Fears over surplus rice sales in India, Thailand may be groundless

- Vietnam Investment Review - http://www.vir.com.vn/ -

16:19 | 07/03/2014
Fears over surplus rice sales in India, Thailand may be groundless
Agricultural expert chews over whether there is currently a price manipulation in the rice market.


Over the past two weeks local newspapers have reported that Thailand – a leading global rice exporter – is dumping their colossal stocks while Indonesia has also announced an even larger supply. This may cause the price of rice to tumble around the world and have a major impact on Vietnam’s exports.

At this point the Mekong Delta – Vietnam’s granary – has begun its major harvest season and the news from Thailand and India is likely to cast a pall over both the domestic and export markets.

Let’s go inside these assumptions.

First is the case of Thailand.

According to the US Department of Agriculture (USDA) and the Thai Rice Exporters Association (TREA) statistics, following the government’s subsidy policy the Thai government bought over 55 million tonnes of paddy rice (equivalent to nearly 36 million tonnes of rice, three quarters of it white rice) at higher than market prices from October 2011 to February 2014.

Meanwhile the country only exported 10.3 million tonnes of white rice at prices averages $540 per tonne, meaning that Thailand is still holding onto stocks of nearly 16.5 million tonnes of white rice and about 5 million tonnes of glutinous and high-grade rice varieties.

Given this situation, early this year Thai acting Minister of Commerce unveiled a plan to sell one million tonnes of rice each month in the first quarter of 2014.

A USDA report showed that from the beginning of this year through February 13 there were only three public rice auctions in Thailand at which nearly 860,000 tonnes of rice were offered for sale.

The bid price was from 12-30 per cent lower than market price, fluctuating in the range of $322-$405 per tonne and only 100,000 tonnes was reportedly earmarked for export.

But the winning bid price and volumes have yet to be announced.

Also according to the USDA, by February 23 Thailand had only exported 464,000 tonnes of white rice, down 31 per cent against the same period 2013.

Therefore, the concern that Thailand was dumping its huge rice stocks remains most likely an assumption.

In the case of India, saying that Vietnamese rice can’t compete in the global market due to the fact that India has huge reserves of 32 million tonnes was baseless. Why?

It is likely because according to USDA reports from the time India resumed rice exports in September 2011, the government has never held a rice auction. It has consistently held wheat flour auctions.

This practice may suggest the Indian government is using its rice stocks to support the price subsidy policy for local consumers via a public distribution system.

The USDA has reasons to forecast that the demand for rice in India would rise by three million tonnes, leading to a two million tonne reduction of exports.

This year is the first that the Indian government has executed its law on food security, a promise made by the ruling party four years ago.

This means about 70 per cent of the population in rural areas and 50 per cent in urban areas will benefit from the government’s price subsidy, leading to a huge amount of rice being mobilised to serve the programme.

In other words, the reasons why Thailand and India are retaining their rice stocks are different and therefore equating them and linking them to Vietnam’s rice exports is not a fair assumption.

Top experts and government authorities need to step in to investigate whether Thailand is dumping its rice stocks to ensure stability in the domestic market. This is the only way to truly protect Mekong farmers’ best interests.

By Nguyen Dinh Bich, an agricultural expert

Global market awaits cheap Thai rice

Rice traders on the world market have temporarily paused dealing to wait for the Thai government to sell its stockpile cheap to repay a 20 billion baht loan to finance the rice-pledging scheme, according to an exporter of the grain.

The Election Commission (EC) has approved the caretaker government's plan to disburse 20 billion baht from the Central Fund to pay farmers long-overdue money for pledged rice crops.

However, the government must pay back all the money before May 31, 2014.

Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association, said the price of 5% broken rice price from Thailand had dropped by US$20 a tonne, from $435-445 three weeks ago to $415-425 a tonne.

The price of Thai parboiled rice has also fallen by $15 a tonne in one week, from $460-470 to $445-455 a tonne.

He predicted that the price of Thai rice would drop further in the near future since Vietnam’s second-crop rice would be harvested from the middle of March onwards. Vietnam is expected to produce more than 10 million tonnes of unmilled rice this harvest.

At the same time, rice producing countries including India and Pakistan also hold significant stocks to be released onto the world market. As a result, tougher competition is expected and prices are likely to be pressured down, he said.

The price of 5% white rice from Vietnam is currently between $385-395 a tonne, while India selling its equivalent at $415-420 and Pakistan at $395-405.

“Rice buyers have stopped purchasing as they wait for cheaper prices, particularly after the Election Commission set the deadline for repayment of the 20 billion baht at the end of May. This means that Thailand has to sell more than two million tonnes in the market. When buyers realised this, they decided to wait to buy cheaper rice,” said Mr Chookiat.

The Thai Foreign Trade Department on Wednesday announced a government-to-government deal with China to sell one million tonnes of rice, with an agreement inked by the department and the state-owned China National Cereals, Oils and Foodstuffs Corporation in Beijing this week.

Nigeria to reduce tariff on imported rice

The Minister of Finance, Dr Ngozi Okonjo-Iweala, on Wednesday said the Federal Government was contemplating a downward review of tariff on importation of rice.

Okonjo-Iweala, who disclosed this while answering questions at the ‘Budget 2014 Jam’, in Abuja said the drop in the tariff would reduce smuggling of the commodity into the country.

The News Agency of Nigeria reports that Budget 2014 Jam is a youth online programme where the minister answers questions on the Federal Government’s 2014 budget from youths across the nation.

The three-day programme, which began on Tuesday is organised by the Ministry of Finance in collaboration with IBM Technology, a telecommunication firm.

The minister said the existing 110 per cent duty on the importation of rice was encouraging smuggling of the commodity into the country.

“We increased the tariff to 110 per cent, and it encouraged some people to go and grow rice and we grew 1.1 million metric tonnes of the product.

“But it also encouraged smuggling from neighbouring countries because they immediately dropped their own tariffs to 10 per cent,” she said.

She added that the rice issue was similar to tariff on importation of used vehicles, saying “we are watching it now to see what the appropriate tariff to be paid on it will be.’’

The minister added, “For rice, we decided to bring it down because we see that it is not working.’’

Okonjo-Iweala explained that the government had decided to encourage the automobile industry to ensure that vehicles were manufactured in the country.

Vietnam to stockpile 1m tonnes of rice

Vietnam, the world's second-largest rice exporter, will stockpile 1 million tonnes of rice in the winter-spring crop to help boost prices, authorities said Thursday.

The stockpile will run from March to mid-April, the Vietnam Food Association said, which will affect Vietnam's biggest rice-producing region, the Mekong Delta.

Around 10.3 million tonnes of unhusked rice is expected to be produced in the Mekong Delta during this period, the Ministry of Agriculture and Rural Development said.

Export volume fell sharply in the first two months of this year and is predicted to remain low in the coming months due to weak demand in the global market and strong competition from other rice exporters, including Thailand, India and Myanmar.

A number of rice exporters have asked the government to boost exports to countries including China, Indonesia and the Philippines.

Vietnam plans to export 7 million tonnes of rice this year, up from 6.88 million tonnes, worth US$2.89 billion (94 billion baht) last year.

Bt20 billion ready for rice farmers next week

Farmers who hold pledging receipts issued under the government's rice-pledging scheme last November are expected to be paid next week, in a breakthrough that could ease one of the Yingluck Shinawatra-led government's most serious political problems, at least in the short term.

The Election Commission's board yesterday approved a request by the caretaker government to use an additional Bt20 billion from the national budget to pay the farmers, who are still waiting for payments that were due in November.

The government must return the funds to the budget by May 31.

Caretaker Finance Minister Kittiratt Na-Ranong yesterday clarified to the EC the reasons the government needs the Bt20 billion for the rice-pledging scheme.

After the meeting with Kittiratt, EC member Somchai Srisuthiyakorn posted on his Facebook page that the funds would be considered an advance payment, which would be repaid in full by the Foreign Trade Department to the Finance Ministry by May 31.

The funds to cover the repayment would come from the department's sale of rice from the state's stockpile.

In his Facebook post, Somchai said the EC approved the use of central-budget funds for six reasons.

First, the EC has the power to approve the additional budget, which was requested as an urgent case.

Second, Somchai said, the Bt20 billion is considered borrowing - not expenditure - and the government will have to return all of it after earning money from the sale of rice.

Third, the Public Debt Management Office has assured the EC that the amount will be returned in May, and that the use of the funds will not affect the nation's reserves set aside for emergency cases.

Fourth, the Foreign Trade Department assured the EC that it could earn Bt8 billion a month from rice sales, totalling Bt24 billion over three months.

Fifth, the due date for the return of the funds, May 31, is expected to be within the time frame of the current caretaker government, so the move is unlikely to place any obligations on the next government.

Sixth, the Bt20 billion will be paid to farmers who received pledging receipts in November, before the dissolution of the House of Representatives. Therefore, the payment to the farmers cannot be seen as a move to gain an advantage in the ongoing election.

Somsak Chotrattanasiri, budget director of the Budget Bureau, said yesterday that the Bt20 billion should reach farmers next week via the Bank for Agriculture and Agricultural Cooperatives.

"Using Bt20 billion as an advance payment should not create any problems, as there is still almost Bt70 billion left in the nation's central budget," he said.

Meanwhile, the Foreign Trade Department reported that caretaker Commerce Minister Niwatthumrong Boonsongpaisan had approved the sale of 600,000 tonnes of rice in separate auctions to 11 private companies who took part in bidding, earning a total of Bt20 billion.

Caretaker Deputy Commerce Minister Yanyong Phuangrach said the money from the central budget should reach the farmers over the next week. When combined with money earned from rice sales - which he said should amount to Bt10 billion a month - there should be sufficient funds to pay farmers waiting for payments from December as well.

Cambodia Rice prices continue to fall

As buyers swoop in to purchase Thai rice at garage-sale prices, Cambodian exporters are dealing with lower than usual rates, and the results are being felt all the way down the supply chain to the farmers themselves.

New figures from rice industry publication Oryza show that the cost for Cambodia’s jasmine rice has declined sharply in recent months, in tandem with falling prices in Thailand brought on by that country’s failed rice-pledging scheme.

“This is a concern for everyone in the rice industry now,” said Khan Kunthy, CEO of Battambang Rice Investment Company, adding that sales have also dropped.

Kunthy said that export volume for the first few months of this year was largely based on orders from 2013.

“There is no good sign of orders for this new year yet,” he said.

In 2011, Thai Prime Minister Yingluck Shinawatra vowed to pay farmers above market rates for their rice.

But stockpiles have accumulated to record levels, flooding the global market with new quantities of supply and driving down prices.

Thai officials estimate that there are 15 to 18 million tons of stockpiled rice. Oryza reported that the Thai government planned to offload at least one million tons per month from January to March.

Thai hom mali rice is now at $955 per ton, a decline of 17 per cent compared to the price in December last year, when it stood at $1,163.

The latest figures from Oryza show that, at the end of February, Cambodia’s jasmine rice cost $885 per ton, a 7 per cent decrease from $950 per ton in December.

“We have no other choice besides lowering our rice price, even if we have to put up with the loss if prices went even lower than they are now, or no one will buy from us,” Kunthy, of Battambang Rice Investment Company, said.
Kunthy, who runs a newly established rice milling operation, is also under pressure to repay the bank for a loan he took out to help set up the mill.

Lim Bun Heng, owner of Loran Company, one of the country’s largest rice exporters, said declines in Cambodia’s jasmine variety will squeeze margins for all involved.

“Cheaper prices of milled rice also mean cheaper prices of paddy rice that the miller will buy from farmers too,” Bun Heng said, adding that “we cannot buy expensive paddy rice and sell it at a lower price”.

Export volumes are also decreasing as buyers look for cheap stockpiled product. Bun Heng said his company experienced a 30 per cent decrease in exports over the first two months of this year.

“The Thais are selling their rice very cheap, so the buyers are switching to Thailand,” he said.

Last year was a time of enormous gains for the rice industry, as export volumes doubled. But the rice scheme has upended the global market, setting back not just Thailand, which used to be the world’s largest exporter, but its neighbours, too.

In January of 2012, Cambodia exported 9,700 tons of rice. Exports for the same period in 2013 jumped to 25,700 tons. But in January, the pace slackened, with only 21,500 tons sent out of the country.

Exporters and rice millers should keep their fragrant rice paddy and wait until the supply in the global market declines, advised Srey Chanty, an independent economist who focuses on agriculture issues.

“I think in the next three or four months, the fragrant rice price will bounce back to normal,” he said.

Cambodian rice trade hit by Thai sales

Thailand's rice sales are quickly pushing down world prices, affecting Cambodia's industry and farmers, according to a report.

New figures from rice industry publication Oryza show the price for Cambodia's jasmine rice has declined sharply in recent months, in line with falling prices in Thailand brought on by the failed rice-pledging scheme.

"This is a concern for everyone in the rice industry now," Khan Kunthy, CEO of Battambang Rice Investment Company, told the Phnom Penh Post, adding sales have also dropped.

Mr Kunthy said export volume for the first few months of this year was largely based on orders from 2013. “There is no good sign of orders for this new year yet,” he said.

But stockpiles have accumulated to record levels, flooding the global market with new quantities of supply and driving down prices.

Thai officials estimate there are 15 to 18 million tonnes of stockpiled rice. Oryza reported that the Thai government planned to offload at least one million tonnes per month from January to March.

Thai hom mali rice is now at $955 a tonne, a decline of 17% compared to the price in December last year, when it stood at $1,163.

The latest figures from Oryza show that, at the end of February, Cambodia’s jasmine rice cost $885 per tonne, a 7% decrease from $950 in December.

“We have no other choice besides lowering our rice price, even if we have to put up with the loss if prices went even lower than they are now, or no one will buy from us,” Mr Kunthy of Battambang Rice Investment Company said.

Mr Kunthy, who runs a newly established rice milling operation, is also under pressure to repay the bank for a loan he took out to help set up the mill.

Lim Bun Heng, owner of Loran Company, one of the country’s largest rice exporters, said declines in Cambodia’s jasmine variety will squeeze margins for all involved.

"Cheaper prices of milled rice also mean cheaper prices of paddy rice that the miller will buy from farmers too," Bun Heng said, adding that “we cannot buy expensive paddy rice and sell it at a lower price".

Export volumes are also decreasing as buyers look for cheap stockpiled product. Bun Heng said his company experienced a 30% in exports over the first two months of this year.

"The Thais are selling their rice very cheap, so the buyers are switching to Thailand," he said.

Last year was a time of enormous gains for the rice industry, as export volumes doubled. But the rice scheme has upended the global market, setting back not just Thailand, which used to be the world’s largest exporter, but its neighbours, too.

In January of 2012, Cambodia exported 9,700 tonnes of rice. Exports for the same period in 2013 jumped to 25,700 tonnes. But this January, the pace slackened, with only 21,500 tonnes sent out of the country.

Exporters and rice millers should keep their fragrant rice paddy and wait until the supply in the global market declines, advised Srey Chanty, an independent economist who focuses on agriculture issues.

“I think in the next three or four months, the fragrant rice price will bounce back to normal,” he said.

Egypt negotiations over resumption of rice exports to begin within next two weeks

Discussions with the Ministry of Supply over resuming rice exports will commence this week or next week, with the aim of reaching an agreement on the “best” possible solution to export rice while benefiting all parties involved, Vice Chairman of the Rice Division in the Federation of Egyptian Industries Mostafa Atallah said on Monday.

Newly-appointed Minister of Supply Khaled Hanafy said Sunday that he would reconsider a decision suspending rice exports, state-owned news agency MENA reported. Hanafy explained that there have been calls to resume rice exports “in order to open new rice markets abroad, and contribute to revitalising the economy”.

Minister of Industry and Foreign Trade Mounir Fakhry Abdel Nour announced last November a bid to export 100,000 tonnes of rice, set to take place from mid-November to January 2014. Abdel Nour said at the time that exporting rice would be “beneficial”, as global prices are high.However, rice exports were suspended in November due to a shortage in quantities “intentionally” created by merchants who had attempted to monopolise the rice market, Atallah explained.According to Atallah, rice exportation was set to begin in September; however, “merchants requested to postpone it to November”. During those two months, merchants collected high quantities of rice in the market in order to control prices, he added. The Ministry of Supply could not determine an adequate quantity for exporting, Atallah said.

Former Minister of Supply Mohamed Abu Shady, under Prime Minister Hazem El-Beblawi’s cabinet, announced in October that rice exports will be halted “until all ration needs of the grain are met”.The government sells 1.4m tonnes of subsidised rice per year, at EGP 1.5 per kilogram, according to Abu Shady.
“I will not pay heed to the interests of a few dozen rice exporters at the expense of domestic markets,” Abu Shady told the Daily News Egypt in a November interview. The minister stated that rice exports will resume, adding that prices of rice hiked from EGP 1,800 a tonne to EGP 2,000.
Egypt produces 6.5m tonnes of rice, of which it uses up 3.5m to 4m tonnes, according to Abu Shady.

In 2012, Egypt exported 650,000 tonnes of rice to 58 countries in Europe and the Arab region, Atallah stated.

Before leaving the ministry, Abu Shady decided on 22 February to refer the head of the central import administration at the General Authority for Supply Administration (GASC) to administrative prosecutors on charges of “corruption”.