Unravelling

We could easily fill this blog with 100+ references to what now looks like the end of free handouts for Thai rice farmers. But I won't.

What I will do is try to recap:

Thai politics are thwart with vote-buying. Very often dressed up neatly, launched as a so-called policy, the objective is to hand out cash, with the confidence vote required in return. With most of Thailand's farmers dependent on rice (to a varying degree), a guarantee price was set up, above and beyond what could be expected. The government became the buyer and was only waiting for the international price to follow suit so that the government could off-load it's stores and even make a profit. A win-win situation.

Not. Besides inefficiencies in the process (where did the international rice trader go?) and the stimulation of graft, the rice pledging scheme has run into problems because the price will go down. And will head further south once (or if?) the silo's will be emptied.

In the end all we can say is that rice growing in Thailand was stimulated. Additionally, internationally, prices of rice stabilised, so many consuming countries will be sending a new greetings cards later on this year to Thailand.

But governments shouldn't intervene in commercial processes. And certainly not governments who have no idea what they are doing, who are susceptible to short-term gains and function in an environment where taking say a 10% share of whatever passes along is commonplace.

The beginning of the end?

And things were going hunky-dory. Yeah, there were a couple of blips, a lot of blah blah (opposition jealousy, soothsayers predicting a worse future), but in general things were going well. Farmers (and voters) happy, what more could a government wish for?

And then in steps the international financial community. The same guys that failed to see the current global economical mess, suspected that Thailand might be less well-off (financially) than they thought themselves; the government was only buying / buying and nothing was being sold. And rice is perishable. 

The response: liars! Bangkok Post (June 6):

'The agency [Moody's] noted the losses could exceed 200 billion baht for 2011-12, more than double the Finance Ministry's forecast of 70-100 billion baht. Mr Niwatthamrong [PM's Office Minister], however, said this estimate was exaggerated. He said the 200-billion-baht figure was most likely the amount of money the government spent to purchase rice from farmers rather than the loss incurred'.

The Thai government then goes into overdrive to point out that losses are nowhere as great as that (source). In fact (Nation, June 8) the scheme is still on-going so only when completed will we [Thai tax-payers?] know what the exact cost was.

For more info on the Moody's vs Thai government visit Asian Correspondents background articles pt 1 and pt 2 (!).

But just in case Moody's are correct let's start lowering the intervention price. Or the prelude to political suicide.  Now your supporters are totally cranky.

Bangkok Post (June 10) reports on the possibility of lowering the price by a third, a move by the government, oddly supported by the Thai Farmers Association (TFA):

'Earlier, Prasit Booncheuy, the [TFA] association's president, said a price of 10,000 baht per tonne, down from 15,000 baht a tonne, was acceptable. "Most farmers are willing to accept the lower price. Even though the government offers 15,000-20,000 baht per tonne, the farmers don't get paid fully anyway because of corruption," he said'. 

And we now know that the main reason why the price needs to go down. It's not because of the failure of the system. No, it's the Thai baht's strength (Bangkok Post, June 13).

Lost losses But after testing the waters (are you crazy?), the price will only drop marginally (10-20%) according to reports on June 16 (Nation, Bangkok Post). But nowhere in line with world market prices. Both sources en-passant let readers know:

'The loss of 136 billion baht was based on all expenses in the rice-pledging scheme in its first year _ the 2011/2012 crop year _ including management costs, interest and the estimated value of remaining'.

And more know-how gained:

'Boonsong [Commerce Minister] had earlier said government-pledged rice seeds sold in 5-kg bags at major superstores were safe to eat [or not?] despite being treated with pesticides after the safety time limit. The chemicals are safe after 48 hours for the first type, and 57 days for the second type, and eating this rice after the safety period is not hazardous to health, he said'.

But this has translated into more stringent checks on incoming rice imports in the US (Nation, June 28): 

'The US FDA has ordered every port such as in New York and Chicago to confine Thai rice for random inspection. If the agency finds Thai rice with problems such as contamination, fungus, mold, or over-fumigation five times, the importer would be ordered to refuse Thai rice from exporters.

The source said that such stringent inspection has created concern among American importers as well as Thai rice exporters. Importers could easily turn to order rice from other rice export countries such as Vietnam and Cambodia'.

The article continues to see the flaws in the government intervention:

'Meanwhile, the Commerce Ministry's special taskforce, with cooperation from the Crime Suppression Division, acting against corruption and misconduct in the public sphere, undertook inspection of 2,000 warehouses nationwide and found rice missing from the government's stocks in many provinces'.

Paying the price

Farmers though will suffer from lower prices. The higher prices have meant that land rental values have gone up, eating into the potential profits of farmers (Nation, June 11). The same applies to other inputs. The Nation (June 27) continues:

'Cash return reduced from over Bt3,300 per tonne to Bt360 a tonne, according to BioThai estimates'.

With lower prices on offer these fixed costs won't get cheaper suddenly. So (poorer) farmers will stand to loose substantially. Hence the start of a season of discontent (Bangkok Post, June 19, June 21, Nation June 21, Bangkok Post, June 26, Nation June 26, Nation June 28). The Bangkok Post (June 23) adds:

'Meanwhile, a Bangkok Poll conducted on June 18-20 by the Research Centre at Bangkok University, suggests the prime minister's popularity has plunged. The survey of 1,234 respondents showed the premier's approval rating is now 40.4%, down from 51.2% in November'.

Then comes false securities. Thai government will raise the price once global prices will pick up (Bangkok Post, June 25). Which is unlikely, especially with enormous Thai stocks hovering above the market.

Making hay

My apologies for the above, the intention was to keep it short ...

In the meantime Cambodia is (in absolute terms) slowly making gains in the international market. The Cambodian Daily (June 10) reports on rice exports doubling. Reasoning:

'European countries figure prominently on the list thanks to the European Union’s Everything But Arms trade scheme, which allows Cambodia to export—as the name implies—everything but weapons to member states both duty and quota free.

President of the Federation of Cambodian Rice Exporters Kim Savuth attributed the growing exports to better quality of the product'.

Surprising news (Nation, June 19), Vietnam is to stockpile it's rice produce. Nowhere near Thai dimensions, but still, why try to outsmart the market and lose a wager? 

While Thailand's exports dip, those of Vietnam continue their ascendency (VNS, June 5). And oryzae.com notes (June 28)  that it's own index is nearing a 2 year low, with little or no hope for higher prices. 

Finally

Research on hybrid rice in South Asia concludes that adoption rates are higher with richer farmers but once poorer farmers adopted hybrid rice, the percentage of on-farm consumption was higher for poorer farmers. Which seems logical (source).

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'.

Fruition

Trade

Despite the poor progress of reaching Hun Sen's goal, it is noted that Chinese banks might just be willing to plough is some cash ($70 million?). PPP (27-08): 

'Son Kunthor, president of the Cambodian state-owned Rural Development Bank, told the Post that his Chinese counterpart proposed the establishment of $70 million in loans for rice milling, which would enable the production of between 270,000-450,000 tonnes of unmilled rice'. 

The bad news: 

'“This is their plan. We don’t know how much about it or if it will come to fruition, because first there are some conditions the government needs to ensure,” he [Son Kunthor] said'.

Hope to fulfil the dream is now heaped on Indonesia. An MoU was signed between Cambodia and Indonesia which would see 100,000 tonnes of rice head to Indonesia (PPP, 29-08). But ..., there's no timeframe, nor an exact amount. A respondent to the article questions the price to be received (higher than that of Vietnamese sourced rice?) as well as the shipping possibilities:

'how the rice will go to the port of loading ? as no vessel with rice was ever loaded in Sikhanoukville by any cambodian exporter . are these 2 gentlemen [Cambodia’s Minister of Commerce and Indonesia’s Trade Minister] on the photo asking themselves these questions'. 

Probably not. 

On the other end the Jakarta Post reports the signing on a non-binding agreement. An agreement meant as encouragement for Indonesian businesses to set up shop in Cambodia. It mentions the company Galuh Prabu Trijaya with extensive interests in fertilizer supplies. 

However background info on the company is scarce. Alibaba suggests 

'We are sole distributor of rice origin from Cambodian competitive price with Jasmine type and else We have hulled rice the best quality'. 

Quite.

Then the Jakarta Post (31-08) actually has an achievement to present:  

'Khy Thay Corporation, a Cambodian rice miller, said it was ready to ship up to 20,000 tons of rice to Indonesia starting this year and to buy Indonesian agriculture machinery valued at $380 million'.

Khy Thay? 

'Khy Thay is a family company established in 1930, which buys rice from farmers and sells it, husked or unhusked, to Thailand and Vietnam. The company oversees a farmers’ association with 1.2 million members, each of whom owns about a hectare of land'.

Hmmm, 1.2 million? Now I remember this figure. 

'Prabu Galuh Trijaya is the Indonesian partner of the Khay Thay Corporation'. 

But thinking practically: 

'Vietnam might try to squeeze out Cambodia, following its deal with Indonesia, by cutting short its sack supply,” Ika [ Prabu Galuh’s director] said, “This is a big opportunity for any Indonesian company to supply the sacks or even build sack plants here.”'

Finally back to China: 

'Cambodia expects to export around 300,000 tonnes of milled rice to China per year, Minister of Commerce Cham Prasidh said during the 44th ASEAN Economic Ministers Meeting in Siem Reap'. 

No idea as to when the expectations will be fulfilled, as reported by the PPP (30-08). 

Reality check.As an annually occurring event? The Phnom Penh Post (21-08) report Drought hits Cambodia. And then adds rice exports:

'The report [Econony and Finance Ministry’s review on the promotion of paddy production and rice exports during 2010-2011] listed expectations for 2012 to reach only 180,000 tonnes, equal to 18 per cent of the Kingdom’s 2015 export target of one million tonnes'. 

Reasons? Only a vague reference to drought-like conditions in the west of the country ...

Price surge?

ODI have forecast near-record level global rice production brought about by better monsoons over the Indian sub-continent. this may well imply lower prices, if ....

A sidenote on the price crisis. The Independent (01-09) notes that Barclays Bank made 500 million pounds on the futures market in the past years. Another company involved, Glencore, was quoted 

'... describing the global food crisis and price rises as a "good" business opportunity'. 

An official bank response: 

'The bank defended its actions, pointing out that trading in so-called futures contracts – an agreement to buy or sell a certain quantity of a product, at a given price on an agreed date – helped parties such as farmers and bakers to hedge against the risk of rising or falling prices. "Our clients include investment companies, food producers and consumers who, among other things, seek our help to manage risks"'. 

And whoops: 

'Barclays Capital analysts admitted in a note to clients in February that speculation did push up prices. Barclays said: "The second key driver is that commodity investors have begun allocating to commodities again after beginning 2012 heavily underexposed to the sector."'. 

A few days later (sept 5) the Independent quotes OXFAM as believing that climate change could well lead to more cereal price spikes in the future. Surprisingly all agencies quoted are calling for more investment in production. And here I was believing that strategic reserves would be the answer ... Now where did I read that rice prices were stable  for most of the year because of reserves/stockpiling in Thailand, India and China ...

Well, not in the following:

'The Asian Development Bank yesterday pointed out that Asean nations could help avoid world rice-price shocks by reducing export restrictions, placing less emphasis on self-sufficiency, retooling Thailand's rice-pledging programme and expanding coordinated rice policies with India and Pakistan.

Thailand is projected to return as the world's top rice exporter, but its pledging scheme, which guarantees farmers a higher-than-market price for their crops, provides disincentives to its exporters, resulting in the steady decline of rice-export revenues since late last year. As of May 28, exports were down by 43.1 per cent or 2.86 million tonnes, according to the ADB's working paper'. 

As reported in the Nation (31-08). 

Anyway, Cambodia has nothing to fear, come price surge and all; at least that was noted in the PPP (11-09): 

'Nina Brandstrup, FAO representative in Cambodia, said the high level should not be considered too dramatic'. 

And 

'“On balance, we are pleased that the food index remains stable, and expect it to turn down in the near future,” Peter Brimble, ADB deputy country director for Cambodia and senior country economist, said'. 

Oh well, so much for the concern about rising prices.

Follow the lead
Rice pledging. The Thai government seems to be convinced that it has signed deals worth 7.3 million tonnes (the Nation, 13-09). Only 4 million tonnes to get rid of, apparently. No word on the price agreed, so it is only guessing how much the scheme is actually costing the Thai taxpayer. 
The same source also reports the need to refinance the scheme. The Bangkok Post (13-09) simulataneously notes that the rice has been sold, but exporters believe that only 0,2 million tonnes have actually been sold. Suggestions are that if there were done deals these were at below market prices.

Meanwhile. Opposition in Thailand blames the government for falling agricultural prices (Nation, 23-08). Prices of rubber, palm oil fruit and coconuts have dropped considerably without the government able to do anything about it. 
That's how the economy usually works. 
The opposition though refrain from comment on the rice pledging; obviously farmers are getting better returns. The losses will befall to the government. But that is entirely a different matter.

Back on the ranch. The Bangkok Post (17-08) has an interesting article on a recent study of rural debt. Household debt levels are increasing 6% per annum, partly being driven by the government rice pledging scheme which is leading farmers to take out more credit to pay for farm inputs. As the lender is often informal, post-harvest there is often is a mis-match between achieved pluses minus the outstanding plus interest.

'The survey showed the government's agriculture measures did nothing to improve farmers' lives'.

So much for the heralded government input.

Wrapping up session

The ADB also contends that Laos will become a rice exporting nation, report by the Vientiane Times (7-09): 

'The Asean and Global Rice Situation and Outlook, which was released on the ADB's website recently, shows that Laos will be able to shift its status from rice importer to a minor rice exporter over the next 10 years, if it can maintain the growth rate of rice production above the growth rate of consumption'.

Hybrid rice; SL Agritech wants to expand from the Philippines big time. Their partner in Thailand would be Capital Rice to which SL Agritech will bequeath hybrid technology apparently without anything in return (source). 
Capital Rice make no mention of the link, but I do see that Capital are wanting in on the Cambodian market.

Nuts. Cashews. PPP (24-08) reports on cashew selling, by pointing out that Vietnam demands more nuts. Somehow demand is believed to be up, but prices are down. Not economics? Or poor reporting? 

Crisis?

If only ...
Since the last update 3 weeks back the Pandora box of disassociations concerning the Thai rice pledging system has fully opened. It would require a  taking on as a day job all the links and reports that have popped up since then; so what follows is just a recap:

• 28-7 This years programme may set a ceiling on the pledges per farmer (BP; note 20+ comments!).
• 30-7 TDRI report in the Nation that exports from Thailand have halved; shelve the current pledging system. BP highlights the fact that maybe more than 1 million tonnes pledged are actually from neighbouring countries, while 2 million+ may well have been double pledged:

  'He [Nipon Poapongsakorn, president of the Thailand Research and Development Institute (TDRI)] suspected that about 1 million tonnes of the discrepancy might have been smuggled from neighbouring countries by local traders to take advantage of the high prices offered by the pledging programme'.

  Again huge amounts of comments.
• 2-8 Nation is alarmed by Thailand losing it's position as the globe's no. 1 exporter. It quotes the Thai Commerce Minister as saying that farmers are satisfied, we don't care about the no. 1 position. The article which seeks farmers who profit does throw in a political angle: losing the no. 1 position might hurt the political position of the government of Phue Thai party.
• 2-8 BP mentions there will no lower limits to bids for exports. It is hoping for $700 a tonne!
• 4-8 BP focuses on government anti-corruption plans. High on the list are the rice pledging scheme.  Quote from the PM: She is concerned.
• 7-8 The BP has done the work, or better has found out that the government already knows. It points to millers / warehouses which use all kinds of fraudulent measuring equipment and use fake certificates. It also alleges that public organisations are involved. Even more comments.
• 7-8 The Nation declares the government policy is driving foreign ownership of rice lands. At least so the title makes believe. But then the article declares the oppoisite. Or not?

  'An investigation by The Nation, however, has found little support for such charges in the prime rice-growing Central region. Still, farmers, millers and exporters all say the government is losing control of the agricultural sector because farmers are being lured into selling their land to rich people, who are now growing rice to enjoy higher returns'.

  Running in the same issue it contradicts its own claims by giving voice to 'farmers and trade bodies' who claim that government policies

  '... is distorting prices, benefiting the rich as well as foreign investors, damaging the Kingdom's competitiveness and discouraging the long-term development of Thai rice'.

• 8-8 The BP echoes the former report:

  'Ammar Siamwalla, honorary economist at the Thailand Development Research Institute (TDRI), said the rice pledging scheme was "pro-rich and anti-poor", with high pledging prices raising the cost of living for the entire public'.

  Again 30+ reactions.
• 10-8 The government also claims the rice-pledging system promotes frauds according to the BP, so nothing new? One aspect which might be overlooked is to how to end this scheme. There are certainly no takers!
• Continuing it has the whole pro's and cons as it's highlight of the week.

  'Mr Korn [former finance minister of the Democrat Party] harshly criticised the scheme as a big waste for the taxpayers’ money while benefiting rice millers, landlords who lease their land to farmers, corrupt politicians and only a minority of farmers. But Mr Kittirat  [Deputy Prime Minister] defended the scheme as being beneficial to the majority of farmers and said it will not be dropped or reviewed'.

  It also adds:

  'Meanwhile, the United States Agriculture Department will send its experts to Thailand to study the rice pledging scheme to determine whether the government is distorting market prices'.

• 11-08 The BP now somehow has more news:

  'Huge losses loom in government rice sell-off - Mills overloaded with pledge scheme stocks.

  Somehow this is not news ...
• 13-08 The Nation reports how a parliament panel inspected a couple of mills in central Thailand and found them lacking, i.e. easy to defraud the scheme.
• 14-08 Despite the misgivings, the wheels are being set in motion to pledge the upcoming crop. Over 260 billion Thai baht is required according to the BP, roughly 8 billion $US. One can just imagine how much can be lost to fraud and poor trade policies. The same day, the same newsreel announces that a solution to the warehouse problems is to build more storage capacity. No price tag though ...
• 16-08 BP announces tinkering the scheme will take place so as to placate opponents.

Clearly the last word on the pro's and con's has not been said yet. For the global consumers the huge amounts of rice stocked will need to be marketed some day. The apparent gamble on prices going up seems not to have paid off. At best prices have stabilised. The lonnger term outlook remains unclear according to FAO. This compares to maize prices going to record heights, closely mirrored by wheat prices. For an article on recent developments the Financial Times ( 31-07-2012).

Other export news, Vietnam wants to limit the number of export companies, so as to increase quality, so it seems. Possibly more bad news for Thailand (source). This is echoed in the Businesstimes.vn.

IRRI is still focussed on feeding the needy and seems to only be able to answer their mission with hybrid rice. It notes that more and more research is undertaken in more 'tropical countries'. They also have an interview with Longping Yuan. In the process they manage to downgrade the expectations of increased hybrid yields from 30 to 20%. He also mentions poor suitability to tropical countries. Most of the advantages he mentions only apply to China.

Odd, Thai exporters are sourcing Cambodian and Vietnam rice to supply to African countries as their own rice is unavailable! (source)

On a side line, cashew exports seem to have increased 10-fold according to Phnom Penh Post (31 July 2012). Or have the statistics just changed?

Ill tidings?

Umm, we have a problem

Thai government involvement in their rice market was predicted to be ill-conceived; the surprise lies in the fact that it has taken so long to become apparent.

On the face of it, guaranteeing farmers a base price for their produce, always seems to be working for farmers. With rice growing in Thailand traditionally dominated by smallholders, it's them who stood to profit. But the higher prices guaranteed by the government may not have always trickled down.

However the plan to guarantee the prices hinged on the ability to market the produce. Governments are known to be poor market players and the fact that they created a near-monopoly is certain to contain its' hiccups.

Now, the rice pledging scheme is regarded as a disaster, according a report run by the Bangkok newspaper the Nation (July 26, 2012):

'Rice industry, already lost the title of world's top exporter to India, is heading for disaster in the next few years due to a lack of proper strategic management of the rice-pledging scheme and the country's exports, the Thai Rice Exporters Association said yesterday'.

Why? Because of the high stock position the government has as well as with the drop in export value, further pledging would only be possible if the government would start to destroy the current stock. Exporting has become infeasible; the gap left by the Thai government willing to wait for higher prices has been taken by many other nations who will be less willing to let the Thai steal their newly gained markets.

'The industry is approaching a deadlock situation, as the government and millers would be unable to shoulder the high volume of rice in the stockpiles if the pledging continued. The Kingdom would lack the financial resources if taxpayers had to shoulder rice-price subsidisation on a never-ending basis, he said.

Vichai [honorary president of the Thai Rice Exporters Association] said the excessively high price of Thai rice had forced some exporters out of business, while millers would also have to pull out if unable to sell to exporters and being faced with overstocking because of their having to handle government stocks'.

Surprisingly the Bangkok Post turned up to the same press conference and seems to come to a milder view, failing to produce any of the quotes above; their summation:

'Thailand's rice industry will collapse unless the government takes more constructive actions by releasing rice from its huge stockpiles, chief of a local rice exporters association warned'. 

Less political is their editorial from the same day which accuses the Commerce Ministry of 

'lack of transparency and perceived penchant for secrecy'. 

It adds wide-scale corruption, now that wasn't expected. Their call for action:

'What is puzzling and incomprehensible is why the ministry is still holding up the rice stocks and not steadily releasing them from the warehouses through open bidding in a transparent manner. In this way, the price would not be suppressed too much and the loss not so prohibitive'.

And today the Bangkok Post surprises it's readers with some old news:

'Thailand is set to lose its status as the world's top rice exporter to India, ending nearly 50 years in the top spot, says the US Department of Agriculture'.

The report dates are July 12. But then again there's really nothing to report on. You not no 1? Live with it, nobody really cares.

Despite this the government is brimming with confidence:

'In a separate press briefing, Yanyong Phuangrach, the commerce permanent secretary, voiced confidence that full-year rice exports will reach 9.5 million tonnes.

"Of this, 3 million tonnes will be government-to-government (G-to-G) contracts," he said.

The total includes contracts with Indonesia (1.5 million tonnes), Iraq (660,000 tonnes), Ivory Coast (240,000 tonnes) and various other African countries (2-3 million tonnes) plus 1.5 million tonnes on the premium rice market.

So far, the ministry has yet to export any rice under the G-to-G deals.

...

"The pledging programme is aimed at raising rice prices, and the government has achieved that goal," he said. "We do not mind carrying losses."'.

We shall see. It also adds this mystery:

'Niphon Poapongsakorn, president of the Thailand Development Research Institute, questioned the sources of locally sold and exported rice.

Thailand produces 30 million tonnes of paddy, but 17-18 million tonnes are in the state's stock, he said.

His suspicion is the pledged and exported rice may have come from Cambodia and Vietnam'.

More markets

Meanwhile in Cambodia, the government is facing it's own struggles in seeking markets. Phnom Penh Post (July 18,2012)

'“We have no interest in the Philippines market any more as their government has issued a new policy that by 2013 the country should be able meet its own supply requirements for milled rice and may even export some starting next year. We do not need to rely on the Philippines — there are other markets”, he [Cham Prasidh, the Minister of Commerce for Cambodia] said during a meeting at the National Assembly yesterday'.

One ploy is to dust off the idea to counterbalance OPEC with a rice-exporting association of exporting countries (Phnom Penh Post 19 July 2012) 

'“The five countries [Cambodia, Laos, Thailand, Vietnam and Burma] will be the world’s food supplier – what we could call the food basket of the world,” said Minister of Commerce Cham Prasidh. “We would be able to supply the whole world. We would not increase prices but try to find a way to facilitate trade with [other countries].”

Hun Sen has theorised that the rice-exporting power of such a bloc could become a bargaining chip in negotiations with OPEC, according to the minister'.

Theory and practice, hmmm. 

Well it didn't work 5 years ago and nobody believes in it now, so not much to expect. Anyway there is no mention of where this current interest is coming from. 

But guess what? It's Bangkok that needs the cooperation. This is just another way of trying to maintain current prices (Bangkok Post 12 July 2012).

'The hope is cooperation will help to raise prices and attract farmers' offspring in the region to the career'. 

Hope and prayers.

By the way, how did Laos get involved?

Locally, the Phnom Penh Post (17 July 2012) reports on a local mill to be established with Indian backing: 

'Long Grain Co Ltd announced the deal last week for a $20 million investment in a new rice mill in the Oddong district, about 40 kilometres from Phnom Penh'.

Hybrids and trade

An interesting article from Pakistan which seeks to explain that the drop in rice export value is attributed to the growth in coverage under hybrid rice.

'The export of rice in terms of volume has declined by 9.1 percent during 2011-12 over the previous years largely because of promotion of hybrid rice by the private sector instead of Basmati rice.

...

An official of Ministry for Food Security and Research on condition of anonymity attributed the decline in rice export to the promotion of hybrid rice in the country. 

...

He said farmers preferred growing hybrid rice due to its high yield and if the government failed to arrest this trend, the production of local Basmati, pride of the country, could dwindle considerably and the country's rice exports could be seriously affected. Hybrid rice is neither a valuable product in the international nor in the domestic market'.

Other crops

Not only is rice facing downwards market conditions combined with cross-border difficulties, so does cassava, as reported by the Phnom Penh Post (23 July 2012)

'The decease is a result of that previous year’s yield fetching a low price and farmers having no place to store cassava after harvesting, resulting in damage to the produce and a lower quality yield which traders showed no interest in, he said.

In April a shipment of 1,600 tonnes of cassava was blocked at the border to Thailand but was eventually let through once the traders had been granted expediated licenses for the sale of cassava.

Other difficulties have plagued Cambodian cassava growers, such as Thailand requesting Cambodia to curb its exports to the neighbouring kingdom in an effort to maintain Thailand's own high prices'.

Rubber seems to be less affected with dropping prices, as the export volume of Cambodian rubber has increased (PPP, July 26, 2012):

'The Ministry of Commerce’s statistics show rubber exports increased 1,106 tonnes from 21,511 tonnes to 22,617 tonnes in the first half of the year, though the value decreased 28 per cent year-on-year from US$102.2 millions last year to $73.5 million for the first half of this year'.