Chance profits on stockpiled rice
By Jon Fernquest[Introduction | Vocabulary | Article | Reading Questions | Answers]
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Thai rice exports will jump this year due to El Niño droughts around the world.
This will give the government the chance to offload, at a profit, some of the rice stockpiles accumulated during Thaksin administration interventions in the rice market.
The profits from this year will help offset the 18 million baht losses of prior years.
Since droughts are chance occurrences, the windfall profits from rice sales during droughts are like winnings from gambling, largely unpredictable and equally likely to end in losses. They obviously have to be factored out when evaulating policy.
Read an earlier article in this developing story.
For further background reading on the rice industry read the recent history of government inverventions in Thai rice markets, read about a recent report from the Kasikorn Research Center on Thai rice exports, read a concise description of government Thai rice policy from a few years ago, read about the recent economic history of Thai agriculture (1980-2003), and also check out the Thai Rice Foundation Under Royal Patronage which has articles and guidance on the study of rice.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. How much are Thai exports expected to jump next year? Why?
2. Will this jump likely be permanent?
3. What steps are being taken to make the bidding process for stockpiled rice fairer?
4. What countries are leading the current jump in rice exports?
Is this rice for immediate delivery?
5. How much will rice exports increase next year over this year?
6. What countries have experienced a drought?
7. What has caused this drought?
8. What neighboring countries are also increasing their rice imports from the Thailand?
9. How much are rice prices expected to jump?
Bangkok Post Article: October 27, 2006
Exports to flourish as major players wilt
Droughts trigger big business for Thai rice PHUSADEE ARUNMASGrowth in Thailand's rice export industry is expected to soar by 30% to 10 million tonnes next year due to droughts in other major rice-producing countries and the Commerce Ministry's plans to offload rice into the market. ''We're happy to learn that the ministry plans to sell 3.1 million tonnes of rice soon,'' said Chookiat Ophaswongse, president of the Rice Exporters Association.
Commerce Minister Krirk-krai Jirapaet said yesterday that the ministry would offer 2.5 million tonnes of white rice and about 610,000 tonnes of Hom Mali fragrant rice to the market gradually in order to cut the government's storage expenses.
''We will call bids to sell the rice, probably twice a month, with volume and bidding periods to be announced on an occasional basis to prevent oversupply in the market,'' said Mr Krirk-krai.
The Commerce Ministry, as a working arm of the Rice Policy Committee to intervene in rice prices via a pledging programme, now holds more than 3.1 million tonnes of rice from the last two crop years.
Aside from the stockpile, about four million tonnes of rice sold at prices lower than cost through the pledging programme have caused losses to the state of about 18 billion baht.
To prevent future losses, Mr Krirk-krai said the ministry would negotiate with those who offered the highest prices to settle on acceptable figures.
''We will not hold separate negotiations with bidders as this method is not transparent,'' he said.
Measures to prevent collusion among bidders will be mapped out and bidding will be cancelled if malpractice is found.
Mr Chookiat said he agreed with the term to allow traders to purchase rice either in baht or US dollars because it would reduce exchange-rate losses.
He suggested that the ministry also divide bidding into small lots to enable participation by small traders.
If a bid is called next month, industry observers believe it will help spur the country's rice exports to meet the target set earlier of 7.5 million tonnes for 2006.
According to Mr Chookiat, rice orders placed by foreign countries would rise this month and next, especially from Iran, Iraq, Nigeria and China, with most orders for 2007 delivery.
''The shipments will help boost Thai rice exports next year to nine or ten million tonnes, in the best scenario,'' he said.
He said severe drought caused by El Nino was expected to decrease the rice output of major producers including India, Vietnam, Pakistan and the United States.
In contrast, demand from consuming countries remains on the rise, especially from the Philippines, which is expected to import two million tonnes of rice next year, from 1.6 million tonnes planned earlier.
Nigeria would increase its rice imports to 1.8 million tonnes, from 1.5 million, while Indonesia and Iraq would respectively purchase 1.5 million and 1.3 million tonnes, from 900,000 and 1.1 million tonnes, according to a report released by the US Department of Agriculture.
Higher demand would drive up export rice prices by 10%, especially for white rice, from an average of US$301 per tonne.
Vocabulary
to flourish - to develop quickly and strongly, successfully
wilt - when a plant becomes weak and starts bending downwards (as if it is dying or needs more water)
droughts - a long period of time when no rain falls, so it is very dry and there is no water
Rice Exporters Association - the industry association of rice exporters in Thailand, first organised by rice warehouse owners near Bangkok in 1919 (See Website)
Hom Mali fragrant rice - a long-grain variety of rice that has a nutty aroma and subtle flavor, discovered in Thailand (See Wikipedia on Jasmine rice)
a working arm of - a branch or sub-section of an organisation
Rice Policy Committee - the government committee that sets the policy for government intervention in rice markets (Read the the recent history of government rice market inverventions)
a pledging programme - a rice mortgage, a programme of intervention in the rice markets, farmers give their rice to government in exchange for a price when prices are temporarily low, they either pay the money and take back the rice, or more recently they keep the money and the government is left with the responsibility of sellign the rice at a reasonable price
stockpile - store large quantities for future use
transparent - publicly visible, not hidden
collusion - secret or illegal cooperation (when people secretly work together for some hidden purpose)
intervene - become involved in and try to change
small lots - small quantities
scenario - one way in which a situation may develop in the future
malpractice - breaking laws, rules, or standards (usually of a profession like medicine or the law)
El Niño - a global change in temperatures that causes droughts and leads to food shortages (See Wikipedia)
US Department of Agriculture - US government department setting US agricultural policy (See Wikipedia)
Answer Key:
1. How much are Thai exports expected to jump next year? Why?
They are expected to jump 30 due to droughts in major rice producing countries.
2. Will this jump likely be permanent?
No, droughts do not usually last for a long time.
3. What steps are being taken to make the bidding process for stockpiled rice fairer?
a. No separate negotiations with bidders
b. Collusion among bidders will be prevented
c. Traders are allowed to purchase rice with either baht or US dollars to reduce exchange-rate losses.
d. Bidding will be divided into small lots so that small traders can participate.
4. What countries are leading the current jump in rice exports?
Is this rice for immediate delivery?
Iran, Iraq, Nigeria and China.
This rice is not for delivery next year.
5. How much will rice exports increase next year over this year?
1.5 to 2.5 million tonnes.
( 9 or 10 million in 2007 - 7.5 million in 2006)
6. What countries have experienced a drought?
India, Vietnam, Pakistan and the United States.
7. What has caused this drought?
El Nino winds.
8. What neighboring countries are also increasing their rice imports from the Thailand?
Southeast Asian neighbors Phillipines and Indonesia are expected to increase their rice imports from Thailand.
9. How much are rice prices expected to jump?
10%
