The Hindu Business Line : Plans to form rice cartel unlikely to succeed

Mumbai, May 5 It looks likely that the world is reading too much into the reported statement of the Thai Prime Minister that his Government would encourage five rice-producing Asian nations to create a consortium. Together with Vietnam, Cambodia, Myanmar and Laos, Thailand would help establish a rice export cartel. At about 9 million tonnes (mt), Thailand is the world’s largest exporter of rice, accounting for around 30 per cent share of the global rice export trade quantified at about 30 mt. Close to half of rice produced in Thailand is exported.

Thailand is followed at a distance by Vietnam with export of 4.0-4.5 mt out of about 23 mt production. Cambodia, Laos and Myanmar are marginal players in world rice trade, with varying levels of export year-on-year.

Interestingly, Asia as a whole accounts for 90 percent of world rice production, consumption and trade. Major producers include China (close to 130 mt) and India (94 mt), followed at a distance by Indonesia (35 mt), Bangladesh (28 mt) and the Philippines (10 mt).

Interestingly, the last three are also regular importers of rice. Indonesia imports in the 1-2 mt range, the Philippines slightly less than 2 mt and Bangladesh around 1 mt.

Other exporters include India (3-5 mt until recently), Pakistan (2.9 mt) and China (1 mt).

Will a rice export cartel succeed? Despite the grand vision of the Thai Prime Minister, a consortium or cartelisation of rice exports is most unlikely to work in a sustained manner given the nature of rice trade. For one, across Asia, most paddy growers are small and marginal. They are subject to severe pressures in terms of input availability and costs, dependence on rainfall and access to markets.

Rice output

Although global rice output has been rising steadily, consumption too has been rising due to population growth and rising incomes, especially in Asian economies. Many Asian countries have begun to face tighter availabilities.

There is nothing to suggest that the tightness would ease anytime soon. Importantly, for each of the exporting countries the priority is different. For Thailand, export is critical because of huge surplus. However, rice production has not shown any significant increase in recent years. Although the country has not restricted exports, yet internal availability is tightening and prices have reached record highs, so much so that the Government had to release some stocks into the market to cool the price sentiment down. On the other hand, Vietnam, the world’s second largest supplier, has re-imposed a ban on exports in order to cut shipments by a fifth equivalent to around 1 mt. Obviously there are domestic compulsions for the decision to cut exports. China has placed a tax and quota system on rice exports. Indian case is well known. Non-basmati rice export has been banned and on Basmati rice there is not only a steep minimum export price, but also an export cess of $ 200 a tonne, making the premium rice prohibitively expensive.

The nature of Governments and governance in some of the Asian countries does not inspire much confidence of steady export policies; and much less of cartelised exports. At the first sign of trouble, the cartel is at risk of a breakdown.

‘Dark horse’

Indeed, the extent to which junior members - Cambodia, Laos and Myanmar - of the proposed rice cartel would trust the Big Brother Thailand to play fair would eventually determine the fate of the proposed cartel. India, and to a lesser extent China, can be the dark horse. Export policies and programs of the country have the tendency to vary from time to time - from total ban on exports to subsidised exports.

The best laid plans of mice and men go awry. Heightened uncertainties of production aggravated by land constraints, water shortage and climate change can potentially disrupt any long-term arrangement, however much important it might look at one point of time. The Thai Prime Minister is entitled to his grand vision of leading a rice alliance of some Asian countries which together account for about 40-45 per cent of exports. The alliance would be structurally weak to be able to sustain a cartel approach to rice exports without two-three more big boys participating.

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