beyondbrics

Rice is more than just another commodity: for 3bn people it is a vital part of their daily diet, and when prices hit over $600 a tonne, or some 50 per cent above their 10 year average, they start to worry.

The 10-year average for Thailand’s benchmark 100 per cent grade B white rice is around $400 a tonne but today it is selling for $619 a tonne. That is partly because Thailand, the world’s biggest exporter, has said that it would pay its farmers Bt14,800/tonne – equivalent of about $800/tonne in the export market, in a move aimed at boosting the incomes of rural farmers.

Questions of the sustainability of the project have centered around the depth of Thailand’s pockets – it supplies about a third of the global trade of 30m tonnes annually – and its political resolve, but supply side economics are also going to play a role.

Samarendu Mohanty is an economist with the International Rice Research Institute in the Philippines. He said that Thailand’s intervention will push prices up.

But he added:

…Higher prices will also induce a greater supply from the rest of the world and moderate the effect on rice prices and it might even bring rice prices close to the level that would have been witnessed without the Thai pledging program. On the bright side, this process could provide an opportunity for countries with abundant land and water, such as Cambodia, Myanmar, and Brazil, to emerge as alternate suppliers to the global rice market.

In the short-term, despite the current rising prices, there is no shortage of rice. India has recently re-entered the market with 2m tonnes, Vietnamese production is still growing, albeit at a slower rate than its glory days in the early 1990s, and even if Thailand prices itself out of the global market, it’s production will be available at a price, putting a ceiling on any upward movement.

In the long-term, rice consumers might have a problem. According to Mohanty, rice demand is growing at 1.3 per cent a year and yields at about 1 per cent. Much of the short-fall to date has been made up with higher planting areas, but that solution is starting to hit constraints as rice farming land is being squeezed by larger populations and increasing industrialisation.

But in the medium term, there is hope for consumers.

Until it embarked on its disastrous “Burmese Road to Socialism” after the 1962 military coup, Burma was the one of the world’s biggest rice exporters, and it is starting to come back into the market, exporting an estimated 1m tonnes last year. By comparison it exported 1.7m tonnes in 1961.

The new Burmese government is looking hard at poverty alleviation, and top of the agenda is rice market reform. It has so far given no clear indications of where it might be going, but Thein Sein, the new president, has made clear that he wants to open up the country’s markets, at least internally.

All farmland is currently government-owned, reducing the incentives for farmers to invest in long-term improvements in mechanisation or soil quality, but the business community has made a number of public calls for the farming community to be given title.

There is a precedent for regulatory reform unleashing agricultural potential. Vietnam’s rice production went from 16m tonnes in 1986, when the communist government started reforming the economy, to 40m tonnes last year, and much of those gains came not from new strains or greater use of fertiliser but from reform of the laws that had restricted the domestic rice markets.

Cambodia, although much smaller than Burma, is also ramping up rice production, doubling its output over the last 10 years to reach 7.6m tonnes in 2009, the last year for which reliable statistics are available.

Mohanty believes that the emergence of new producers like Burma, Cambodia and Brazil will make the sort of spikes which drove prices up to $1,080 a tonne in 2008 less likely.

He said:

From a long-term global food security perspective, the emergence of new exporters in the global rice market is definitely a plus and this could provide the much-needed stability to the market during crunch time. The transformation of the global rice market with multiple suppliers could also reassure importing countries that depend on foreign rice for domestic food security.

Related reading:
Thai scheme to turn up heat on rice prices, FT
Stable outlook for the price of rice, FT
In depth: Food prices, FT
Bric food file, beyondbrics