Hunger and financial losses. These are the consequences of highly
volatile prices of rice.
Both consumers and producers find
the extreme swings of prices to be bad news as these cause uncertainty.
Governments are concerned because of the adjustments their economies and constituencies bear.
However, if Southeast Asia takes
several steps, like veering away from self-sufficiency targets in
rice-deficient countries, it should be less vulnerable to the price pendulum,
says a new report from the Asian Development Bank (ADB).
The Association of Southeast
Asian Nations (ASEAN) is less vulnerable to extreme price volatility if it
pursues a deeper trade strategy, maintain rice stocks and correctly interpret
market information, says University of the Philippines School of Economics Dean
Ramon Clarete, the author of the report.
ASEAN groups Brunei, Cambodia,
Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and
Vietnam.
When global rice trade is thin,
importing and exporting countries turn inward, causing a resurgence of rice
self-sufficiency programs, Clarete observes.
The rice crisis in the 1970s and
in 2007-2008 pushed rice-deficit governments to chant the self-sufficiency
mantra, not so much as a political must-do but also as an insurance against
lean days.
Clarete calls it “inward
orientation” that was observed even among rice-rich – and exporting –
countries. India and Vietnam in 2007-2008 disrupted exports to keep domestic
rice prices locally affordable.
Clarete argues that the
self-sufficiency strategy raises the cost of rice security.
Trade restrictions exacted a higher price for
food security in all countries concerned, he says, adding that panic buying by
key importing countries such as the Philippines played a key role in the rice
price bubble in 2007–2008.
The total supply shortfall was
estimated at 2.87 million metric tons (mt), which raised world prices by 60.9
percent. Accelerated purchases of major
rice importers in the first four months of 2008 in reaction to the
supply shock added 65.4 percent to the price spike.
The combined effect of trade
shocks, which amounted to 126.3 percent year to year, contributed significantly
to the actual change in world prices from 117 percent to 149 percent.
A more desirable solution,
Clarete says, is for ASEAN to find mutually beneficial arrangements to cope
with the risks.
One arrangement is to gradually
reduce self-sufficiency targets in exchange for import guarantees from rice
exporting countries.
In return, exporting countries
gain new markets from the purchase commitments of importing countries, Clarete
points out. “This has the potential of deepening the regional rice trade and
makes the region better prepared for supply or demand shocks.”
Misreading the market is part of
the problem, says Clarete whose research interests are agricultural economics,
development economics, multilateral trade
policy, international economics and public economics.
“Gathering, analyzing and
disseminating market information are important tasks for correcting cascades of
wrong information about the situation of the market, and preventing a
self-fulfilling price bubble,” he says.
Rice stocks are also needed in
building confidence in the rice trade. To expand the regional rice reserve
system, ASEAN and its Plus Three partners (China, Japan and Southin Korea) may
consider initiating a dialogue with Bangladesh, India and Pakistan on the proposal for an ASEAN Plus
Six emergency rice reserve that includes these countries.
ASEAN has already established the
ASEAN Plus Three Emergency Rice Reserve System (APTERR) which includes all 10
ASEAN member states plus China, Japan and South Korea.
Under the APTERR
agreement, signed in October 2011 in Jakarta and effective July this
year, each member country will maintain country reserves to stabilize price and
stock for emergencies.
Clarete suggests that Thailand
must also decouple its rice pledging program which provides disincentives
to its
exporters and reduces rice exports. The farm price subsidy is about $500
per metric ton of milled rice; this means that all rice in Thailand is priced
twice that of the world market.
While Thailand may be able to
pass some of that cost to the world market, its capacity is limited. Other large rice exporters such
as Vietnam – and India and Pakistan – do not need to make world rice consumers
pay beyond the production cost of rice, the ADB report observes.
Thus, it says, Thailand is priced
out of the market and some of its rice gets diverted to the domestic market or
to the warehouses as rice stocks. According to the Thai Rice Exporters
Association, Thailand is losing continuously rice export revenues since late
2011 after the start of the pledging measure. As of May 2012, exports are down
by 43.1 percent or 2.86 million mt.
“It may be easier for Thailand to
decouple its support to its farmers in order to remove the export restrictive
character of the pledging program,” Clarete points out.
PAUL M. ICAMINA
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