Panic grips Asian rice trade after India’s move

March 29th, 2008 - 9:35 am ICT by admin  

Bangkok, March 29 (DPA) 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.

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