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10 Aug 2010

Agriculture

Rice, 2010: Monitoring AFTA Exports Decelerating, Impacts Depending on Related-Import Measures (Business Brief No.2903)

Among agro-based industry, rice tends to bethe product that should be watched the most. Given the FTAs we have entered into, AFTA has directly affected Thai rice trade because other FTA pacts do not include rice market liberalization in their agreements. That is to say, rice was not put on the lists of products receiving tariff reductions in the ASEAN-India, ASEAN-South Korea and ASEAN-Japan FTA pacts.
As for the ASEAN-China FTA, rice is categorized as a highly sensitive product, so tariffs will be reduced to less than 50 percent within January 1, 2015, whereas the ASEAN-Australia/New Zealand framework has already stipulated duty-free status for rice even before the FTA negotiations began. However, Thai rice exports to Australia account for only 4.0 percent of the Thai rice export value.
The impacts of the AFTA on rice products should be considered in the dimensions of both exports and imports and based on the principles expressed by the five founding members of ASEAN including Indonesia, Malaysia, Singapore, Thailand and Brunei and by the four new members of ASEAN including Cambodia, Laos, Myanmar and Vietnam (CLMV).
In addition, FTA-related rice trade issues that should be watched include:
- Paddy Smuggling Across the Border: Currently, the government is implementing measures to manage imports by proposing only the imports of broken rice to serve industrial demand. Such imports would be handled by some custom houses that have the tools and equipment to examine rice products that could be contaminated with diseases, pests and/or chemical substances, as well as any adulteration with GMO rice that could contaminate Thai rice. In addition, imports would be allowed only periodically by the authorities to prevent any impact on Thai rice prices. As a result, some border smuggling exists because of high price differentials.
- The Department of Foreign Trade may allow legal paddy imports from neighboring countries, but limits the location and timing of such trade to control the exports, as well as preventing any undesirable impact on domestic rice prices. Rice mills located in permitted areas for such trade will only be allowed to mill rice bran, and package the white rice derived from that processing for export only. Currently, Thai rice mills tend to have higher capacities than the paddy volume remaining at home. For our overall milling capacity, we utilize only 30 percent of our entire capacity, while our actual milling capacity remains at as high as 70 percent. Therefore, we have excess capacity that should be used effectively. The high capacity of our rice mills can serve neighboring countries, such as to Cambodia that have very high cultivation, but face a shortfall in rice milling capacity. As a result, we, as well as neighboring countries, could benefit from this concept.

The Establishment of an ‘Asian Rice Company': This concept would encourage cooperation between Thailand and neighbors in managing rice exports. Thai rice exports to the global marketplace are as high as 30 percent out of all rice exports worldwide. If we add our rice export volume to the export volume of neighboring countries, the total export volume may be 50 percent of the total export volume globally. Due to cooperation, ASEAN would be able to control rice prices in the global market. Although this concept sounds interesting, in practice it would be somewhat challenging to achieve because Vietnam is actively competing with Thailand. Meanwhile, other neighbors, especially the new ASEAN members, have established policies toward expanded rice production and may become important rival exporters in the future. In addition, Major ASEAN importers, such as the Philippines and Indonesia, have urged higher domestic rice cultivation to enhance their food security. Hence, their import volumes will likely tend to decelerate over the coming years.

Agriculture