Asia's rice crisis easing

Amid expectations of a record harvest, prices decline. Cambodia lifted its export ban this week.

May 31, 2008
By David Montero
Correspondent of The Christian Science Monitor

PHNOM PENH, Cambodia - Asia's rice crisis, which has shaken governments and fomented social unrest, could be easing, as regional exporters announce bumper harvests and consider lifting export bans, developments that could inject badly need stocks back into world markets.

In an announcement that garnered praise around the region, Prime Minister Hun Sen said on Tuesday that Cambodia would lift an export ban imposed in March and sell 1.6 million metric tons of rice held in its stocks after determining that it had enough rice to meet the country's demand.

The move by Cambodia – the first exporting country to lift its ban – signals that, thanks to good weather forecasts, bountiful harvests are on the horizon, experts say.

"We expect this year to be a very good harvest," says Ny Lyheng, managing director of the Federation of Cambodian Rice Millers Association in Phnom Pehn, the capital. Cambodia is expecting to harvest 6.8 million metric tons, up from 6.7 million metric tons last year.

Rice, the staple diet of half the world's population, has increased in price by 76 percent in Asia and many other parts of the world since December, a result of shortage concerns and regional export bans. But experts have been counseling that, as long as harvests do well this year in Asia – where three-quarters of exportable rice is grown – the crisis will ease.

That seems to be happening. Authorities in Vietnam – the world's second-largest producer - say they expect to be able to export 4.3 million metric tons. As a result, an export ban imposed in March is likely to be lifted by July, according to Bloomberg.

And Pakistan, the world's fifth-largest exporter, announced on May 16th that it has enough rice to meet domestic demand and would sell 1 million metric tons overseas.

"The markets needed some positive signs, and this is one of them," says Duncan Macintosh, spokesman for the International Rice Research Institute in the Philippines, referring to Cambodia's announcement. "The harvest has just gotten under way and there's a lot of rice reaching markets in Asia."

The developments come days after the Food and Agricultural Organization of the United Nations (FAO) announced that, despite jitters over tight supplies, the world's output of milled rice would actually reach record levels this year, easing concerns of global shortages.

"World paddy production 2008 could grow by about 2.3 percent, reaching a new record level of 666 million tonnes, according to our preliminary forecasts," an FAO statement says, but warns that rice prices will remain high for now pending the harvesting of this year's rice crops.

The announcements have helped drive down prices of rice by 28 percent on the Chicago Board of Trade, the lowest in 10 weeks, Bloomberg News reported.

Rice prices have skyrocketed because of a confluence of global trends, including soaring gasoline prices (needed to produce and transport rice), and droughts in Australia and Vietnam, which have undercut stocks.

But they've also risen because exporters like Vietnam and Cambodia, seeking to ensure domestic supplies and bring down inflation, imposed strict bans on their exports at a time when those exports were needed most. That meant that less rice was available on global markets, which induced more panic, pushing prices up even further.

Not that all Asian suppliers have imposed bans: Thailand, the world's largest rice exporter, has continued selling rice, as has Pakistan, which never imposed a ban on rice exports because rice is not a staple in that country – wheat is.

Further driving up prices are the huge rice demands of the Philippines, the world's largest rice importer. The country, which is expecting a shortfall of rice supplies this year, has been struggling to fill tenders for up to 2.7 million tons of imports. Last week, Thailand pledged to offer the Philippines negotiable prices, while Japan agreed to sell it 200,000 tons.

Analysts warned that while the crisis may have eased for the moment, rice supplies remain a long-term challenge for the developing world.

Mr. Macintosh, in Japan to attend the Tokyo International Conference on African Development, said rice topped the list of many African leaders' concerns.

"While the crisis has eased, anyone who has any doubts that the problem remains just has to look at Africa ," he says. "It still imports about half its rice, and it has the fastest growing demand."

The Philippines: OREC betrays ASEAN solidarity

GMA ADVISER SAYS RICE CARTEL PROPOSAL BETRAYS ASEAN SOLIDARITY

MANILA, MAY 2, 2008 (STAR) By Paolo Romero - President Arroyo’s economic adviser strongly opposed yesterday proposals to create a rice cartel among rice-producing nations in the region.

Albay Gov. Joey Salceda said from the standpoint of national interest, the proposal of Thai Prime Minister Samak Sundaravej to create a rice cartel to include Cambodia, Myanmar and Laos similar to the Organization of Petroleum Exporting Countries that tries to sets crude oil prices is “clearly a betrayal of Asean solidarity.”

He said an “organization of rice exporting countries (OREC) would control 75 percent of tradeable (rice) surplus in the region.”

“That’s what friends are for in the Asean,” Salceda told The STAR. “In crunch time, you only have yourself to rely on and to blame. Life is cruel.”

He said the only way for the Philippines to address the food situation is to “put real money in agriculture and take care of our farmers and go for rice sufficiency.”

Salceda said the emergence of OREC has a clarifying effect on what “we as a nation should value.” He said the proposed rice cartel makes rice sufficiency a categorical imperative.

President Arroyo had reiterated her assurance of the country’s secure food supply as the government works to stabilize prices of basic commodities.

Press Secretary Ignacio Bunye said the first priority of Mrs. Arroyo is to put food on the table for Filipinos, particularly the poor.

Meantime, Rep. Abraham Mitra believes the advantage that may probably be brought about by five nations to create an Opec-type rice cartel is that it will force the Philippines – once a top rice exporter – to now be self-sufficient.

“One good thing that OREC will probably bring is it will force us to grow more food. If we have the resources to grow rice, then there is no reason why we should allow ourselves to be a hostage of any cartel,” said Mitra.

The congressman, who heads the House committee on agriculture, reminded the government that “we have control over our agricultural policy, and that is to start to be insular-looking when it comes to rice and food security.”

“We are entering an era in which the saying ‘No man is an island’ can be applied no more to rice. At least on this staple, we must strive to grow all our needs,” Mitra said.

He said there is no longer any point in the “previous school of thought” that the country can use its vast tract of land resources “for more lucrative agricultural and non-agricultural purposes, and use the income to buy cheap rice abroad.”

In a statement, Mitra said the “initial rice price shocks” would lead the Philippines to eventually overcome “supply gaps” in the staple. “Necessity is the mother of rice production.”

“To its credit, government is moving towards that direction (self-sufficiency). Funds are being released, agencies are mobilized. Once shunned as a poor cousin of high-value crops like asparagus, rice is again the star of the agriculture program,” he said.

Mitra, on the other hand, allayed fears that the rice production drive would lead to “monocropping” and the eventual loss of the “rich variety of Philippine agriculture.”

With Delon Porcalla

Asia’s rice crisis

Monday, April 21, 2008
By Brian McCartan
Asia Sentinel (Hong Kong)

The rising price of rice is part of a global trend in rising food costs, with wheat leading the way, up more than 180 percent on the year, soybeans up 82 percent, soybean meal up 67 percent. But it is rice, with its fundamental place on the plates of Asia’s consumers, that is worrying governments.

Philippine officials have been raiding rice warehouses near Manila where unscrupulous traders have been repackaging government-subsidized rice intended for poor areas and reselling it as high-grade commercial rice at twice the price.

Hopefully, rising prices will encourage governments all over the world to boost production.''

Even in wealthy Korea, consumers went into a near panic in early March when the cost of ramen, an instant noodle made from wheat that is a staple of the Korean diet, spiked in price. Housewives emptied grocery shelves for days to snap up supplies before the increase went into effect.

Higher fuel costs, with crude soaring above US$100 a barrel and threatening to stay that way, have partly been blamed for making fertilizer more expensive, raising the cost of growing rice as well as increasing transport costs. In Southeast Asia, disease, pests and a 45-day unprecedented cold snap from China down all the way to Vietnam in January and February that hurt harvests has also been blamed. Flooding in the Philippines and Vietnam has also contributed to the growing crisis.

Part of the problem, however, has been caused by ill-advised government programs. Economically disastrous subsidized biofuel programs intended to ease global warming in the United States and Europe have caused a precipitous decline in the amount of agricultural lands planted for other food sources such as wheat and soybeans. .

Low government rice stockpiles have also created an environment in which supply disruptions can result in rapid price swings. World rice stocks have shrunk from a peak of 130 million tonnes in 2000-2001 to 72 million tonnes in 2007-2008, according to US Department of Agriculture figures, the lowest level since 1983-84. That is estimated to meet only 17 percent of global consumption. Nearly half of the world's 6.6 billion people are dependent on rice and are already eating more than is harvested yearly.

In order to curb rising domestic prices, the governments of Vietnam, India and Cambodia have taken steps to lower rice exports. Vietnam reduced its rice exports by almost a quarter last week, ordering authorities to not sign any more rice export contracts and capping exports at 3.5 million tonnes for this year, down from 4.5 million in 2007. On the same day as Vietnam's announcement, India raised the minimum sale price of rice exports by more than 50 percent. The move effectively ended overseas rice sales except for only the highest grades of rice. Cambodia, suffering from spiraling costs, also announced a two-month ban on rice exports last week. Indonesia, traditionally a rice importing nation, is also reportedly considering a ban on exports to secure its domestic stocks.

Rising rice prices have governments worried about domestic supplies as farmers become increasingly interested in selling to the export market in order to make larger profits. Governments fear not having enough rice for local consumption and having to spend more on imports driving the price of rice up. Domestically it means that farmers are forced to sell at artificially low rates because they are denied export markets for their crop.

However, in an increasingly interconnected world where farmers and businessmen are well aware of international prices, they are much less willing to sell on the domestic market at prices that are often controlled by the government and are much lower than international rates. This has resulted in the kind of hoarding and speculation that Philippine authorities are trying to fight and that can subvert export bans.

The Indian government, while saying that there is no shortage in the country, is reportedly also concerned about domestic supplies amid fears of higher exports brought on by the scarcity on the global market. India was thought to possibly surpass Vietnam as the second largest rice exporter in the world this year.

In the Philippines, where there is not enough arable land to grow enough rice to feed its population, rice stocks are already low. Government officials have requested that the public save leftover rice and have even requested that fast food restaurants reduce the portion of rice sold with meals.

Thailand is trying to keep domestic prices down through government distribution from its own stocks. Bids from millers will be accepted only if they pack the rice in 5 kilogram bags for the domestic market. Thailand's government stockpile is estimated to be good for only three months, then it will have to buy on the local market to replenish stocks.

While this move may appease consumers, Thailand's rice producers are not happy with the government's current cap on domestic prices. The Thai Rice Packer's Association has demanded that the Ministry of Commerce increase the retail price of rice by 10 percent in April. The association claims the step is necessary due to increasing production costs.

The volatile rice prices have not been a boon to exporters. The common practice is for rice exporters to sell forward at fixed prices and then buy rice on the common market to meet orders. This has resulted in problems across the region as rapidly rising prices leave exporters losing money due to having to buy rice at prices that are much higher than what their export contracts were agreed for when signed several months ago. Exporters who insist on the previous price are finding it difficult to source enough rice to meet orders, forcing delays or even defaults on orders.

For Vietnamese exporters, the problem is compounded because their contracts were signed in dollars.

Thailand's exporters have the same trouble. Indonesia and Iran are expected to want orders for 1.5 million and 1 million tonnes of rice respectively filled in the next three to four months, but exporters are unsure of their ability to meet the demand. The default on international orders could cause up to $5 billion worth of damages.

Panic grips Asian rice trade after India's move

IANS (India)

Bangkok, March 29 : When it comes to rice - the staple food in Asia - governments don't like to risk failing to fill their people's stomachs.

Faced with rising rice prices in the international market and unprecedented price volatility, Asia's rice exporters, with the sole exception of Thailand, have responded by imposing export bans while importers are seeking ways to increase stocks and reduce consumption.

The panic arguably started this January in India, where the government stopped issuing export licenses for all rice grades barring Basmati, India's premium rice.

India faces no rice shortage this year but its stockpiles of wheat are down, due to a global decline in the wheat trade last year prompted by a poor crop in Australia, which has suffered two years of severe drought.

Worried about its wheat supplies, India decided to boost its rice stockpile to about 10 million tonnes and stop exports, a wise move in a country of 1.1 billion people but bad news for the rice price stability elsewhere.

"By stabilising your domestic market you are basically exporting instability abroad," noted Sumitr Broca, policy officer at the Food and Agriculture Organization (FAO) regional headquarters in Bangkok.

Since January, rice prices on the international market have jumped almost 50 percent, rising on almost a daily basis and causing unprecedented volatility in the market even though world stockpiles on the politically sensitive grain remain at the same level as last year.

"We could be seeing some kind of a panic reaction here," opined Broca.

This week, Cambodia and Vietnam have followed India's lead to increase stockpiles. China, faced with food inflation at home and adverse weather conditions, has already announced rice export restrictions.

On Wednesday, Cambodian Prime Minister Hun Sen banned all private exports of rice to neighbouring Thailand and Vietnam for a two-month period, a move that may have been linked to scheduled elections in July.

Vietnam's Prime Minister Nguyen Tan Dung on Thursday ordered authorities not to sign any more rice export contracts this year.

A February cold snap in the north of the country, which lasted an unprecedented 45 days, destroyed over 100,000 hectares of rice paddy.

Vietnam has signed contracts to export some four million tonnes of rice in 2008, a figure comparable to last year. Exports in the first quarter of 2008 were up 5.3 percent year-on-year.

Vietnam comes second to Thailand in the world export market.

Indonesia, the world's fourth most populous nation with 225 million people, is also mulling a ban on rice exports in an attempt to secure domestic supply even though the country is heading for a bumper crop.

Indonesia's farmers this year should produce up to 61.09 million metric tonnes of unhusked rice, five percent more than last year's output due to favourable weather and increasing use of hybrid seeds.

But the increased output has led to a decline in domestic prices, which are now almost on a par with the international prices and prompting fears that merchants will turn to the export market.

Indonesia has traditionally been a rice importer nation.

The region-wide clamp down on exports has put Thailand, the world's largest rice exporter since the mid-1960s, in a delicate position. Last year, Thailand's rice exports hit a historic high of 9.55 million tonnes, earning the country $3.6 billion.

This year's rice exports are estimated to reach 8.75 million tonnes, earning as much as $4.7 billion.

Despite the high price, for exporters, it is a challenging period.

"Many people who have been in this business for 30 to 40 years have never seen this kind of market situation in their lives," said Wanlop Pichpongsa, deputy managing director of Capital Rice Company, one of Thailand's leading rice exporters.

"In the morning rice is at one price, and in the afternoon it's another," said Wanlop. "It's like the stock market."

Many exporters who have sold forward without stockpiles are facing huge losses.

But the high paddy prices are generally good news for Thai rice farmers, if they aren't bankrupted by soaring fuel and fertilizer prices, pests and thefts.

Although rice prices are high this year, they have yet to hit record high.

Nearly all commodity prices, including rice, peaked in the mid-1970s during the world's first oil crisis and rose again during the second oil scare in the early 1980s.

Rice prices have been rising steadily on the world market since 2003, in tandem with oil prices, and started to shoot up last year as oil surpassed $100 per barrel.

But this year's rice price hike may also be fuelled by something else, which has some observers worried.

"I think there is a lot of speculation and a lot of hoarding, because with the dollar going down you don't want to hold on to currency, you want to park this currency somewhere and where it is parked now is in commodities," said Shamika Sirimanne, a development policy expert at the UN Economic and Social Commission for the Asia Pacific.