Archive for the 'Rice Crisis' Category

Chart, export of rice : values and quantities until february 2009

Here is an update of the chart “Rice crisis” I’ve created last year, when we had the peak of inflation and serious problems of offer/demand in the world.

Now with the big crunch of exports, particularily in the industrial sector, agriculture is coming back under the spot lights.

Some people think “self sufficiency” and foresee a rozy future for Thailand.

Yes agriculture is a good card for the country… But let’s not forget some serious drawbacks :

-productivity is low… many people are working in the fields… It would be possible to achieve higher productivity but… employment would take a serious hit. What all those people without job would do ?

-prices are volatile. Even though we can assume they will remain high (demand is increasing… following the increase of world population), and new shortages could happen again (if other rice producting countries reduce their own exports because natural disaster etc.).

-If money is to be made from the rice business… it’s not really on the farmers side. Same old story… Companies, middle men take a large chunk of profits.

-Rice is political, highly political, therefore can be riddled with problems : indeed, the government is buying large quantities of rice… at higher prices than market prices. It’s a subsidy. Therefore it costs.

ricefeb09

The “bubble” last year is clearly visible, and the peak at 1,2 million metric tons (june) is linked to the “Peak Exports” (july 2008).

In february 2009, the quantity was 690 000 metric tons, in the average.

Watch out : prices are in current US dollars (1 USD in 2009 is worth less than 1 USD in 2005). And we had inflation in Thailand too.

(source Bank Of Thailand, table EC_XT_009)

Rice : was Samak too generous with farmers ?

A rice crisis… could lead to another one.

Quick reminder : prices of rice on the world market have more than doubled in 2008. Supply was tight (a few countries banned exports), and demand high etc.

The thai economy took great advantage of the situation (look at my chart about exports, per month). A real  honey pot.

Meanwhile, Samak’s government wanted to boost farmer’s income. The mechanism is easy : every year, the state buys a large stock pile of rice. Samak decided to increase the buying price to 14 000 THB per ton.

A few months later… the prices on world markets are going down… Therefore, we see a cisor effect between the price thai exporters are willing to pay to farmers (or can pay) and the government’s own buying price (which is too high).

Perfect secondary effect of government intervention. Perfect market distorsion. It’s Economy 101. Always.

Samak is now back where he belongs (AKA history’s garbages)… So the sharks are showing up again, with rather strong words to ask for a policy review. 😉

Unless it reviews the current high price level used by the previous Samak Sundaravej regime, Thai rice exporters will have to go on a long holiday next year as they will not be able to compete with other rice-exporting countries,” association president Chookiat Ophaswongse said.

The government currently buys white paddy rice from farmers at Bt14,000 per tonne as part of the market intervention programme, compared with the prevailing market price of around Bt12,000.

Chookiat said the country’s rice trading system will be seriously damaged by such a price distortion.

The previous Samak Cabinet aimed to buy a total of 8 million tonnes of paddy rice from October 16 till February next year.

If the government insisted on intervening at Bt14,000 per tonne, then it could face a potentially huge burden of having to set aside a state budget of up to Bt120 billion for this scheme [which would incur big losses based on the current market price]. (Nation)

Chart, exports rice : volume, value until may, and situation of prices

Update of the chart, with datas for may (source BOT, table EC_XT_009).

Volumes remain strong.

Value is skyrocketing… +128 % compare to may 2007.

May 2008 was the peak for rice prices.

The export price of 100 percent grade B white Thai rice, used as a benchmark, rose to a record $1,038 a metric ton May 21, as exporters including Vietnam, India and China curbed shipments to damp domestic prices. (Bloomberg)

Since then, it went down.

The price, set weekly by the Thai Rice Exporters Association, fell 1.5 percent to a three-month low of $849 a ton on July 2, from $862 a ton a week earlier.

But, and this is very important : “Still, that’s more than double the average price of $345 a ton in July 2007.”

This is still a powerful inflationary shock.

Chart : exports rice, volume and value, until april 2008

Datas for exports in april have been published (source BOT).

Here is an update of the chart about exports of rice (value in millions USD and volume in metric tons).

Compared with the previous month, we have -12 % in volume, but a +6 % in value (normal, the prices continued to increase in april).

Now if we compare year-on-year (april 2007), we have +62 % in volume and a whooping +137 % in value. 😉

What about the “rice crisis” ? Well… we don’t speak about it anymore.

The new crops have curbed the emotion worldwide, and some countries have removed their ban on exports… So the prices went down.

However, rice remains an issue in Thailand. The government has decided a very generous -and controversial (read here)- program to subsidy the prices paid to farmers. I will follow up with another article.

Rice crisis : government’s intervention will cost 42 billions THB

We have now a total budget for the rice subsidy program decided by the government.

42 billions THB (1,3 billion USD).

The government can’t lie anymore : it is a subsidy. A massive one.

It will buy at high price from farmers, and sell at cheap price to the consumers (even though the volumes are still ridiculous, read here).

The government has released a plan to intervene in the domestic rice market, using a budget of 42 billion baht.

Deputy Prime Minister and Commerce Minister Mingkwan Saengsuwan said the government will purchase jasmine rice from farmers at between 19,000 to 20,000 baht per ton, round-shaped rice at 14,000 baht per ton, and sticky rice at 9,000 baht per ton.

He said the rice moisture must remain at 15 per cent, and the state will purchase sticky rice at 7,000 baht per ton if it contains over 25 per cent moisture.

Today, Mingkwan will lift a ban on rice transportation between provinces, in order to allow farmers to sell their stock to all rice mills around the country. Tomorrow he will attend a meeting of the National Rice Policy Committee to design a funding plan for the state’s rice procurement.

Subsequently, the government will purchase rice from growers without limit. (TOC)

Rice : “government’s intervention doesn’t distort the price”

The Joke Of The Day from Surapong, Finance Minister (and Deputy Prime Minister)…

Deputy Prime Minister and Finance Minister Surapong expresses confidence that the government’s intervention in rice prices will help the price mechanism return to normal and increase profits for farmers.

The deputy premier says the Commerce Ministry’s measure in buying rice from farmers will prevent merchants from taking advantage of the farmers. He also affirms the government’s rice price intervention does not distort the actual price. (PRD)

Okay. I’m going to -try to- decipher :
-prices of rice are going up
-the government sell rice at -20 % of the current price
-this intervention does not distort the prices
-and this intervention “will help the price mechanism return to normal and increase profits for farmers“.

Indeed. It’s the Joke Of the Day.

The ability of thai officials to state blatant counter-truth is breathtaking. 😉

And furthermore, selling 500 tons of cheap rice (read here)… when the consumption of the country is 9,6 millions tons per year… is nothing but a PR operation. And a blatant lie.

Take Malaysia for instance. They just bought 200 000 tons from Thailand (300 000 more to come).

Malaysian Prime Minister Abdullah Ahmad Badawi late Monday announced the country would, for the first time, spend at least 725 million ringgit to subsidise foreign rice imports to keep retail prices of the staple affordable.” (TNA).

Now this is serious subsidie. 😉

And by the way :

The price of Thai rice has swung back to Bt27,000 from Bt23,000 a tonne of paddy regular rice in two days, thanks to the export of a big lot of 200,000 tonnes to Malaysia. (Nation)

Cheap rice : 500 tons sold out in 1 hour

A government promotion for the retail sale of 100,000 five-kilogramme bags of rice selling at Bt120 (US$3.7) per bag sold out in just an hour on Monday, a senior Thai Ministry of Commerce official said Monday.

Each buyer was allowed to only three bags of rice, drawn from government warehouses nationwide, and sold at about 20 per cent less than the current market price.

Of the total 100,000 bags,18,250 were sold in Bangkok while the balance was distributed and sold in nine other provinces. The idea of selling packaged rice was initiated by the Commerce Ministry to cope with public demand for rice in the market following complaints that there was not enough rice for shopping malls.

People were lining up at rice sales outlets since 9am and the entire supply of 100,000 bags of rice were sold out within an hour, said Mr. Yanyong.

Disappointed rice buyers were allowed to place their signatures to book for future rice sales, scheduled for May 20 and May 30, when it will sell 100,000 bags of rice on each day, said Mr. Yanyong. (TNA)

What to think about it ?

First, the volume is ridicule. Thailand consumes 9,6 millions of tons of rice per year…

It’s a PR operation.

Second, when 33 000 persons (minimum) line in queue to save 30×3 = 90 THB (half the minimum daily wage in BKK)… and other people are “disappointed” because they were not served… then I’m not sure we can rejoyce ourselves.

But in a way, it’s a good reminder : the vast majority of the thai population has low income.

Look at the datas of average wages for employees (here).

This is why inflation is an explosive issue… much more than in western countries. The government is making a mistake by pushing on GDP growth instead of fighting inflation.

And fighting inflation DOES NOT MEAN to increase wages !


Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.