Butterfly effect: In Thailand’s misery, Pakistani rice exporters see profit

Damage to Thai crop likely to increase demand for alternatives, may raise global prices.

KARACHI:

Pakistan’s rice exporters are likely to see profits increase over the next few months for a rather tragic reason: the floods in Southeast Asia, particularly Thailand, did more damage to their crop than it appears the floods in Sindh did to Pakistan’s rice crop.

As floods submerge more than one-third of the provinces in Thailand, the country’s rice crop has been devastated, putting the world’s largest exporter of rice effectively out of the market and leaving global rice importers scrambling for alternatives.

“Pakistani exporters will get an edge because of the destruction in Thailand,” said Anwar Mian Noor, a rice exporter and former chairman of the Rice Exporters Association of Pakistan, an industry group.

In the short run – over the next three to four months – analysts and industry experts expect prices to remain stable as India, which had effectively removed itself from the global rice trade, returns to the market in order to compensate for the lost production from Thailand. Nonetheless, even in this period, analysts expect Pakistani rice exporters to find more willing buyers than before, increasing export volumes.

“Buyers from East Africa and the Middle East will buy more rice from Pakistan,” said Noor.

It is unclear just how much the flood damage to the rice crop in Sindh will hamper the ability of Pakistani rice exporters to meet greater global demand. The extent of the damage remains unclear, though industry experts put the number at between 15% and 20% of the total national crop. “But we had a good crop this year, so the damage won’t affect local supplies quite as much,” said one rice exporter who wished to remain anonymous.

Over the longer run, however, it appears that global prices will rise substantially, largely due to the Thai government raising the prices it pays its farmers in a bid to stimulate their rural economy.

The newly-elected government of Thai Prime Minister Yingluck Shinawatra has decided to push up the domestic price of unmilled rice to $500 per ton, according to UkrAgroConsult, a commodity analysis firm based out of Ukraine.

That price intervention will likely push up prices in 2012, up to as much as $700 per ton, Jeremy Zwinger, CEO of The Rice Trader, a leading trade publication and analyst of the global rice industry, was quoted by UkrAgroConsult as having said.

Total global trade in rice was valued at $16.5 billion in 2010, of which Thailand had the largest share of 32.4%, or about $5.3 billion. The United States is a distant second at about $2.4 billion in exports with Pakistan not far behind at $2.3 billion.

Prices for Pakistani rice vary widely, but the most commonly sold variants have a freight-on-board (FOB) price of around $460 or less. A jump to $700 would represent a 52% increase in prices, with nowhere near a corresponding change in local production costs.

That increase is likely to result initially in a bonanza for rice exporters in Pakistan, though it may ultimately lead to higher prices for domestic consumers. Rice is a “non-political” commodity in Pakistan, meaning the government does not set its prices.

The expected rise in rice prices, however, is unlikely to affect domestic consumers much in Pakistan, since rice does not form a staple of the nation’s diet. Historically, the government of Pakistan has not intervened in the rice market, even when there have been wide variations in prices, since the grain of choice for most Pakistani households is wheat, a heavily regulated and controlled commodity.

Published in The Express Tribune, October 26^th, 2011.