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15 Sep 2008

Agriculture

Rice Pledging Program: Stability in Prices, But Exports Hurt (Business Brief No.2287)

The 2008/09 crop year is expected to experience lower rice prices. In the wake of skyrocketing prices during the 2007/08 crop season, most rice producing countries have expanded cultivation to ensure national food security and avoid supply constraints as seen early this year. Declining rice prices have prompted Thailand – the world's largest rice exporter – to pursue a rice pledging program to stabilize the price of rice locally and for export. If the government doesn't implement this ‘paddy pledging' plan to prevent oversupply at the start of the planting period and allows free market mechanisms to work, the prices of rice sold domestically and for exports may be hit hard, and may eventually lead to the spiraling downward in global rice prices.
It is certain that most small farmers will receive a windfall from higher rice prices to be shored up under the rice pledging program where the government will have to bear the burden of huge rice stockpiles themselves. For exporters, although they may lose some markets to their rivals that can export cheaper grain, they will benefit from the stabilization in rice prices as a result of this government assistance program. Additionally, their loss of markets may occur only where supply from our competitors is still able to meet demand. If excess supply in the global rice markets dries up, Thailand may regain its position in export markets due to ample supplies to accommodate exports.

One point to be considered is that the huge budget set aside for the rice pledging program may affect the liquidity of state-owned financial institutions that support it in cooperation with the Bank for Agriculture and Agricultural Cooperatives (BAAC). The government should thus carefully manage the stockpiling and release of rice under the program, which may financially affect the rice pledging program. Meanwhile, releasing rice stocks onto the market should also be well-timed to avoid any adverse impact on rice prices and our competitiveness in the world market.

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