Sunday, 4 May 2008

From cartels to export curbs: gov'ts act on rice prices

HONG KONG (AFP) — As the price of rice soars, some governments -- notably in Asia -- are becoming wary of the political risk of millions of hungry people on their doorstep.

In response, governments are trying it out every technique possible to shield their populations, including introducing rationing, subsidies, price-fixing cartels and export curbs.

But there appears to be no magic one-size-fits-all formula, partly because of national factors and partly because of the nature of the market.

"In Asia, most rice import and export is carried out by countries rather than by companies," according to Jonathan Pincus, chief economist for the UN Development Programme in Vietnam.
"Producing countries are restricting exports because they're concerned about the domestic market," he told AFP. That in turn "means things just get tougher for consuming countries, which have to pay higher and higher prices."

Last week Thailand said it had agreed in principle to form a rice price-fixing cartel -- similar to the oil industry's OPEC -- with neighbours Cambodia, Laos and Myanmar as well as Vietnam.
Thailand, the world's top rice exporter which last year shipped around 9.5 million tonnes overseas, insists it has no plans to curb supplies.

It has said it will gradually sell off its 2.1 million tonnes of stockpiled rice at 20 percent below current prices to relieve shortages.

In contrast Vietnam, the world's second biggest rice exporter, has reduced this year's cap on exports from four million to 3.5 million tonnes to secure domestic supplies and reduce prices fuelling double-digit inflation.

Hanoi has also banned new export contracts until the end of June, although existing contracts -- including shipments to the Philippines at record prices of 1,200 dollars per tonne -- are being honoured.

Cambodia in late March banned rice exports to ease pressure on the domestic market after prices reached nearly a dollar a kilogramme, deepening poverty in a nation where one-third of the population lives on less than 50 cents a day.

But Prime Minister Hun Sen said last week that the government was mulling exporting rice again, to find markets -- and revenue -- for its farmers.

India has banned export of non-basmati rice and last month withdrew export incentives relating to premium basmati, although existing contracts are being honoured, notably to needy countries such as Bangladesh and Sierra Leone.

Brazil, which consumes virtually all of the 11 million tonnes it produces every year, did hint at an export ban but decided against it, preferring instead to urge producers to be cautious about supplies.

Even in the United States, worries about supplies have seen panic-buying in some stores, and two big chains, Costco and Sam's Club, took measures last week to ration sales due to price hikes and uncertain deliveries.

The UN's Pincus said the price of rice was more volatile than that of maize and wheat as much less of it is traded.

"Rice is mostly consumed in the countries where it's produced, and for that reason the world market is very thin. There are not a lot of buyers and not a lot of sellers," he said.

"So what happens is that if there are some buyers who find themselves short, the international prices spike, and that's what we're seeing right now."

Japan, which imports more than half its food, wants to raise the issue of spiralling food prices when it hosts the Group of Eight summit in July.

Still, it heavily protects its own rice industry -- the government strictly controls the production and price of rice and imposes high taxes on exports -- and instead of curbing shipments has been trying to step up exports.

In the Philippines, one of the world's biggest rice importers, President Gloria Arroyo has ordered steps to prevent hoarding and price gouging, and to ensure supplies.

The government sells subsidised rice in poor neighbourhoods and is crafting a new scheme of rationing.

There is no rationing in Indonesia except where the government operates a subsidy scheme for the poor, which allows 15.5 million registered families to purchase 10 to 20 kilogrammes of rice a month at a third of the normal price.

Indonesia has a de facto export ban, stipulating exports are only allowed when there is a domestic surplus of at least three million tonnes.

Bangladesh, which does not export rice due to its own needs, does not plan rationing, said the food ministry's senior information officer Golam Kibria.

However the government is selling subsidised rice to help low-income families as many poor have been forced to go without meals.

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