Export price caps for Thai rice
to meet domestic demand?
By Jon Fernquest |
First, worry about feeding ourselves, only then, when our stomachs are full, worry about generating export revenue and export driven growth.
As Chookiat Ophaswongse president of the Rice Exporters Association suggests:
We shouldn't talk about our export target.
We should talk about how to survive.
Sounds like the most fundamental sort of Sufficiency Economy.
The Thai government was surprised to learn a few weeks ago that the government's own rice supplies were being sold off to China by rice warehouses without the government's knowledge (See article on disappearing rice).
In response Commerce Minister Mingkwan ordered a thorough inspection of government rice stockpiles (See article on checks and more articles).
Events in the world rice markets never seem to match the economics we are taught in school.
Take one likely scenario for Thai rice exports in the near future:
"Thai rice exports would drop 50% in the second quarter due to surging prices and tight supply after Vietnam told its dealers not to sign export contracts in March and April."
"Tight supply" on international markets would naturally lead to "surging prices" on international markets, but why would surging international rice prices lead to reduced rice exports?
Because survival and domestic rice supply for consumption within the country comes before rice business outside the country.
Here is the article in full:
AGRICULTURE
Ministry may put cap on rice export prices
PHUSADEE ARUNMAS, REUTERSTuesday March 18, 2008
With domestic prices of rice on an upward spiral, the Commerce Ministry may opt to cap export prices to tighten the screws on exports.
According to Deputy Commerce Minister Wiroon Techapaiboon, the ministry is studying measures to ensure that there will be sufficient rice to meet domestic demand.
"The ministry pledges to adopt appropriate rice management measures not only to ensure continuous export prices but also rice adequacy for domestic consumption and affordable prices," he said yesterday. "The ministry expects tight supply would ease over the next two months once the second-crop rice output is fully released into the market."
On the other hand, according to Mr Wiroon, prospects were expected to become clearer over the next two weeks on whether the ministry would call an auction for government rice stockpiles.
Earlier, Mr Wiroon said he would encourage Commerce Minister Mingkwan Sangsuwan to auction about 700,000 tonnes of rice in government stockpiles to ease tight supply.
The government has about 2.1 million tonnes in its stockpile. It expects at least 18 million tonnes of new white rice would enter the market over the next 12 months.
Annually, the Thai population consumes about nine million tonnes of white rice, with the rest destined for export.
According to Mr Wiroon, the government needs to maintain about 2-3 million tonnes a year in its stockpile to ensure adequate supply in the domestic market.
However, Mr Mingkwan called last week for a thorough check of stocks before deciding whether to release some of its estimated two million tonnes of stock to force prices down.
Chookiat Ophaswongse, president of the Rice Exporters Association said the Indian government introduced a minimum export price measure, raising the minimum prices for exporting basmati and non-basmati rice to $900 and $650 per tonne respectively.
Earlier, there was no fixed minimum price for export of basmati rice. For non-basmati rice, the minimum price used to be $500 per tonne. The measure reflects India's desire to curb rice exports for fear that its population would consume more expensive rice.
Mr Chookiat predicted that Thai rice exports would drop 50% in the second quarter due to surging prices and tight supply after Vietnam told its dealers not to sign export contracts in March and April.
The price of Thai 100% B grade white rice, which has risen by more than 50% since the start of this year, is expected to jump another 40% to $800 a tonne in April.
"With these soaring prices, Thai rice exports in the second quarter may be around 500,000 tonnes per month, down from around one million tonnes," said Mr Chookiat.
"At this moment we shouldn't talk about our export target of 8.75 million tonnes this year. We should talk about how to survive."
Thailand, the world's biggest rice exporter, sold 9.4 million tonnes abroad in 2007 and 2.4 million tonnes so far this year to March 10.
(Source: Bangkok Post, business section, 18-03-08, PHUSADEE ARUNMAS, REUTERS, temp-link)
Vocabulary:
price cap of Y - price can be no higher than Y (price limit, price ceiling)
cap export prices - set a highest price for export prices (if the highest price is the same as domestic prices, then sellers will sell to the domestic market, not export)
export driven growth - a trade and economic policy that generates industrialization and growth in an economy thtrough the development of export industries, characteristic of the development of the national economies of the Asian Tigers: Hong Kong, South Korea, Taiwan, Singapore, and China in the post World War II period, opposite of Import Substitution Industrialization (ISI) (See Wikipedia on Export-Oriented Industrialization (EOI) and South Korean president Park Chung Hee's economic policies)
Sufficiency Economy - His Majesty King Bhumibol Adulyadej's theory of economic development which includes sustainability, moderation and broad-based development (See Medhi Krongkaew's article in the Kyoto Review, 2003 and Wikipedia on Localism in Thailand)
stockpiles - large quantities stored for future use (See glossary)
a scenario - the way in which a situation may develop in the future
surging prices - prices that rise suddenly and quickly
tight supply - low supply
ease tight supply - take action to increase supply
prices of rice on an upward spiral - prices increase steadily without ever decreasing
opt to Y - choose to do Y, decide to do Y
tighten the screws on Y - control Y, regulate Y
pledges to Y - promises to do Y in the future
rice adequacy - having enough rice (for domestic consumption)
auction - a public sale with buyers offering competitive prices (See The Economist glossary on auctions and Wikipedia on auctions)
Rice Exporters Association - the industry association of rice exporters in Thailand, organised just after World War I (See background at website)
Basmati rice - "a variety of long grain rice famous for its fragrance and delicate flavor," India is the largest cultivator and exporter of this rice, followed by Pakistan and Bangladesh (See Wikipedia on Basmati rice)
an minimum export price measure - cap export prices of rice (see above)
soaring prices - prices that rise to very high levels quickly
