Thailand's rice headaches:
The local media perspective
By Jon Fernquest |
This weekend the Bangkok Post ran an article on the current rice crisis in Thailand translated from a Thai language newspaper, The Daily News.
Rice prices may have soared recently but people disagree about whether this is a short or a long-term trend, about who is actually benefiting from it, rice farmers or middlemen, and finally, about the best way to deal with the problem.
Exporters have been hard hit by unhedged committments to provide rice at prices well below current market prices to foreign buyers.
Some are worried that the government will release rice to help these exporters instead of keeping it as emergency stocks for Thai consumers.
Photo on right clearly shows that after farmers grow rice, they rarely have the transportation or storage facilities necessary to make money from their hard work, which is another point raised in the article.
Kamol Hengkietisak's In Print column provides English language newspaper readers with a taste of what the Thai language media is saying about important issues in Thailand each week.
Here is the article in full:
IN Print
Cheap, no more
The rising price of rice is affecting all aspects of society, and it probably will for a long time, predicts a Thai writerKAMOL HENGKIETISAK
Saturday April 19, 2008
It is now widely accepted that the rising rice price is the hot issue of the day, and a matter that affects all Thais. Consumers have to pay very high prices for rice while paddy farmers can now sell their product at higher prices and recover from their accumulated debts, noted Sakchai Inchan, a Daily News writer.
The question is, what is the equilibrium point between paddy farmers and Thai consumers? And, is the rising rice price truly benefiting farmers?
Rice is a staple food for practically all people around the world, but especially for those living in Asia. Altogether, global rice consumption measures over 100 million tonnes. Any rice-consuming nation which does not produce enough rice of its own, has to import it from nations which produce a surplus.
Currently, the main rice-importing nations are the Philippines, Indonesia and Iran while major rice exporters are Thailand and Vietnam. India and Egypt also export rice but on a significantly smaller scale.
In the past, the volume of rice exports and imports were more or less in equilibrium, but this year the global demand has risen significantly while global rice production, disrupted by drought, floods, and other natural calamities, has fallen. From there, it is simply a matter of supply and demand, and rice prices have risen accordingly.
The Daily News writer noted that Vietnam and India, two major rice exporters, faced natural calamities last year which forced the two countries to curb their rice exports this year in order to stabilise a rice stockpile for their own national consumption.
The two countries' export curbs accounted for a 4 million tonne drop in the global supply, at a time when global demand has continued to grow. Thus, rice to meet global demand has to be supplied mainly from Thailand, a fact which, coupled with speculative hoarding by commodities traders, rice millers and exporters looking to profit from export price rises, has inevitably affected Thailand's domestic retail market.
At the moment, premium grade Hom Mali commands 34,000-36,000 baht a tonne while the 100% rice variety fetches 26,400-26,700 baht. These are both more than double last year's prices.
Domestic ramifications
In the world of rice, there are four groups involved: farmers, millers/traders, exporters and consumers.
The first in the supply chain are Thai farmers who will benefit from the global price rice, and it will be the first time that farmers will not need a government rice pledging scheme to shore up their incomes. With the higher price, Thai farmers will have more bargaining power with middlemen such as rice traders and millers, who in the past, often exploited them so much that many Thai farmers are steeped in debt.
Rice millers and traders also benefit from rising global prices in their rush to buy up paddy from farmers. This group is the most powerful in determining domestic and global rice prices as they have management skills, capital and warehouses to stock paddy and/or rice. Thus, they can hold stock and wait to sell at the point when they feel they will make the most profit. They are also the most influential group, as they are the middlemen between farmers and exporters and consumers.
Now that global rice prices have reached historic levels, the government sees no need to implement a rice pledging scheme this year. Thus millers and traders make up the most powerful group in determining rice supply and prices.
Rice exporters are experiencing shocks. They dare not take overseas orders for fear of facing ever-rising prices and supply problems. Currently, the rice price fluctuates widely on a daily basis, making export a risky enterprise as the orders are often made by a forward sales contract, in which the quoted export price is based on future prices.
If price forecasts are incorrect, the risk of loss is great. Several rice exporters have already lost billions of baht fulfilling forward rice contracts or abandoning contracts for which they were unable to secure supply.
The fourth group is consumers, who have no choice but to buy expensive rice if the government fails to lower the cost. There are often reports that supermarkets and superstores have run out of packed rice.
There was also bad news for consumers when Commerce Minister Mingkwan Sangsuwan recently changed his mind about allocating some of the 2.1 million tonnes government rice stockpile to be packed for retail sale at a subsidised price. He would like to hold this 2.1 million tonnes to make sure the country has adequate supply should drought occur and affect this year's paddy crops.
Do farmers really benefit?
This is a legitimate question. Do the rising prices fully benefit the farmers or the middlemen? The writer noted that Mr Mingkwan has boasted rice price would rise to 30,000 baht per tonne. This sounds wonderful, as if farmers were bound to get rich. Looking into details, though, it turns out farmers will get less than 50% of this, as that price is the export price of premium grade Hom Mali a variety of paddy most farmers don't plant.
Even for farmers who do plant Hom Mali, they would be lucky to get more than 10,000 baht per tonne for their paddy, as it still needs to be milled to produce rice for export. The final product, which accounts for the margins of both the farmers and middlemen, can fetch 30,000 baht per tonne.
The Daily News writer noted that most Thai farmers are poor and cannot wait to hoard paddy to sell for speculative purpose because means of production are often secured through loans. Some have to pledge their paddy in advance to secure loans. At the time of harvest, they have to sell their crop immediately to pay off their debts, and they have no chance to keep stocks for speculative purpose like the middlemen.
Mr Mingkwan's suggestion that farmers hold on to their paddy is thus not feasible. Even if they are not poor and can wait to sell, their stocks may be stolen or damaged by hailstorms. Few farmers are rich enough to build the warehouses needed to keep paddy dry and secured.
Meanwhile, some farmers, especially those in remote Isan areas, lack knowledge and information, and they are often victimised by middlemen who offer low prices for crops. Rising global rice prices don't benefit farmers as much as the middlemen.
Risky future
Several pundits predict that rice prices will continue to rise over the next 2-3 years due to the growing number of global consumers, especially in Asia, while supply remains uncertain due to natural calamities brought on by global climate change and an increase in drought and floods.
Recently, paddy farming acreage has also been reduced because more and more farmers are instead growing the alternative energy crops that are used to produce palm oil to be blended into bio-diesel and maize to produce ethanol.
Yet, others feel differently. They say that this price rise is a short-term phenomenon and the price may soon decline. Thai rice has commanded a higher price this year due to production troubles in other exporting countries.
If main crops are plentiful in the coming year, Vietnam and India may resume their former levels of exporting, and the global rice price would then fall.
Thai farmers have to think hard to plan their future as all the production costs such as fertiliser, seedlings, insecticide have also risen this year. Landless farmers face rising fees for land rental, while all farmers face thieves who come late in the night, stealing farmers' paddy.
Thai farmers also have to reckon with nature's vagaries, rain falling unsteadily or not at all. Most Thai farmers still depend on nature as irrigated areas are limited to a few Central plain provinces. Any unusual drought or floods wreak havoc to the paddy crops, affecting supply.
Prasit Cheuyphuang, Thai Farmers Association President, said that farmers are satisfied with the current paddy price, but are worried about the upcoming main crop's prices as production costs have risen from about 4,000 baht per rai to the current 5,690 baht per rai. If harvest time comes, and rice prices suddenly plunge, Thai farmers will face hardship.
Mr Prasit would like the government to help guarantee that paddy price will not fall lower than 12,000-15,000 baht per tonne. To make such a price sustainable, the government must come up with long-term solutions such as improving and expanding irrigated areas, containing production costs and educating farmers to have better bargaining power against middlemen.
Consumers pay the price
Thai consumers must understand that they have to pay high prices for rice for several months or even years to come, noted the Daily News writer. The government is still confident that there is plenty of supply, and that rising rice prices won't affect Thai consumers much whether they are rich or poor. On average, the rising rice price amounts to only 2.90 baht per meal, less than the cost of a bottled water.
This is the main reason given by Mr Mingkwan as to why the government does not need to use part of its rice stockpile to make retail packed rice to be sold at subsidised price directly to consumers just now.
Yet some consumers still raise the question as to why Thai people should have to pay expensive retail rice prices when rice is available in abundance in the country. Why should Thai consumers have to eat rice that is nearly as expensive as that sold to foreigners?
These critical consumers draw comparisons to oil-producing nations whose citizens pay much less for their oil products than overseas customers. Why can't Thai consumers benefit from our own rice production?
These are legitimate questions as rice is non-perishable. Rice can be stored for several months or years. In the past, the Thai government implemented rice pledging schemes to shore up paddy prices for farmers. Why can't the government intervene this time to help Thai consumers who are facing the rising costs of many products and services right now?
The government's own 2.1 million tonne stockpile could be a significant tool in helping Thai consumers to get cheaper rice. Several pundits agree that if the government allocates some stock from the 2.1 million tonnes to be packed and sold directly to consumers, it would help alleviate the hardship. If the government agrees to do this, it will receive support from consumers as well as farmers and traders.
However, people will rise up in arms if the rumour is true that the reason the government has changed its policy to not pack the rice for direct sale to consumers is to instead auction the stock to rice exporters, and not to keep it as emergency stocks.
The Daily News writer warned the government against auctioning off the stockpile to exporters who are struggling to find enough supply to fill their forward orders. If exporters face hardship, they are only a small minority, but if the government stockpile is depleted and the future crop fails, it will mean far worse things for many more Thai consumers.
(Source: Bangkok Post, op-ed section, page 10, 19-04-08, KAMOL HENGKIETISAK, temp-link)
Vocabulary:
middlemen - buyers, sellers, and processors between the producer and consumer of the product (rice mills, rice packers, rice exporters, for example)
hedged - protect against the risk of changing prices by purchasing futures contracts or options contracts
committments - promises you have made to do something in the future (here sell rice at a fixed price)
hot issue - an important issue that everyone is talking about
paddy - rice
accumulated debts - when the money you owe keeps growing larger every year (because of bad weather or low crop prices, for instance)
Daily News - a Thai language daily newspaper published in Bangkok
in equilibrium - in balance
the equilibrium point - in balance situation
were more or less in equilibrium - roughly but not exactly balanced
a staple - something that is necessary for everyday life (such as rice)
on a significantly smaller scale -
disrupted - caused difficulties that prevented normal operation
drought - when there is little rain and little water
calamities - a disaster, an event that causes a lot of damage and destruction
curb - control and limit (See glossary)
stabilise - keep from moving up and down a lot
stockpile - store large quantities for future use (See glossary)
accounted for - caused, explains why
coupled with - combined with
hoard - secretly storing large quantities of scarce things (See glossary)
speculative hoarding - secretly storing rice to gain from price increases
hoard paddy to sell for speculative purpose - Same as "speculative hoarding"
for speculative purpose - for speculation
fetches - sells for the price
supply chain - the system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer (See Wikipedia)
government rice pledging scheme -
shore up - take action to keep at a high level
shore up their incomes - take action to keep rice prices high
shore up paddy prices - take action to keep rice prices high
steeped in debt - has a lot of debt
influential - have the power to make people agree with you and do what you want
forward sales contract - a contract selling rice for delivery in the future
allocating - giving a share of the total amount to a person (See glossary)
subsidised price - when the government offers a higher than market price to help farmers, and pays for the difference
adequate supply - enough supply
a legitimate question - a good question, an appropriate quuestion, a question that can and should be asked
means of production are often secured through loans - they borrow the money they need to produce their crop
pledge their paddy in advance to secure loans - they agree to sell their rice at a fixed price to the lender to pay back their loan
pay off their debts - pay the money they owe back to the lender
feasible - a plan that is possible to achieve
hailstorms - raining small pieces of rice in a storm (See Wikipedia on hailstorms)
victimised by - treated cruelly and harmed by
pundits - experts (asked for their opinion which is published in the media)
alternative energy crops - crops that are used as oil substitutes
blended into bio-diesel - added to bio-diesel
maize - corn
short-term phenomenon - will only exist for a short time, situation will return to normal
nature's vagaries - all the unpredictable things that can happen in nature (storms, floods, droughts, etc)
wreak havoc - cause great disorder and confusion
prices suddenly plunge - prices suddenly fall by a large amount
face hardship - when life is difficult and unpleasant (for example, because you don't have enough money))
bargaining power - the power to set the buy-sell price during bargaining
non-perishable - products that go bad and can't be used after a short period of time (fruit, meat, and flowers, for instance)
intervene - when the government takes action to solve a problem (rather than let the problem run its natural course)
alleviate the hardship - acting to make the situation less difficult and unpleasant
emergency stocks - rice kept in case there are emergencies in the future
supply to fill their forward orders - rice needed to give customers who made orders a long time ago
a small minority - a small group within society (that often have to fight to protect their rights in the face of indifference by the majority)
stockpile is depleted - use all of the quantity being stored
