May 7 (Bloomberg) -- Until last week, the next oil -- the critical resource growing ever scarcer and prompting desperate behavior to ensure supplies -- was water. Turns out, it's rice.
That's at least what some Asian leaders think. Hence a plan in Southeast Asia to create an OPEC-like cartel to manage rice supplies amid record prices. Thailand and Vietnam account for almost half of global rice exports. Add in Cambodia, Laos and Myanmar and Asia's cartel would wield even more power over food prices than OPEC does with oil.
It's a terrible idea. For one thing, an Organization of Rice Exporting Countries, or OREC, would presumably favor high prices. That may benefit producers, but hurt consumers everywhere. For another, the timing is awful with commodity prices reaching unprecedented levels.
Haruhiko Kuroda, president of the Asian Development Bank in Manila, says ``the agriculture market should be market-driven'' and that ``any kind of cartel isn't good for the exporters and the importers.'' Philippines Senator Edgardo Angara says it would ``create an oligopoly and it's against humanity.''
It's hard to see how a rice cartel would even work. With oil, you have reserves -- actual stockpiles of the commodity. Rice needs to be harvested. Its production is dependent on weather, the cost of fertilizer and the availability of arable land and water. And how exactly can you control farmers growing rice or not growing it?
Move Over OPEC
Asia's disparate economies also aren't renowned for cooperation. Among Mekong Delta nations you have a constitutional monarchy, an immature multiparty democracy, two communist states and a military regime -- all at very different levels of development. Seriously, folks, good luck making that work.
The real story here is this: The very idea of a rice cartel speaks to the desperation with which Asia is treating food-price trends.
Food security hijacked recent meetings of the ADB and Association of Southeast Asian Nations, or Asean. At the ADB event in Madrid, there was vague, yet worrisome talk of 1997-like crises in certain Asian nations. Not a regional meltdown that sends contagion across the globe, but scattered ones.
One sign of the anxiety coursing through Asia is talk in India of suspending trading in more food futures as political pressure grows. India has already halted trading in wheat, rice and lentils. Now there's pressure to ban dealing in cooking oil, sugar and other commodities.
Trading Ban
The idea of banning commodities trading sounds farfetched. Markets play an important role in valuing goods and redistributing them. Yet speculation in everything from oil to gold to food is causing froth in prices. There's a speculative bubble in speculation.
It says something about the crazy market environment we're living in when George Soros leaps out of retirement to get in on it. Good timing, too: Soros earned an estimated $2.9 billion last year, according to Institutional Investor's Alpha Magazine.
``If rightly or wrongly people perceive that commodities- futures trading is contributing to a speculation-driven rise in prices, then in a democracy you will have to heed that voice,'' Indian Finance Minister Palaniappan Chidambaram told Bloomberg on May 4.
It makes you wonder why exchanges don't start demanding that buyers take delivery of the commodities they trade. The bottom line is that Wall Street doesn't realize the effect that food prices are having on the developing world.
Food Crisis
Talk of trading bans is enough to send chills down the spines of disciples of Milton Friedman. Then again, one could argue that those who believe oil prices are set by the market are delusional. OPEC ultimately controls the value of oil -- not traders.
Asia is especially vulnerable to rising food costs. It's home to the bulk of the world's population and families living in poverty. Many of the most promising markets are also there.
Global food prices surged 57 percent in March from a year earlier, according to the United Nations. ADB officials estimate food expenditure accounts for 60 percent of household outlays for poor families -- 75 percent when fuel costs are added.
It isn't hard to see why Asia is considering drastic measures. To many in the region, creating a rice cartel seems no more irrational than the Federal Reserve saving Bear Stearns Cos. from collapse. Yet OPEC's influence is a cautionary tale.
Cartel Won't Help
U.S. President George W. Bush in January traveled through the Persian Gulf begging for an increase in oil production to give U.S. consumers a break. Bush's pleas fell on deaf ears.
On the campaign trail, Hillary Clinton has ratcheted up the rhetoric on OPEC. While the summertime gas-tax holiday proposed by U.S. presidential candidates Clinton and John McCain is just plain stupid, she's right to question the world's most-watched cartel.
``They can no longer be a cartel, a monopoly that get together once every couple of months in some conference room in some plush place in the world and decide how much oil they're going to produce and what price they're going to put it at,'' she said in Indiana this week.
Given how global markets are held hostage by OPEC, a rice cartel hardly seems like a wise move.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: William Pesek in Madrid at wpesek@bloomberg.net
That's at least what some Asian leaders think. Hence a plan in Southeast Asia to create an OPEC-like cartel to manage rice supplies amid record prices. Thailand and Vietnam account for almost half of global rice exports. Add in Cambodia, Laos and Myanmar and Asia's cartel would wield even more power over food prices than OPEC does with oil.
It's a terrible idea. For one thing, an Organization of Rice Exporting Countries, or OREC, would presumably favor high prices. That may benefit producers, but hurt consumers everywhere. For another, the timing is awful with commodity prices reaching unprecedented levels.
Haruhiko Kuroda, president of the Asian Development Bank in Manila, says ``the agriculture market should be market-driven'' and that ``any kind of cartel isn't good for the exporters and the importers.'' Philippines Senator Edgardo Angara says it would ``create an oligopoly and it's against humanity.''
It's hard to see how a rice cartel would even work. With oil, you have reserves -- actual stockpiles of the commodity. Rice needs to be harvested. Its production is dependent on weather, the cost of fertilizer and the availability of arable land and water. And how exactly can you control farmers growing rice or not growing it?
Move Over OPEC
Asia's disparate economies also aren't renowned for cooperation. Among Mekong Delta nations you have a constitutional monarchy, an immature multiparty democracy, two communist states and a military regime -- all at very different levels of development. Seriously, folks, good luck making that work.
The real story here is this: The very idea of a rice cartel speaks to the desperation with which Asia is treating food-price trends.
Food security hijacked recent meetings of the ADB and Association of Southeast Asian Nations, or Asean. At the ADB event in Madrid, there was vague, yet worrisome talk of 1997-like crises in certain Asian nations. Not a regional meltdown that sends contagion across the globe, but scattered ones.
One sign of the anxiety coursing through Asia is talk in India of suspending trading in more food futures as political pressure grows. India has already halted trading in wheat, rice and lentils. Now there's pressure to ban dealing in cooking oil, sugar and other commodities.
Trading Ban
The idea of banning commodities trading sounds farfetched. Markets play an important role in valuing goods and redistributing them. Yet speculation in everything from oil to gold to food is causing froth in prices. There's a speculative bubble in speculation.
It says something about the crazy market environment we're living in when George Soros leaps out of retirement to get in on it. Good timing, too: Soros earned an estimated $2.9 billion last year, according to Institutional Investor's Alpha Magazine.
``If rightly or wrongly people perceive that commodities- futures trading is contributing to a speculation-driven rise in prices, then in a democracy you will have to heed that voice,'' Indian Finance Minister Palaniappan Chidambaram told Bloomberg on May 4.
It makes you wonder why exchanges don't start demanding that buyers take delivery of the commodities they trade. The bottom line is that Wall Street doesn't realize the effect that food prices are having on the developing world.
Food Crisis
Talk of trading bans is enough to send chills down the spines of disciples of Milton Friedman. Then again, one could argue that those who believe oil prices are set by the market are delusional. OPEC ultimately controls the value of oil -- not traders.
Asia is especially vulnerable to rising food costs. It's home to the bulk of the world's population and families living in poverty. Many of the most promising markets are also there.
Global food prices surged 57 percent in March from a year earlier, according to the United Nations. ADB officials estimate food expenditure accounts for 60 percent of household outlays for poor families -- 75 percent when fuel costs are added.
It isn't hard to see why Asia is considering drastic measures. To many in the region, creating a rice cartel seems no more irrational than the Federal Reserve saving Bear Stearns Cos. from collapse. Yet OPEC's influence is a cautionary tale.
Cartel Won't Help
U.S. President George W. Bush in January traveled through the Persian Gulf begging for an increase in oil production to give U.S. consumers a break. Bush's pleas fell on deaf ears.
On the campaign trail, Hillary Clinton has ratcheted up the rhetoric on OPEC. While the summertime gas-tax holiday proposed by U.S. presidential candidates Clinton and John McCain is just plain stupid, she's right to question the world's most-watched cartel.
``They can no longer be a cartel, a monopoly that get together once every couple of months in some conference room in some plush place in the world and decide how much oil they're going to produce and what price they're going to put it at,'' she said in Indiana this week.
Given how global markets are held hostage by OPEC, a rice cartel hardly seems like a wise move.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: William Pesek in Madrid at wpesek@bloomberg.net
6 comments:
agree that rice isn't oil because depriving rice to the needy is like doing a disservice to humanitarian. rice is what most people need to eat to stay alive, whereas oil is a want basis and people can live without it and survive. so the i'm glad that some people see it differently and would want o stop such initiative as it can be very cruel and dangerous for people's survive, especially children and the elderly. thank you for thinking differently. it helps to see what others are thinking, too, about the same issue.
OPEC moved away from their orginal objective which to stabilize oil price.
So, rice cartel is a tool to put more pressure on oil producing countries and economic powers to take faster actions.
Each countries always put their countries interest first. So why not ASEAN rice cartel?
ខ្ញុំយល់ស្របជាមួយបង@9,53។ ប្រសិនបើយើងមានឧបករណ៍មួយសម្រាប់ដាក់ការគៀបសង្កត់ខ្លះទៅលើ OPEC នោះជាការល្អដើម្បីបញ្ចុះតម្លៃប្រេងនៅលើទីផ្សារ។
Majority of Asians are farmers, and in democracy society, government must served their interest. Thus, OREC is way to go.
nope, 10:52 AM is wrong. He is lost!
People will turn to eat potatoe !
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