Rice Market Skewed By Government Moves

Unpredictable government intervention in the rice sector is adding to volatility in a thinly traded market and could lead to new price swings in what is a staple food in much of the world.

Rice is a politically sensitive crop as a daily essential in much of Asia and Africa, and a price spike in 2008 sparked unrest.

State action, notably export curbs by countries like India, were criticized by observers for fuelling soaring prices then, as benchmark Thai rice prices hit a record $1,080 a tonne. They currently trade at about half that level.

Changing support policies for farmers in top exporters Thailand and Vietnam, plus erratic state purchases by leading importer the Philippines, have again raised uncertainty in the market.

“Rice is no longer in the hands of the trade, it’s much more in the hands of the politicians, for better or worse,” Conrad Creffield, trading manager at Swiss-based Novel Commodities, told an industry conference.

POLITICAL COMMODITY

Thailand has gone back on plans to sell public stocks and, like Vietnam, will be buying crop from farmers to protect their prices during what promise to be big harvests.

Coupled with the absence of the Philippines from the market after a buying spree late in 2009, this could hit rice prices in coming months, speakers at the conference said.

Thailand’s stance on rice will be closely watched in the coming weeks, with the issue also tied up with a political crisis that has seen rural inhabitants fill the ranks of “red shirts” protesting against the government.

“They could quite easily reverse (again) their decision and start selling into the market,” Darren Cooper, senior economist with the International Grains Council, said of Thai policy.

The Vietnamese authorities are also closely involved in the rice trade and have imposed a floor price on exports to prop up the domestic market. But some players said their policy was nuanced and aimed to boost both exports and farmers’ income.

“Vietnam and the pri -vate traders have shown and proved by whatever results they achieved last year that their rice policy seems to be appropriate to their own economy,” said Vandara Din, a Swiss-based rice consultant, referring to record exports of six million tonnes in 2008-09.

RIGHT RICE PRICE

Agricultural markets have become a subject of international debate after the tensions of 2008 and with expectations of growing strain on supply due to a rising world population and environmental constraints like water shortages.

Moreover, the sector is structurally prone to fluctuations because only a small amount of production is exported and this trade is concentrated among a handful of producers.

For some operators, government intervention has exacerbated volatility and distorted the market with short-term price support that fails to give clear signals about how to invest.

“We’re left a bit in the dark,” Jean-Pierre Brun, director of French rice broker Marius Brun et Fils said, stressing disparities of $100 a tonne or more between Asian producers.

“It’s not logical in a world market to have such big differences between very similar rice grades.”

A new French documentary entitled “Rice jacking” revisited the 2008 crisis, partly blaming massive buying by the Philippines.

But the Philippines sees its imports as adjusted to weather-reliant domestic supply, while officials elsewhere view support for farmers as a way of raising output, as shown by Vietnam’s successful expansion.

As across agriculture, the underlying question in rice is increasingly how can prices balance producer and consumer needs in the face of intensifying demand and environmental pressures.

“What is the correct price for rice? That may seem a silly question but it is key to understanding the whole picture,” Creffield said.

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