Global food security at risk: Thai rice subsidy could cause price turbulence

Move could have adverse impact on food-deficit and importer nations.


Afp September 25, 2011

BANGKOK: A populist policy aimed at boosting the incomes of Thai farmers has raised fears of global rice price turbulence, and experts say the kingdom could just be hurting itself.

Thailand, the world’s biggest rice exporter, has vowed to boost the minimum price farmers receive by buying unmilled rice directly at 15,000 baht ($485) per ton from October. The current price is about 10,000 baht.

The move, part of an array of promises that helped propel former premier Thaksin Shinawatra’s allies to victory in a July election, has fuelled speculation that world prices could be set to surge.

While it is unclear what effect the policy might have on global consumers, prices have already risen and observers fear a spike could pile further pressure on poor importer nations.

Rice is the staple food for more than three billion people, about half the world’s population, and Thailand produces about one third of global exports, with China, Bangladesh, Philippines, South Africa and Nigeria among its major customers.

The rice export price has jumped from $500 per ton in early July to around $600 as Thai farmers withheld stocks to take advantage of the rice deal, according to analysis from Capital Economics.

The Thai Rice Exporters Association, concerned that the country could lose its position as the biggest global exporter, has warned that prices could hit $800 per ton.Vichai Sriprasert, head of Riceland International said last week the move could push Thai prices “higher than anybody”.

“Any government in the world when they subsidise their commodities (it is) to be more competitive, but Thailand just did the opposite,” he said.

The US Department of Agriculture predicts Thai exports, projected at 10 million tons this year, will slump by 20% in 2012, although global trade is predicted to drop four percent from a 2011 record high.

At a recent meeting in the northern Thai city of Chiang Mai, export representatives from Thailand and Vietnam - the world’s second biggest supplier - warned of the effect on consumer prices. A report from the USAID-affiliated Famine Early Warning Systems Network last month said Asian rice prices had risen “significantly” since July, driven mainly by the Thai government proposal.

“Unless trade in rice is disrupted by policies, prices should remain relatively stable,” it predicted, forecasting that world production would increase slightly ahead of consumption in the 2011/12 period.

“If, however, rice prices were to increase, this development would have an adverse impact on food security in low-income, food-deficit countries, especially in the context of high oil prices and a global slowdown in economic activity.”

Thailand’s dominant position has raised concerns that world prices could surge as high as in 2008, when they peaked at around $1,000 a tonne amid export curbs in India and rocketing oil prices.

The report said the bill for the scheme could be significant, which suggests “the government will be keen to pass at least some of the cost to consumers. But it also suggests that the scheme may not be in place for very long”.

Published in The Express Tribune, September 26th,  2011.

 

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