Thailand Still Dreams About an 'OPEC of Rice'

♠ Posted by Emmanuel in , at 9/02/2012 08:24:00 AM
I guess there are few truly novel ideas in international political economy. Since the formation of OPEC, developing nations have envied its perceived success in buoying oil prices. As such, there have been any number of cartels for other commodities which have been mooted or even made. Bauxite, anyone? However, it should immediately be apparent that the prospects of a successful cartel depend on a number of things such as (a) the centrality of a commodity to modern life, (b) the price elasticity of demand for the commodity, (c) the global market share of the countries within a cartel and (d) the willingness of cartel members to stick to production quotas.

In 2008, the literally cooking Thai Prime Minister Samak Sundaravej proposed that Thailand group together with four other Southeast Asian nations--Vietnam, Myanmar, Cambodia and Laos--to form a rice cartel. Rice being a staple food in Asia, it definitely meets the criterion of being an important commodity in everyday life in our part of the world. The global rice industry is somewhat unique though in that most production is consumed domestically. Given that situation, countries that do export have a greater say in global rice prices which may belie their comparatively lesser output compared to the likes of, say, China and India. The world's top two rice exporters, #1 Thailand and #2 Vietnam, would have been included in the mooted cartel

As it so happens, the Thais have once again been clamouring for the creation of this cartel, demonstrating the durability of the idea through various leadership changes there. However, there appears to be a fly in the rice as India has become more oriented toward exporting rice as well and is purportedly poised to overtake Thailand as the world's #1 rice exporter this year. Just as Russia is the spoiler to OPEC by being a major energy exporter that is not within the organization, so too does India pose a rice "threat":
An alliance of Thailand, Vietnam, Cambodia, Laos and Myanmar will aim to share information and cooperate in production and marketing, with the goal of increasing rice export prices, Yanyong Phuangrach, Thailand's permanent secretary for commerce said in Bangkok Wednesday. The aim is to form the alliance by the end of the year, he added.

Thailand and Vietnam usually control close to half of the global rice trade. But the London-based International Grains Council estimates their combined share will fall to 38% this year, as India has become the world's biggest exporter. This week's move to create a cartel is seen as a response to India's increased market share, which came after it lifted a 3½-year ban on exports of "ordinary" rice last September.
For obvious reasons, getting Vietnamese cooperation is crucial to Thailand's effort. Vietnamese officials are also wary of the sensitivities involved in raising food prices worldwide at a time when high food prices causing hunger in LDCs is causing concern:
If this new effort is to succeed, it will need to keep Vietnam on board, said Chiaki Furui, chief executive of Agrow Enterprise, a Bangkok-based commodities brokerage. Indeed, Vietnam responded to India's lifting of the export ban last year by cutting its own export prices, despite Thailand's lobbying of other exporters to keep prices high, and some are skeptical that the latest push for an alliance can work.

"A cartel on rice trade won't succeed. Vietnam already has a minimum rice export price, but traders continue to sell at lower prices to be competitive in the global market," said Tejinder Narang, an executive with New Delhi-based trading company Emmsons International. An official with state-run Vietnam Southern Food Corp., the country's largest rice exporter, warned that efforts to boost prices could trigger world-wide protests, given that many people around the globe are starving.
Further, it is very important to keep in mind that Thailand's proposed cartel is not an ASEAN effort. Alike in other regional groupings, there usually are importers and exporters of certain commodities. Hence, while the proposed membership is entirely composed of ASEAN members, higher rice prices in international markets are most likely to harm other ASEAN members that import much rice to meet domestic demand alike Indonesia and the Philippines (which are more populous than any of the mooted cartel countries):
But the push for higher rice prices could put Thailand at odds in this case with Indonesia, a major rice importer. Indonesia's response to possible higher global prices will be to expand local buying and stockpiling by raising the domestic purchase price, said Mohammad Ismet, a former consultant to Indonesia's state-run buyer, Bulog. "There is no reasonable basis to form such an alliance. Clearly, traditional importers such as Indonesia and the Philippines feel threatened by the unreliability of the world's rice market," Mr. Ismet said.
In the interest of third world solidarity, I do not favour this cartel since rice-consuming nations are predominantly developing ones. Fellow Southeast Asians, you won't be "sticking it to the (white) man" but rather ourselves.