Record Thai rice subsidies handed out
as price of rice falls worldwide
By Jon Fernquest |
Rice prices are falling and continue to fall since record price supports were put in place earlier this year.
Rice prices have been falling since April but the rate of decline has sped up recently: "Thai rice prices fell to $660 per tonne last week, dropping for the fourth straight week to a price 39% lower than the all-time high of $1,080 in April."
At first rice traders thought rice prices would stay at around $500 to $600 but they are now projecting $400 by December or January.
As recently as May the OECD-FAO Agricultural Outlook 2008-2017 predicted that high food prices were here to stay and they still may be. The current decline may only be a temporary dip in an long-term upwards trend (Read article).
Vocabulary:
subsidies - when the government pays part of the costs of something
hand out - give for free
price supports, rice pledging - a system of providing farmers guaranteed prices for their rice
a record, an all-time high - the highest value that has been recorded, the highest in history
put in place - start using a new system or procedures
the OECD - Organization for Economic Co-operation and Development, an international organisation of thirty countries that accept the principles of representative democracy and free-market economy, originated in 1948(See Wikipedia)
the FAO - the agricultural organization of the Untied Nations (See Wikipedia)
here to stay - permanent, not temporary
a temporary dip - a fall by a small amount for a short time
Slightly reduced subsidies, but record amounts of rice being subsidized
Leading up to this week's reduction in the support price there was an intense debate in the cabinet with the Minister of Commerce furiously opposing any reduction (Read article). In the end, support prices for the 2008-2009 rice crop were reduced 15% from 14,000 per tonne to 12,000 (to approximately $630-$640).
While the price may have been reduced a little, the quantities being bought have reached an all time record high. At 8 million tonnes, this years rice support programme is the the "highest volume ever implemented in a single harvest."
The government aims to buy eight million tonnes of paddy from the main 2008-09 crop to be harvested starting in November in an attempt to prop up prices. Of the total, five million tonnes are white rice paddy, 1.5 million tonnes are Hom Mali and 1.5 million tones are glutinous rice.The government is expected to spend about 100 billion baht in the scheme.
Vocabulary:
leading up to Y - during the period of time before event Y happened
a record, an all-time high - the highest value that has been recorded, the highest in history
prop up prices - act to keep prices high
paddy - unmilled rice
glutinous rice - sticky rice
Not enough room in government warehouses
The massive quantities of rice being bought present yet another problem.
The government does not have enough warehouse space to store all the rice.
Government warehouses are still storing the last crop the government bought at inflated prices, difficult to sell without a big loss:
The government's stocks stand at a record 4.3 million tonnes and global prices of grains, including wheat, corn and soybeans, have declined sharply."They want to sell but there are no buyers. All standing orders have already been completed and no new deal has been signed," said Mr Kiattisak, whose company sells some 300,000 tonnes of rice a year to Africa.
"Last year demand was better because the market was moving up. A lot was sold by October, at least one million tonnes."
The government needs to sell two million tonnes from its stockpile to make room to buy this season's rice.
These sales are also sorely needed to generate funds to purchase and store away this season's subsidized rice.
Selling these large quantities immediately would put additional downward pressure on prices. Large sales by Vietnam which have not been made yet could also push prices down further.
Vocabulary:
warehouse space - places for storing rice in a building (warehouse)
inflated prices - prices that are too high
standing orders - orders that already exist
a stockpile - large quantities stored for future use
What was the original purpose for the system of rice supports?
The political payback in terms of rural votes for keeping rice supports higher than market prices is obvious.
Originally, rice price supports (rice pledging) served as insurance to lock in rice prices for farmers. At harvest time there is typically an oversupply of rice with reduced prices. Most farmers must sell their rice immediately at harvest time because they lack the necessary capital and storage facilities to keep the rice for longer periods. Farmers also typically have to pay off debts they have incurred to plant the rice (Read article). In the words of former central bank governor and Finance Minister M.R. Pridiyathorn:
Rice pledging is normally implemented during the harvest period when supply surpasses demand and puts pressure on the price...Rice pledging does pull a certain amount of rice from the market and prevents the price from dropping. After that, when demand increases both for domestic consumption and for export, the market price will gradually increase and the owner of the rice can redeem the pledge and sell that volume of rice in the market for more than the pledging price and earn a higher income (Source: Bangkok Post).
Vocabulary:
payback - the reward (or punishment) you get for doing something
political payback - a reward you get for doing a political favour for someone
insurance - money paid for protection against some negative future event
lock in - make permanent and fixed (See glossary)
capital - an amount of money invested in a business
storage facilities - buildings to store things
pay off debts - pay back money that you borrowed from someone
debts incurred - borrowed money from someone
implemented - what was planned was done
Some factional interests pleased, others not
The statement by the head of the Thai Farmer's association implies that even at the current pledging price some farmers might be taking losses:
Prasit Boonchuey, the president of the Thai Farmers Association, said that if the government wanted to cut prices, it should compensate farmers for production costs such as fertiliser and pesticides. It wanted the support price kept at 14,000 baht a tonne.
The head of the Thai rice exporters association is obviously worried about selling large amounts of rice:
Chookiat Ophaswongse, president of the Thai Rice Exporters Association, hailed the cuts, saying the pledging price reduction would make Thai rice more competitive with those of rival exporting countries. More importantly, he said the government should not shoulder too much financial burden...
Vocabulary:
factions - a smaller group within a larger group fighting for its own ideas and interests
interests - how a group of people will benefit from or be affected by events
factional interests - different groups of people who will be affected in different ways by the outcome of events
the outcome of events - the situation that exists after the events happen
compensate farmers for production costs - pay farmers for the materials that they used to grow their crop
hailed the cuts - said they were pleased with the cuts
make more competitive with rivals - make people want to buy their rice and not the rice of their rivals
make Thai rice more competitive with those of rival exporting countries
a burden - a task that is difficult, but must be done
a financial burden - an amount of money that must be paid, but that is difficult to pay
shoulder a financial burden - pay an amount of money that is difficult to pay but that must be paid
New rice futures programme
At least a new rice futures programme holds promise for the future. If rice farmers hedged price risk by themselves, the government would have no excuse for getting involved:
According to Dr Olarn, under the latest buying scheme, farmers are also eligible to opt for selling their grains in the form of rice futures. Registered farmers could sell their rice in the market if prices later rose above the pledging price.However, those who participate in the rice futures scheme need to at least own their warehouses or silos.
Vocabulary:
hedged price risk - protected themselves from changes in price while the crop is growing (the decision on how much to grow is made earlier without certainty about the price that will later be received)
silos - a tall round metal tower on a farm for storing crops
(Source #1: Bangkok Post, business, Reuters, 22-10-08, link)
(Source #2: Bangkok Post, business, 21-10-08, CHATRUDEE THEPARAT, PHUSADEE ARUNMAS, temp-link)
(Source #3: previous readbangkokpost.com article)
