Saturday, October 1, 2011

Threat of Thai rice price hike

MANY people remember the high commodity prices in 2007 and 2008 and pain felt when filling up their cars. Another crunch many Malaysians dealt with was when the price of rice soared.
Rice, being a staple food for Malaysians, is threatening to spike up again with the Thai government set to pay its farmers a high price for the commodity as a means to lift rural incomes, and that will have repercussions for many rice consuming nations including Malaysia.
With an annual consumption of about 79kg per person currently, Malaysia is ranked among the top 10 highest rice-consuming nations in the world, say market analysts.
As a priority item under the national food security, local rice stockpiles must be kept at comfortable levels at all times to ensure consistent supply and ample distribution to the public.
Hence, the task to protect and secure the national rice stockpile has been entrusted by the Government to Padiberas Nasional Bhd or popularly known as Bernas.
As the country's rice custodian, Bernas is the sole rice importer, purchaser of paddy from local farmers and distribution to retailers in Malaysia.
While Malaysia produces about 70% of its total rice needs, Bernas will need to supplement the 30% deficit via imports, particularly from major producers like Thailand, Vietnam and India.
Any potential disruptions, particularly in supply shortages or erratic upswing in global rice prices, will put Bernas on high alert to ensure the national rice stockpile stays intact.
More so with news that Thailand, the world's largest rice producer, is set to buy paddy from its farmers at a higher guaranteed price.
This has triggered fear among major importing nations including Malaysia that they may need to revisit the severe rice supply shortages in 2008.
The new Thai government will pay a guaranteed price of 15,000 baht (RM1,470) per tonne for unmilled white rice and 20,000 baht (RM1,960) per tonne for fragrant rice, which is about 40% to 50% higher than the previous market rates.
The Thai government's purchasing price is said to be even higher than Malaysia's average rice price at RM980 to RM1,150 per tonne.
It is widely speculated that the move may result in global rice prices escalating to US$800 by year-end from around US$600 per tonne currently.
At the same time, rice supply from Thailand may be disrupted as its rice exporters will likely be shipping less overseas as many are unable to compete owing to higher shipment costs.
In April 2008, the price of rice nearly tripled to almost US$1,000 per tonne from US$362 per tonne in December 2007 as world rice stocks fell to a 30-year low.
This has resulted in many Asian countries scrambling to secure and replenish their stocks, hence the formation of many new rice stockpiling policy among the involved nations.
For Malaysia, it consumes between 2.2 million and 2.3 million tonnes of rice annually.
Currently, about 660,000 tonnes or 29% of the total consumption is subsidised by the Government. In 2010, the Government spent about RM470mil on rice subsidy.
Maybank IB Research believes the local rice industry is in no immediate risk of a subsidy removal. The Super Tempatan 15, the most popular variant of subsidised rice in the country, is priced between RM1.65 and RM1.80 per kg and is targeted for the rural poor with income of less than RM1,000 per month.
At the time of reporting, Bernas is not reachable for comment.
An analyst with Maybank IB Research, who attended a recent Bernas analysts briefing, says the Bernas management is unalarmed by the Thai government's new policy.
Former prime minister Thaksin Sinawatra implemented a similar policy, whereby paddy was bought at 14,000 baht from farmers from 2001 to 2006. “The previous policy was not successful as the Thai government bought rice and built huge stockpiles but only to dump its rice later at a heavily discounted price,” adds the analyst.
Bernas management instead view the Thai new policy positively at least in the short term.
Firstly, Bernas has already locked in its rice import requirements up till March next year and is therefore insulated from the current price fluctuations.
Malaysia's rice stockpile has risen to 292,000 tonnes from just 92,000 tonnes previously to protect the country's national food security. The current rice stockpile is said to be equivalent to 45 days of consumption for Malaysia's 28 million population.
Bernas also expects another positive outcome in the form of reduced rice smuggling from Thailand into Malaysia as there will be no financial incentive to do so under the higher rice purchasing scheme in Thailand.
“Rice smuggling is the main threat to Bernas. An estimated 200,000 tonnes is being smuggled into Malaysia each year via Thailand which robs Bernas of some RM300mil to RM500mil in revenue,” adds the analyst.
Prior to the new Thai rice purchasing policy, it is considered a financial “boon” to smuggle rice into Malaysia as Thai rice is cheaper and often perceived as superior quality.
If a significant quantity of smuggled Thai rice reaches the hands of wholesalers, many will not be interested to purchase rice from Bernas and other local millers.
Left with no other alternatives, farmers will still need to sell their paddy to Bernas, the buyer of last resort, which buys local paddy at a minimum guaranteed price of RM750 per tonne.
Therefore, Bernas bears the brunt of the impact as it suffers from reduced sales and an rise in inventory cost.
The new Thai rice policy will also offer an opportunity to raise the prices of rice products in line with the global price surge, adds the analyst.
HSBC economist and co-head of Asian economics Frederic Neumann in the bank's Global Research Report entitled “What's cooking with rice?” says major rice importers like Malaysia, Indonesia and the Philippines will be in a vulnerable position given the potential hike in rice prices from Thailand.
He expects the move to trigger widespread hoarding activities among traders and consumers as the price of rice is expected to double once the policy is implemented in Oct 7.
“The rise in the cost price of rice, if sustained, could raise inflation across the region, especially Asean countries,” adds Neumann.
The impact of the rising Thai rice prices on inflation will depend on two factors;
First, it is how strongly domestic rice prices (i.e. Malaysia, Indonesia and the Philippines) respond to changes in Thai rice prices, and next is the weight of rice in the domestic consumption baskets. The weightage ranges from as low as 0.3%-1.7% in Hong Kong, Taiwan, South Korea and Singapore to more than 9% in the Philippines.
While Thailand's new policy by itself will not likely drive a full-blown spike in Asean inflation, Neumann points out that it is important to heed the lesson learnt in 2008.
Back then, the supply of rice remained relatively stable, but an initially gradual rise in prices was quickly exacerbated by the respective government's national policy responses.
However, he says: “We expect more measured government responses this time, preventing a repeat of what happened in 2008 but the risk of more material upward pressure in food prices remains.”
The price of rice matters hugely for Asian consumers and the region's central bankers as rice commands a big chunk of local CPI (consumer price index) baskets and its price is of importance to consumers' inflation expectations.
According to HSBC, the current buffer stock levels for major exporting countries is 84% higher than in 2008.
For Thailand, Neumann describes the short-term impact of the new policy as positive to its rice farmers. However, it will hurt other sectors of the economy and impair Thailand's status as the world's largest rice exporter in the long run.
There is a clear risk that Thailand will price itself out of the international market from the move.
Ultimately, he says other rice exporters such as Cambodia, Pakistan, India and especially Vietnam, the world's second largest rice producer, will seek to benefit from higher production and better quality.
Thailand's urban population will also have to bear the burden of higher rice prices.
Also, price control and/or subsidy schemes are ultimately distortive, which leads to less-than-optimal resource allocation in the economy and, in turn, hurt long-term growth.

Rice farmers compensated over cold water crop impact

Rice farmers coRice growers near Oroville Dam are benefiting from a creative fiscal solution to a water temperature problem. Advertisement Penton Media - Western Farm Press, Click Here! The State Department of Water Resources, which operates the dam, announced that a $2.4 million payment to several water districts is going to rice growers in those districts, compensating for complaints that Oroville water releases were too cold for ideal rice growing. Funding comes from State Water Project contractors. The payment was made this month to local water districts receiving water from the dam’s Thermalito Afterbay. The districts have water rights that predate operation of the California State Water Project (SWP). Oroville Dam is the SWP’s key storage facility in Northern California. The payments arise from an agreement among DWR and the districts. It resolved concerns on the cold water farming impacts of Afterbay deliveries. Water needs to be cold to safeguard fish downstream. But the districts voiced concern over cold water’s negative impacts on rice yields. DWR and the districts reached agreement on the issue collaboratively, using jointly developed data and analysis. The initial payment covers several years of concern and will be followed by annual payments, based on measured rice yield impacts and relevant market pricing. “This agreement illustrates DWR’s desire to find reasonable ways of balancing the sometimes conflicting benefits of our operation,” said DWR Acting Deputy Director Carl Torgersen. “Tax money is not involved because this solution is funded by the water contractors who are charged for SWP operations.” Districts participating in the agreement include the Western Canal Water District, Richvale Irrigation District and Biggs-West Gridley Water District. Butte Water District and Sutter Extension Water District have future options to participate. Estimation of cold water crop impacts involves direct measurement of rice yield loss using GPS-equipped harvesters, spectral analysis of satellite imagery to determine areas of impact and economic analysis of the value of rice. Under direction of a technical panel, valuation of the lost production is then determined.mpensated over cold water crop impact

Jakarta scraps rice purchase

Exporters say government at fault

Indonesia will scrap its plan to buy 70,000 tonnes of rice worth 1.37 billion baht from Thai exporters as a protest against the cancellation of a sale by the Thai government, say rice exporters.
Ten Thai rice exporters were invited last week to join a bid called by the Indonesian grain procurement agency Bulog. Vietnam was also given a quota to supply 30,000 tonnes at the same auction.
According to a local industry source who asked not to be named, Thai exporters proposed a price of US$658 CIF (cost insurance and freight) per tonne of 15% white rice. Vietnam quoted $609 a tonne. Both quotes were negotiated down by $2 a tonne.
Bidders from Thailand included Ponglarp Co, Siam Indiga, Chaiyaporn International Co, Asia Golden Rice, Capital Rice, and Thai Hua (2511) Co.
The source said Indonesia would not buy rice from either the Thai government or private companies because it was unhappy with Thailand's decision to cancel a sale of 300,000 tonnes in a government-to-government deal.
The sale was agreed to in a memorandum of understanding signed by the Commerce Ministry's marketing arm, the Public Warehouse Organisation, during the caretaker term of the Abhisit Vejjajiva government.
However, Commerce Minister Kittiratt Na-Ranong said this week that neither he nor his predecessor, Porntiva Nakasai, had signed a final agreement.
Meanwhile, another source said that Bulog now intended to scrap purchases from both Thailand and Vietnam and seek cheaper rice from India.
The source acknowledged that the price of $559 a tonne agreed by the PWO was too low. After deducting freight at $30 a tonne and other expenses, it would receive only $490 net.
Moreover, Bulog wants newly harvested rice, not old stock. But the price of 15% white rice now is about $600 a tonne, according to the Thai Rice Exporters Association.
Indonesia last year imported 277,305 tonnes of rice from Thailand but in the first half of this year it imported 577,017 tonnes as Jakarta wants to build up a stockpile of one million tonnes.
The source said that if Indonesia did boycott Thai rice, it would cause problems with exporters and make it hard for Thailand to sell on a government-to-government basis.
Another exporter said the industry wanted the government to seek a solution to the impasse to prevent a souring of bilateral relations.
Mr Kittiratt said he was ready to negotiate with Jakarta and would try his best to prevent a dispute.
In a related development, Finance Minister Thirachai Phuvanatnaranubala said government spending for rice purchases under its mortgage programme for the 2011-12 main crop was unlikely to reach 410 billion baht as projected earlier. The reason, he said, was that widespread floods had cut production while the government was speeding up efforts to dispose of state rice stockpiles.
The main rice crop annually covers about 60 million rai producing 25 million tonnes of paddy. Floods are estimated to have damaged 4 million rai of rice fields so far.

Vietnam rice prices jump to near three-yr high


Vietnam's rice export prices rose nearly 1 percent on Thursday, with the 5 percent broken grade hitting $575 a ton and is heading towards $580, which is the highest in more than three years, on demand from Indonesia and Mekong Delta flooding impact, traders said. They said the loading demand of 400,000 tons for Indonesia, an outstanding Indonesian tender for 100,000 tons and rising flood waters in the Delta that have curbed operation of rice mills and raised production costs, caused prices to rise. Seasonal floods this year in Vietnam's Mekong Delta are worsening, with waters rising to the highest level in 10 years. "The news (of possible demand) from the Philippines could also help lift prices while the stocks in Vietnam are no longer ample," a trader in Ho Chi Minh City said. The head of the Philippines' grain procurement agency said on Thursday he was worried about the damage to rice crops by Typhoon Nesat and could not rule out the need to import rice soon to replenish reserves.

Rice breeding brings billions to SE Asia

Jakarta, Sept 30 (ANTARA) - Southeast Asian rice farmers are harvesting an extra US$1.46 billion worth of rice a year as a result of rice breeding - the science that brings new rice varieties to farmers - by the International Rice Research Institute (IRRI), according to a new Australian report.

The Australian Centre for International Agricultural Research (ACIAR) assessed the impact of the Philippines-based IRRI`s research on improving rice varietal yield between 1985 and 2009 and found a boost in rice yield by up to 13%.

"This means farmers are now harvesting more rice per hectare, which not only lifts them out of poverty, but it is contributing towards the world-wide challenge of feeding the estimated global population of 9 billion people in 2050," said Australian Minister for Foreign Affairs Kevin Rudd.

"Ensuring an ample and affordable supply of Asia`s staple crop is critical to reducing poverty and increasing regional stability," he added.

The assessment also showed that IRRI?s improved rice varieties increased farmers` returns by US$127 a hectare in southern Vietnam, $76 a hectare in Indonesia, and $52 a hectare in the Philippines.

Dr. Robert Zeigler, director general of IRRI, placed the magnitude of this impact in context.

"The annual impact of IRRI?s research in these three countries alone exceeded IRRI?s total budget since it was founded in 1960," Dr. Zeigler said.

IRRI is a global leader in rice science that has helped to avert famine, lift people out of poverty, and save millions of hectares of natural ecosystems from being turned into farmland.

"For national governments, philanthropists, and even just your average person on the street who wants to make a difference in people`s lives, then it`s worth considering donating to rice research," said Dr. Zeigler.

ACIAR`s Impact Assessment Research Program Manager Dr. Deborah Templeton said that, apart from improved varieties, other IRRI activities not included in the study are likely to produce further significant benefits.

"Other benefits include improvements in eating quality and resistance to pests and diseases," said Dr. Templeton.

In 2010, the Australian Government contributed AUS$15.4 million towards the construction of a new, state-of-the-art Plant Growth Centre and upgrades to IRRI`s experimental farm in the Philippines.

These new facilities are enhancing IRRI`s capacity to increase rice yields against a backdrop of agricultural production pressures and a growing global population.