-glutted world market, that would drive the price down further. Global
rice on 23 August was selling at US$580 per tonne, 44.1 percent below its
cyclical high and 0.3 percent below a year ago according to the United States
Department of Agriculture.
The country has led global rice
exports in the world for nearly five decades, with volumes increasing steadily
from 1 million tonnes in 1974-75 to more than 10 million in 2010-11. Its global
export market share peaked at 43 percent in 1988-89. Since that time, it has
still fluctuated between 25 percent and 30 percent at a period when the global
rice trade tripled, from 11 million to 33 million tonnes. China, the United States
and Malaysia have traditionally been the biggest importers of Thai Jasmine
rice.
Prime Minister Yingluck
Shinawatra's Pheu Thai government lived up to its campaign promise made a year
ago when it promised to pay rice farmers a 50 percent premium over global
prices. As a result, the rice pledging scheme, as it is called, caused farmers
to increase their plantings exponentially: "from fence to fence," as
one economist told Asia Sentinel at the time. Indeed, despite devastating
floods that inundated 20 central Thai provinces and cut rice production by an
estimated 6 million tonnes last year, the country still managed to duplicate
its 2011 production of 20.2 million tonnes.
Introduction of the Thai price
supports also caused the global price of rice to spike upwards by 25 percent to
near US$600 per tonne as other global producers took advantage of Thailand's
expenditures to price their own rice somewhat near the Thai price. The global
price has since drifted back down on plentiful supplies.
As far too many Asian countries
have learned to their dismay, putting a subsidy in place is easy. Dismantling
it is next to impossible. From Indonesia to Malaysia to the Philippines,
government attempts to reduce or remove subsidies on items as diverse as
cooking oil and petrol have often resulted in riots and badly damaged support
for the government. The government has been forced to buy as much as 10 to 12
million tonnes of surplus rice at least US$100 per tonne over world prices.
Nonetheless, a top Commerce Ministry official said earlier this month that the
rice pledging program would continue.
With Thai government prices well
above global prices, Thailand is no longer competitive, meaning trouble for the
rice milling and other export operations that depend on the global trade.
India surpassed Thailand as the
world's largest rice exporter, with overseas shipments of 3.61 million tonnes
at the same time Thailand shipped 3.6 million tonnes, a Thai slump in exports
of 45.8 percent. It appears likely that Vietnam will also surpass Thailand as
well, having shipped 3.52 million tonnes as of July 10.
Whether India and Vietnam will
continue to top Thailand is uncertain.
"Is this the end of the
dominance of Thailand in the global rice market," asked Dr Samerendu
Mohanty, an economist with the International Rice Research Institute in Los
Banos, Philippines. "The answer to this question is not a categorical
'yes' or 'no.' It depends on developments on several fronts. If Thailand
disbands its pledging program, it will keep its top post, at least in the
immediate future."
However, Mohanty said, even if
the country were to drop the pledging program, Thailand's stay at the top could
be short-lived. Myanmar, which under colonial rule was perennially the world's
top rice exporter, is emerging from its decades of disastrous socialist rule
and is projected to begin modernizing its agricultural sector. Cambodia as well
is endowed with fertile lands and a favorable natural environment. Both can
expand their production and take away market share from Thailand, Mohanty said.
In particular, the government
established the Myanmar Rice Industry Association in 2010 by merging producers,
traders, and millers associations, aiming to speed up the development of the
sector by attracting private investment and raising the sector's concerns to
the government. It has also passed the right to export from government hands to
private enterprise.
India has undertaken similar
measures to rationalize its rice sector and shows no sign of giving up its
primacy and a rice producer, and particularly has switched some of its
production from basmati to milled white rice--Thailand's mainstay--although
Thailand rice quality remains the best in the world.
Quoted prices for Thai white and
parboiled rice were higher by nearly US$200 per ton than their Indian
counterparts during the initial months after India's resumption of non-basmati
rice exports. Although the price difference has narrowed with the steady
decline in Thai price quotations in recent months, the price difference still
remains around $100 per ton, Dr Mohanty said.
India, the economist continued,
is emerging as the frontliner in agriculture in general and could become a
global food basket, an astonishing accomplishment for a country that for
decades, perhaps centuries, has been plagued with starving millions. However,
India?s big problem seems not to be growing enough food but of distributing it
to its poor. Stories have abounded of rotting tonnes of food while people
starve in close proximity to the rotting produce.
Both Myanmar and Cambodia must
overcome many obstacles, including poor infrastructure -- port facilities,
roads, irrigation, rural electricity, etc., inadequate availability of credit,
inputs, and quality seeds; and other supply chain constraints before the
presence of either will be felt in the international rice market, Mohanty said.
"In the end, it all depends
on how fast the global rice trade expands. If global rice trade volume follows
the trend of the past two decades, it is possible to have enough maneuvering
space for all exporters, including the new entrants," he continued.
"Hence Thailand will continue to hold on to the top position. But
irrespective of what happens to Thailand's status in the global rice market, it
is exciting to see the prospect of new exporters in the rice market. This will
definitely bring more stability to the market and improve global food
security."
John Berthelsen
Business & Investment Opportunities
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