IRRI sees lower rice prices, new markets

Samarendu Mohanty, head and senior economist at the social sciences division of the IRRI, said on Monday that the programme could change the country’s role in the global rice market and encourage new exporting nations, which would be positive news for food security.
Parliament recently approved a paddy-pledging programme that will increase the minimum guaranteed price for farmers by more than 60 per cent. Since Thailand is the largest rice exporter in the world, accounting for one-third of overall trade, some serious turmoil might have been expected in the global market at least in the short term as a result, he said. The global market price for rice has moved up by more than 15 per cent in the past few months in anticipation of the programme.
However, the market reaction to the approval of the scheme has been more or less subdued because of the lifting of the four-year-old export ban on non-basmati rice by the Indian authorities, he added.
Indian rice traders are now allowed to export up to 2 million tonnes of non-basmati rice under open general licences. Both higher price quotations from Thai and Vietnamese traders and a weaker rupee, which has depreciated by 15 per cent in the past few weeks, are helping Indian traders rack up export sales in a hurry.
The paddy-pledging programme will encourage Thai farmers to plant fence-to-fence and take advantage of a higher support price by intensifying rice production.
The support price, which is much higher than the current market price, will also act as a floor for the domestic and export market with Thai consumers paying more for their rice. This is likely to have some negative effect on domestic consumption, which has already been on a downtrend because of diversification away from rice to more high-value products, following a rise in income, he said.
Therefore, the pledging programme could result in higher production and lower domestic consumption and a larger exportable surplus than what would have been possible without the scheme.
The effect of the programme on the global rice market will depend on how the government handles the surplus rice. The price-support programme will greatly expand the government’s involvement in rice trade, thus causing more uncertainty in the global market, the IRRI official said.
With respect to surplus rice, the government has two options, he said. First, it may decide to export the amount that can be sold at a price that would cover its costs.
However, this would result in stockpiling of rice in Thailand over time, similar to what was witnessed in the United States and the European Union in the 1970s and early 1980s. In that case, the government would have to manage the problem of rising public stocks by introducing measures to control supply.
The second option could be to sell the surplus rice aggressively in foreign markets at a subsidised price. This would cost Thai taxpayers billions of dollars, and the actual amount would vary from year to year depending on the global supply and demand situation.
If Thailand followed this option, global rice prices could be expected to be lower than what they would have been in the absence of the pledging programme, Mohanty said.

Supply control 
If the Kingdom followed the first option and limited its exports to the amount that could be sold without subsidies and implemented measures to control supply to tackle the surplus problem, this could drive up rice prices in the global market.
However, higher prices would also induce a greater supply from the rest of the world and moderate the effect on rice prices, and it might even bring prices close to the level that would have been witnessed without the pledging programme.
On the bright side, he said, this process could provide an opportunity for countries with abundant land and water, such as Cambodia, Burma and Brazil, to emerge as alternative suppliers to the global rice market.
From a long-term global food-security perspective, the emergence of new exporters would definitely be a plus and this could provide much-needed stability to the market during crunch times, he added. The transformation of the global market with multiple suppliers could also reassure importing countries that depend on foreign rice for domestic food security.
From Thailand’s perspective, Mohanty said the majority of the benefits of the scheme would go to large farmers with a marketable surplus, whereas small and marginal subsistence farmers might not benefit much, and could even lose if higher rice prices drove up input prices. This would also make rice more expensive in the domestic market.
Overall, implementation of the programme may cost Thailand billions of dollars and potentially change the country’s dominance in the global market, he concluded.