Trade moves

It's easy to fill a blog entry on the never ending points of views concerning the Thai rice pledging scheme. Howver most of them are none too surprising, the only surprise is that it takes so long before they appeared. If only they would have been voiced before the progamme was instituted ...

Anyway, the real news is on the trade front. Today the Phnom Penh Post reports on Cambodia's disappointing export figures for rice. The first 10 months saw a rise of 0.5% in exports, which in view of the country's ambitions is very very disappointing.

'The reasons he [Hean Vanhorn, deputy director general of the Ministry of Agriculture, Forestry and Fisheries and director of the Single Window Secretariat in charge of facilitating milled rice exports] gave for the slow growth include competition from neighbouring countries, shifting demand in the world market for Cambodian milled rice, and the fact that rice milling in Cambodia has only just started. “This slow growth should be worrying,” said Hean Vanhorn.
 “The growth is so little that it is difficult to count,” he said adding that “the success of the government’s strategic policy depends on our common effort. It’s difficult for me to evaluate if the goal will be realised because I work from one side of the issue”. He said Cambodian milled rice has reached markets in 58 countries'.

If anything, the smaller numbers makes larger rises easy to occur.

Vietnamnet (15 Nov.) has interesting look at it's rice exports. With prices expected to weaken, Vietnamese traders are wishing to swiftly buy and sell their stock thus creating higher domestic prices.  
Likewise unofficial flows are heading out of the country to Thailand (via Cambodia) and China. It concludes: 

'... an increase in rice exports to Cambodia and China will do more harm than good as it might cause a shortage of rice for firms to fulfill their export orders. In addition, Thai and Chinese traders will use Vietnamese rice against Vietnamese rice in the global market'. 

Furthermore lights are shed on this (Vientnamnet, 14 Nov.): 

'Most recently, loyal rice import markets unexpectedly informed that they would not import rice more since the domestic consumption can satisfy the demand already. However, just one month later, Indonesian importers have come back to order 300,000 tons of rice.
Especially, some big Indonesian importers have set up offices in Cambodia, so that they can enjoy tax preferences as Cambodian businessmen.
“They buy farm produce in Vietnam and carry to Cambodia across the border, where they process and pack the products for re-exporting to Indonesia,” he said.
This explains why rice has been flowing to Cambodia recently in big quantities, while loyal markets have stated they have arranged enough rice, thus leading to the sharp falls of farm produce exports through official channels, causing the State failing to collect debts from the exports'.

Then again, Indonesia is also reported as buying rice from Vietnam! Major purchaser, Indonesia will buy 0,3 million tons from Vietnam as well another hundred thousand tons from Thailand (source). As they offer cheaper prices than Thailand!

The Phnom Penh Post (6 Nov.) notes flutuations in the price of paddy.  Governments response:   

'Mao Thora, secretary of state for the Ministry of Commerce, said he does not fully understand the situation surrounding the price of paddy rice and instead referred the questions to rice traders'.

Trade politics 
Thailand is apparently the only country left that believes it will still get a good price for it's massive rice stocks. Newsworthy because the USA Rice Federation believes dumping will take place and wishes the World Trade Organisation will initiate an investigation. This all according to the Nation (19 Oct.). It also notes:

'The US remains essentially locked out of the EU market with rice exports falling from about 300,000 tonnes in 2005 to average just 89,000 tonnes in 2007-11 after the 2006 discovery of the genetically engineered Liberty Link 601 trait in the US long grain rice crop'.

The only (vague) mention to hybrid rice in this update.

It's official, the Thai exporting nation has slipped to world no. 3 in the rice export statistics measured in volume, though still no. 2 in terms of value (BP, 25 Oct.). At least during the first 9 months of 2012.

Addressing the problem? Will there be a ASEAN rice cartel? Nation (29 Oct.) says next month. Furthermore the same source two days later mentions the outcome: 

'On rice cooperation, both sides agreed to continue to enhance working together on producing, processing and exporting rice. The idea to cooperate with Vietnam in controlling demand, supply and the price of rice on the world market was initiated originally by Thaksin's administration - but it never eventuated into anything.

In theory, it's impossible to have a cartel controlling rice trading on the world market. Although Thailand and Vietnam are the world's two major rice exporters, they would never be able to join hands to manipulate the rice price in the market. Rice is an elastic commodity which can easily be substituted by other kinds of flour. If Thailand and Vietnam managed to raise their prices, consumers could turn to other forms of carbohydrate. And there's no need to mention that Thailand and Vietnam are not alone in the market. Other countries are willing to dump rice if prices from the two countries were too high.

In practice, both countries have domestic pressure to release rice into the market as soon as possible after the harvest season. They don't need to consult each other on what price they should sell at. On the contrary, they have always offered cut-throat prices to retain order'.

The Bangkok Post (14 Nov.) mentions that despite the misgivings the government seems very intent on implementing their ASEAN rice block:

'The cabinet on Tuesday approved a proposal allowing the Commerce Ministry to form a rice trade partnership with Asean's four other rice-producing countries, namely Vietnam, Laos, Cambodia and Myanmar, to stabilise rice prices in the global market and to promote food security in the region. The plan involves the creation of a rice trade zone (RTZ) in Asean which is slated to be first implemented between Thailand and Cambodia with Cambodian paddy imported into Thailand, milled and then exported by Thailand on behalf of Cambodia'. 

Great, but has Cambodia given it's blessing yet? 
Elsewhere it adds:

'Paddy from Cambodia will be imported and milled in Thailand and then exported from Thailand on behalf of Cambodia.

The process will be controlled to prevent Cambodian rice from being mixed with Thai rice connected to the rice pledging scheme'.

A rare call (Nation, 1 Nov.) for funds to head to rice R&D. The logic behind the call fails me. Apparently because Myanmar has set it's future rice development to emulate Thai production, Thai productivity would need to rise. Again it's about economic returns. Thai rice consistently reaps higher prices, so less need to increase productivity.   

'Banharn [chief adviser to newly appointed Agriculture Minister Yukol Limlaemthong] suggested that hybrid rice strains should be developed and certified to cash in on market demand, particularly the new hybrid seed named Kor Khor 49, which is scheduled to be certified by early next year, to generate high yield of 1,000 kilograms per rai (6,250kg per hectare)'.   

Market demand? Which market?   

Pledge 
Even the Thai Finance Ministry officials are worried, that little will be achieved from the rice programme other than massive holes in their budget. The Nation reports (on 22 Oct.) that  it's advice is:

'To make the rice pledging scheme sustainable, the government needs to review the way it buys rice from farmers. The price should not be too much higher than the market, according to officials. The government promises to buy unlimited rice from farmers at an average price of Bt15,000 per tonne of unmilled rice.

The government was also urged to limit the quantity of rice that it will buy from farmers, as the open-ended policy has led to overproduction of rice and other farm products, officials said. For example, now farmers plant seven crops in each two-year cycle, up from five previously.

Since the government now has a monopoly in rice trading, it has distorted the market mechanism. Exporters and millers cannot buy rice at a reasonable price for trade. A few of them can win rice at government auctions, but that is because they have an unfair advantage over others, officials said.

The price support scheme also makes Thai rice more expensive than rivals' rice in the world market, leading to shrinking market share.

The scheme has also encouraged smuggling, as farmers in Asean countries can get higher prices by selling their rice to Thais.

The government should also consult with other agencies on conducting a comprehensive appraisal of the price support schemes to determine if they should be continued or changed, they said'.

'Outspoken economist Ammar Siamwalla on Friday lashed out at the government's "disastrous" rice-pledging scheme and dared former prime minister Thaksin Shinawatra to use his own money to speculate in the rice market`. 

Well said (Nation, 29 Oct.), but not to be expected. Politicians are only eager to use public money for (like in this case) personal gratification. More scathing:

'The scheme in the short run benefits rich farmers, but poor farmers representing 47 per cent of the total of four million farmer families got only 18 per cent of the gains, he said. Rich and middle-income farmer groups get the same share of the benefits, about 40 per cent.

In the long run, Thais and other people in Asia will consume less rice as their incomes improve, he said.

The effort by Thailand and other rice exporters to form a rice cartel similar to Opec's oil cartel would be an exercise in futility.

"It's a stupid idea", he said.

Rice is a perishable commodity. It cannot be stocked like crude oil, which can be kept underground, he said.

Opec is successful because Saudi Arabia, the largest oil exporter, sometimes cuts its production when others do not cut production as promised. But rice harvests flow to the market every year, he said.

The Thai and Vietnamese cabinets held a joint meeting in Hanoi on Saturday, but there was no solid agreement. They only decided to set up a committee to push for talks on rice trading.

As for how to stop the rice-pledging scheme, Ammar suggested it would self-destruct.

"When the fiscal [balloon] bursts, it may lead to the government's collapse … the government is playing a high stakes game," he added'.

If the government can't sell in the market due to it's own inefficiencies then new ways must be sought (Nation, 31 Oct.): 

'The Commerce Ministry is secretly arranging to sell the government's rice to local traders at below cost, aiming to clear up its overwhelming stockpiles rapidly in preparation for upcoming rice production under the pledging project'.

One not-so-secret is that either way, the government will have to sell at below purchasing prices.   

And now the rice scheme will be the feature of a graft probe? 

The Nation (15 Nov.) mentions  

'The National Anti-Corruption Commission (NACC) has agreed to conduct an in-depth investigation of alleged graft surrounding the government's rice-pledging project, after many complaints over questionable practices concerning the controversial scheme'.  

It also mentions this a by-line:   

'Meanwhile, the Commerce Ministry yesterday secretly tabled for the Cabinet's approval the proposed sale of 5 million tonnes of rice to China under a three-year government-to-government (G2G) contract, as part of the ministry's plan to release some of its stockpile'.  

Big secret if it is revealed a day later .... But alas, it's only a proposal, an intention to buy in the coming years ...  

A few days earlier (11 Nov.) the Nation had a graph explaining how net returns were not accruing to farmers as merchants and landlords were usurping the bonus.   

More bad nice for the rice pledging scheme. As always when one has payouts for product output achieved, those who can produce more, profit more. The Bangkok Post (13 Nov.) reports on a study by the Thailand Development Research Institute: 

'Mr Nipon [Nipon Poapongsakorn, a senior economist at the Thailand Development Research Institute] expects 65% of the fiscal compensation to reach 3 million farm households. But he noted that the data showed less than one-fifth going to low-income farmers, with middle-income farmers receiving two times the compensation of poor farmers. 

... 

He said another concern is that the pledging programme is an incentive for farmers to use pesticides and chemical fertilisers to quickly produce large quantities to pledge, instead of improving quality. Thai rice has lost competitiveness in terms of niches to regional countries'. 

It also notes that the profit margins are swiftly being eroded:

'The pledging programme has caused landlords to increase rental fees for farmers and fertiliser agents to raise prices. A dwindling number of farmers own land, with more than 60% needing to rent to grow crops'.  

Apparently it was a study day, as the Nation (13 Nov.) favours emphazising the impending higher public debt levels:

'Pridiyadhorn [former deputy prime minister] said the government had no shame, claiming that it had not yet sold the rice, therefore there had been no losses from the scheme to date'.