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1 Dec 2009

Agriculture

2010: A Golden Year for Thai Rice (Business Brief No.2701)

The rice industry expects 2010 to be a golden year for Thai rice. The global market will likely experience ebbing supplies and surging demand due primarily to bad weather. Monsoons over the Philippines have wreaked havoc on their rice production, whereas India has been hit by drought, turning them into a net rice importer after previously being the world's fourth largest exporter. Among the main beneficiaries will be our exporters of Thai Hom Mali, parboiled rice, broken rice and sticky rice. Even though exports of white rice are expected to show a more promising trend, they may encounter intense competition from Vietnam.
However, the rice industry should brace for price volatility caused by:
- Unfavorable Weather: The El Nino phenomenon is expected to directly affect rice production in Indonesia and the Philippines. Meanwhile, Thailand may experience insufficient rainfalls, especially during the off-season rice farming period. Dwindling rice supplies and rising demand in the global market may result in sharply higher rice prices.
- The Government's Rice Policy: Close attention should be paid to the rice policy of governments globally. This includes the early opening of bidding to supply rice to the Philippines, the Indian ban on non-basmati rice exports and their announcement on rice imports. The recent devaluation of the VND by 5.4 percent to VND17,961/USD, from VND17,034/USD on November 26, 2009, may make the Vietnamese rice exports cheaper. This will hurt our competitiveness in the global market in 2010.
For Thailand, the government's price guarantee program that recently replaced the paddy pledging system has forestalled the runaway prices of rice. Our rice prices will also be exposed to the global market situation. Meanwhile, close attention needs to be paid to the cancellation of import duties on rice per the ASEAN Free Trade Agreement (AFTA). The domestic rice market may have to brace for an influx of cheaper grains from Myanmar and Cambodia, denting rice prices here. Meanwhile, our rice exports to the Philippines may benefit from their failure to comply with AFTA, which may result in quota compensation being granted by the Philippines.
Exorbitant rice prices next year may affect:
- Farmers: Rice farmers, especially those growing Hom Mali and sticky rice, are expected to benefit from the continually rising rice prices. However, farmers growing white rice may be confronted with heightened competition from Vietnam given that our export prices are higher than their Vietnamese counterparts. We may have to wait for the new rice harvest before making shipments to avoid competing head-on with Vietnam, which has undertaken price-cutting. Nonetheless, profit on rice trading may be marginalized due to rising cultivation costs. In 2007 and 2008, the prices of chemical fertilizers more than doubled. The prices of pesticides and seeds have been also on the rise and the market is experiencing shortages. Worse, rent on some farmland has also doubled and is being collected seasonally rather than annually.
- Exporters/Rice Millers: Both rice exporters and millers should be cautioned about rice price volatility, otherwise they may face losses similar to the situation in 2008. To minimize such risk, they will have to keep abreast of the latest news and market developments.
- Domestic Consumers: Amid exorbitant rice prices, consumers may opt to hoard supplies, which may result in shortages. This situation was seen earlier in 1H08 when modern trade outlets encountered shortage of packed rice. Prices of packed rice are expected to soar by 10 percent in early 2010 in line with rising paddy costs.

The government's action The government may have to enact measures to deal with exorbitant rice prices. Farmers may expand their rice cultivation to cash in on the dearer grain. However, caution should be exercised to avoid oversupply and price slumps. Rice quality may also be a concern. On the plus side, the government should take advantage of any upward trend in rice prices to release rice from their stockpiles. However, the right timing and appropriate volume of rice to be disposed of will be primarily considered.

Agriculture