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30 Apr 2010

Agriculture

Falling Rice Prices: Short-and Long-Term Solutions Needed (Current Issue No.2211)

The problem of sagging rice prices - which have prompted widespread protests of farmers in many provinces – needs to be addressed urgently by the government. Rice prices have been under pressure by both domestic and international factors. The rice market has encountered unprecedented high stockpiles and hefty output. Despite infestation of brown planthoppers and drought, which has damaged rice output somewhat, the domestic rice market is still experiencing steadily falling prices. From December 2009 to April 2010, paddy prices slumped THB2,000-3,000/ton. Meanwhile, our rice exports face intense competition from cheaper Vietnamese grain. As a result, prices at home and abroad, especially for white rice, have plunged, even though global supplies may fall short of demand in 2010.
Rice Prices in April 2010 vs. December 2009

Type of Rice
Domestic wholesale prices (THB/Ton)
Type of Rice
Export prices (USD/Ton)
Dec 2009
April 2010
ê(%)
Dec. 2009
Apr. 21, 2010
ê
(%)
Hom Mali
14,154.56
13,695.5
-3.2
Hom Mali (new)
1,115.25
1,102.00
-1.2
5% White Rice
9,825.08
8,359.97
-14.9
100% Grade-B White Rice
618
482
-22.0
Glutinous Rice
11,145.21
10,861.18
-2.5
Source: Domestic wholesale prices based on the Office of Agricultural Economics
Export prices based on Thai Rice Exporters Association
KASIKORN RESEARCH CENTER (KResearch) holds the view that rice problems have been a major challenge to every Thai government. Therefore, our rice policy should be properly set by balancing market mechanisms and subsidization. While allowing market mechanisms to work, the government must refrain from excessive interventions via price controls or subsidies to farmers. Instead, emphasis must be placed on enhancing farmers' production efficiency so that they will be able to survive in a highly competitive global market. Even though this way is more cost effective, it can lead to farmers' protests, seeking assistance from the government.
Providing subsidies to farmers offers a quick-fix. Most farmers – the majority of Thai citizens – are impoverished, so government help to them is similar in fashion to the social welfare programs provided to workers in other economic sectors. However, ongoing assistance may result in the government shouldering excessively heavy financial burdens, especially if farmers continue to expand production unabated.
To balance between the two methods is thus a challenge. The 2010 rice market situation is very unusual. Aside from massive rice stocks – which touched record highs last year – paddy output from the 2009/10 crop year reached the highest in 12 years (since 1997/98). Even worse, competition has become tougher in export market. Rice prices have seen a sharp plunge, as a result.
KResearch holds the view that as a short-term solution, government assistance measures to farmers should be revised. Focus should be on increases in guaranteed rice prices and supply quotas for farmers to be eligible for the income guarantee program , plus greater incentives to millers to encourage them to buy rice from farmers at reasonable prices, the release of huge rice stockpiles held by the government to overseas markets as soon as possible via ‘G2G' deals, as well as investments in building central granaries to hold government rice stocks. Each measure, if implemented properly, should take into account the financial burdens of the government this year and in the future, particularly if farmers continue to expand their production, which would end up dampening prices. To the contrary, without government help, farmers may face losses, which would then escalate into socio-political problems.

Over the long-term, things could become more complex, especially with the advent of market liberalization. Competition in global markets will become more intense with the participation of existing rivals, i.e., Vietnam and India, as well as newcomers such as Cambodia and Myanmar. To brace for these challenges, setting a new national rice strategy will be needed. Structural reforms in the rice industry will also be needed to devise appropriate rice outputs each year, which must be based on stockpiles remaining on hand at the end of the previous year, market conditions both at home and abroad, as well as potential farmlands available. Farmers should not be solely dependent upon rice as their main source of income, especially if restrictions or controls on farmland are implemented. This way, farmers will be able to survive the intensified rivalry that may come with market liberalization.

Agriculture