Hypothetical Theory of Thailand of the Founded Rice Cartel

Thailand's Hypothetical Theory of a Founded Rice Cartel

What if Thailand will set up a rice cartel that will surely fixes pricing to worsen the food security of the entire region?

Noppadon Pattama, Thailand's Foreign Minister said Tuesday that the kingdom is dropping its previous plans to create a cartel with other rice-exporting countries in Southeast Asia, citing concerns over food security.

The statement signaled the about-face on the cartel after Prime Minister Samak Sundaravej said last week that Thailand had agreed in principle to form an OPEC-like cartel with Mekong nations of Vietnam, Cambodia, Myanmar and Laos.

The five nations produce a combined 600 million tons of rice each year, about 14 percent of the world output.

The proposal, resolutely backed by Cambodia and met with positive responses from other three countries, came under fire of rice-importing countries such as the Philippines which claimed that the formation of an oligopoly may deprive a large number of people of their rights to reach for staple food.

IDEA OF RICE CARTEL REVIVED

Thailand first floated the idea of rice cartel in 2001 to pave off a shrinking market share caused by higher export price. Samak revived the long-dormant rice cartel talk to give rice producers greater control over prices which has tripled since January this year.

The proposal was welcomed by Cambodia, whose government spokesman said the formation of such an association would facilitate the exchange of information and help fade off a price war.

The rice cartel, tentatively named Organization of Rice Exporting Countries (OREC), is aimed to ensure food stability and address food shortages in the region and the world, Cambodia Prime Minister Hun Sen said.

Lao Foreign Minister spokesman said his country would seriously consider the idea, saying a cartel would give the group of countries "bargaining power."

After meeting with Myanmar Prime Minister, Samak releases informqtion that Thein Sein has approved in principle of the thought.

Vietnam has also made its stance clear that it can join the OPEC-like body if the future organization ensures the harmonization of interests of both Vietnam and the international community.

ARGUMENT OVER PLAN

Despite the major rice-exporting nations' enthusiasm for the plan, the Philippines, the world's biggest rice importer, slammed Thailand's proposal as a "bad idea."

Edgardo Angara, chairman of the Philippine Senate's Committee on Agriculture, worried that a small group of producers could control the staple food and price it beyond the reach for millions and millions of people. Senior officials of the island country blasted the proposal, warning it would aggravate hunger and poverty.

The Asian Development Bank (ADB) also came out against the idea of setting up an OPEC-style rice cartel. The bank's president Haruhiko Kuroda suggested it would be better to allow market forces to operate freely.

In a time when the global food market is experiencing continuous price hikes, hoarding and panic buying, raising the proposal is inappropriate and may not be beneficial to the rice exporting countries and their farmers in long term, said He Changchui, regional representative for Asia and the Pacific of the Food and Agriculture Organization (FAO).

Even inside Thailand, the Rice Exporters Association tried to explain to the premier why OREC is technically impractical. They said unlike oil, rice is renewable and sustainable, and it can grow pretty well anywhere. They added that the rice-exporting countries can't fix price as OPEC does because they can't control their production

Analysts say that even if the five countries agree on a broad price band, it would be difficult to enforce since buyers could turn to elsewhere to purchase.

They pointed out that maintaining rice prices would please large-scale rice farmers and traders in countries like Thailand and Vietnam, but it would enrage nations which rely heavily on imported rice.

REPLACEMENT SUGGESTED

To replace the short-lived rice cartel proposal, Nappadon said that he favored the creation of a Council of Rice Trading Countries (CRTC) to discuss boosting rice production, exchange of technology and improving rice quality.

The foreign minister invited ambassadors from India, Pakistan, Cambodia, China, Vietnam and Myanmar to appoint representatives for the council in the next few months.

Cambodia, however, still insisted that an association of rice exporting countries could still be helpful to avoid fierce competition which will threaten the livelihoods of people in the region and beyond.

The country's Information Minister Khieu Kanharith said they would pursue discussions about forming such an association at a meeting in Vietnam later this year.

After the Philippines scrapped its largest 675,000-ton rice tender of the year, Thai rice prices dipped by some 5-10 percent. But experts forecast that Thai rice prices are expected to remain strong as the current fall is not a big deal compared with the price surge over the last few months.

The ADB announced last week emergency funding to help poor countries grappling with spiraling rice prices. It warned that price for staple food could keep rising and it would stifle economic growth in the region.

The benchmark Thai variety, Pathumthani fragrant rice, was priced two weeks ago at 998 dollars per ton for export, up from 512 dollars in January.

Thailand is world's No. 1 rice exporter and it shipped an estimated 9.5 million tons of rice overseas in 2007.