Global markets spur
higher domestic Thai rice prices
By Jon Fernquest |
Today's Bangkok Post business section reports on how global rice prices have been pushing both export and domestic rice prices up higher recently:
"World demand has been pushing up export rice prices of Thai rice since last year and the trend is continuing this year. That has resulted in short supplies in the local market and given rise to talk of speculation and hoarding by millers and at farm sites to gain higher profits.Strong demand from foreign buyers pushed Thai Hom Mali rice to US$739 per tonne last week when the market reopened after the long Chinese New Year holiday. The price was up from $687 a month earlier, and domestic prices of the same grade rose to 2,300 baht for a 100-kilogramme sack.
Rut Subniran, chairman of the executive board of Pathum Rice Mill and Granary Plc, the packer and distributor of the Mah Boonkrong brand, said retail prices of bagged rice had risen gradually by 10% to 20%, noting that paddy prices in the past two years have jumped by 30-40% a tonne to 13,000 baht today.
A five-kilogramme pack of premium-grade Hom Mali rice now costs 130 baht, but is still short of the record of 160 baht a decade ago when there was a supply shortfall, said Mr Rut."
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...current market conditions would benefit farmers...world demand for all types of grains was being driven by high demand from alternative fuels, as well as climate changes that damaged crops in producing countries such as India and China, leading buyers to turn to Thailand.A more worrisome problem than rice is wheat, which is up 30-40% from a year ago to more than $900 per tonne.
There are two ways to adjust to higher rice prices:
1. Rely on markets and adjustments in consumer behaviour
2. Rely on government intervention in the Thai rice market
First, although rice prices will eventually rise, a number of factors are likely to make this rise in prices only a gradual rise, so consumers will have time to adjust to these changes:
...packers have raised prices in line with costs."Some discount stores might provide cheaper prices because those grains were bought a few years ago," he said. "You might notice the colour - a bit dusky."
However, he is confident that there will be sufficient supply to feed the local market, though he worries that attempts at hoarding could hurt exports.
Pathum Rice Mill supplies about 100,000 tonnes of rice under the Mah Boonkrong brand to the local market and Mr Rut says the company has enough rice to last through the second half of this year.
"We pin our hope on the second rice crop to be released to the market over the next two months," he added.
The level of Thai rice exports is not completely driven by events and prices in global rice markets, as an economist might assume.
The level of Thai rice exports depends on the level of government stockpiles and the output of the second rice crop of the year:
"Normally, Thais consume 8-9 million tonnes of rice per year, about 55% of the total output, while exports account for 45%. Huge stockpiles, especially in the hands of the government, and strong global demand pushed up Thailand's rice exports in the last two years to more than eight million tonnes.But now the government's stockpile has fallen to around two million tonnes, making high export volumes less likely this year."
More output from the second crop, largely from central provinces including Suphan Buri, Chai Nat and Phitsanulok, could ease the situation. Approximately four million tonnes of paddy would enter the market in March and more in June and July.
If rice prices remain free and the government resists the urge to invervene in the Thai rice market, consumers can shift to purchasing lower priced sticky rice or to other grains, if need be:
"Farmers have only one choice to earn income and every one-baht increase in earnings matters for them," said Mr Sumeth. "For me, I think consumers have more choices to shift to lower-priced grains."For instance, he suggested Thais might eat more sticky rice, which costs just nine baht a kilogramme, compared with 14 baht last year, due to an oversupply.
Specialty rice produced by contract farmers hasn't been affected by the price rise at all because high premiums over commodity rice are already paid for these products:
"According to Pawarit Songvirat, a marketing officer with Richie Confectionery Co, a producer and exporter of rice and cereal snacks, the company has been insulated from price shocks because it purchases a specialty item, milky rice, only from contracted farmers.The company buys around 60 tonnes of rice a year from farmers in the upper northeastern provinces to make healthy snacks. It pays around 35 to 40 baht a kilogramme for milky rice, higher than the 13-20 baht that farmers obtain from selling white and Hom Mali fragrant rice."
Lastly, the Thai government is taking steps to phase in higher rice prices gradually to lessen the impact on the consumer:
"The Internal Trade Department has asked packers to gradually raise prices to reflect real costs in order to prevent a heavy impact to consumers and makers of rice-based products such as noodles."
(Source: Bangkok Post, business section, page B3, Walailak Keeratipipatpong, 18-02-08, temp-link)
Vocabulary:
domestic - within a country
short supplies - not enough rice
speculation - buying rice solely for resale and profit
hoarding X - gathering and storing a large supply when X is scarce
shortfall - less than expected
adverse - hurts rather than helps
packers - companies that process and pack the rice for sale in stores
dusky - rather dark in colour
pin our hope on Y - rely on Y, depend on Y (we will succeed or fail just as Y succeeds or fails)
stockpiles - large quantities stored for future use (See glossary)
ease the situation - make a bad situation better
government invervenes in the Thai rice market - when the government controls the amount of rice that can be sold, where it can be sold (domestically, internationally), and the price at which it is sold
specialty rice, a specialty item -
contract farmers - farmers who produce agricultural products for a company under a contract (guaranteeing the farmer a predictable income, at least in theory)
high premiums paid - an extra amount beyond the normal price
insulated from price shocks - price not affected by factors changing prices in other markets, protected from price shocks
phase in - adjust gradually to a change, change price slowly rather suddenly
lessen the impact - reduce the negative effect
rice-based products - products such as noodles that are made out of rice
