Cyclone damage in Burma may further tighten the rice market, the UN Food and Agriculture Organisation warned today. Food prices, particularly rice, have surged this year, fuelling inflation and increasing political tensions across the region.
Low productivity, inadequate investment and land encroachment are creating supply bottlenecks, challenging regional leaders to muster the political will to break up powerful marketing cartels and set aside competitive jealousies.
Association of South-east Asian Nations (ASEAN) trade ministers on May 3 agreed to cooperate more closely on food security. They acknowledged that access to reliable rice supplies and stable prices are fundamental to economic and social wellbeing across the region. However, they failed to agree on concrete measures to rein in rice prices, or to ensure that major importing nations in the region have adequate supplies.
An ASEAN Food Security Reserve exists. It is part of an East Asia Emergency Rice Reserve involving China, Japan and South Korea. Yet it is only for use during natural emergencies or major disasters.
The UN Food and Agriculture Organisation has forecast that rice shipments could drop by 3.5% this year due to lower output and export curbs, with supply shortages continuing until the fourth quarter. ASEAN's failure to take a strong stand on the issue to date underscores the competitive tensions that have pitted exporters against regional buyers. Suppliers battle. Thailand and Vietnam (the two biggest rice exporters), and Cambodia have imposed taxes, quotas and minimum prices to discourage shipments, prompting marketing groups to withhold supplies. Development agencies say that this has fuelled price volatility. The governments say that they have acted to protect domestic reserves and contain inflation. While some shippers may be taking advantage of global shortages to manipulate prices, there is no evidence of widespread profiteering:
· Thailand consumes only 10 million tonnes of the 18-19 million tonnes of rice it typically produces each year.
· However, it exported 4.07 million tonnes in the first four months of this year alone, compared with 9.55 tonnes in the whole of 2007.
· Vietnam, which is cutting shipments by 22% this year, has been affected by poor weather in highland areas that has destroyed about 150,000 hectares of rice.
· Cambodia is struggling to meet its food needs, and is expecting to export just eight million tonnes of rice between now and 2015.
Reform call. Producer countries have called for marketing reforms as a means of ensuring more stable supplies, but the plans being pursued would entrench their competitive dominance:
· Cartel. There have been discussions on the formation of a cartel involving Thailand, Burma, Cambodia, Vietnam and Laos. This is both controversial and probably unviable: the involvement of Vietnam could be problematic given its different economic structure; Burma exports very little rice and the May 3 cyclone has devastated the Irrawaddy rice belt; and Laos produces only enough rice for itself. Indeed, Thailand has already backtracked on the idea, proposing instead a 'council of rice trading nations'.
· Trading. Calls are being resisted for the overhaul of inefficient buying systems, which deliver most rice profits to traders, millers and other middlemen, and which are seen as a constraint on trade. Thailand has agreed to buy rice directly from farmers, but only on a limited scale to maintain its reserve stockpile. In Cambodia, Vietnam and Laos, marketing boards are de facto arms of government or have close political patronage, enabling them to control marketing and distribution.
Buyers struggle. While all ASEAN countries have been adversely affected by the surge in food prices, the impact has been felt most by importing nations:
· Indonesia has temporarily cancelled all rice import orders on the grounds that prices are too high.
· Malaysia is experiencing rice shortages in some areas.
· In Brunei, which has a food security arrangement with Indonesia, the crisis has spread from rice to cooking oil, flour, milk, eggs, chickens and other staples.
· In Singapore, which imports virtually all of its food, the government has reported an upsurge in demand for emergency food aid, though supplies appear to be adequate.
· The Philippines, expected again to be the biggest importer of rice this year, faces a supply challenge after the failure of its latest tender this week.