Challenges in the

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Challenges in the World Rice Industry Factors
Affecting Price July 13, 2009 Bob Papanos
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• The real price of every thing, what every thing
  really costs to the man who wants to acquire it,
  is the toil and trouble of acquiring it.
• - Adam Smith, The Wealth of Nations, 1776

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Are Rice Prices Determined by the Cost of
Production?

• Farmers the world over think so, but the answer
  is NO
• Farmers are forced to accept the market price,
  which is determined by many factors
• But in the medium to long term, input costs are
  highly related to the price of crude oil and its
  products, and do affect price throughout the
  market chain

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Are Rice Prices Determined by Available Supplies?

• We all have examples which prove this statement
  TRUE
• However, most of the cases are limited to
  value-added or high-value market segments
• Perception is often more important than reality
  due to poor data or lack of timely statistics

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Are Rice Prices Determined by Demand?

• Of the top 10 factors affecting price, demand
  occupies the first five
• Demand is created in part by marketing, in part
  by consumer tastes, in part by politics, in part
  by food security issues

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What Price?

• World trade in rice is now comprised of many
  specialty markets which garner higher prices
• Belly-filler rice demand is highly variable and
  a declining portion of total trade
• Let us look at Thai exports in 2008

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Thailand 2008 Record Shipments

• Total tonnage exported 9,968,167 MT
• But if we subtract
• Hom Mali shipments 2,498,641 MT
• Patum Thani loadings 236,477 MT
• Glutinous rice sales 266,387 MT
• Parboiled rice exports 2,752,668 MT
• White rice brokens 419,184 MT
• Cargo rice 136,467 MT

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The Balance Is...

• 3,658,343 MT or 36.7 of all exports
• Meaning that 63.3 of all exports were
  value-added or high-value or by-products
• Of this balance, 3,289,348 MT were comprised of
  5 - 10 - 15 grades, meaning that only 3.7 of
  all shipments fell into the low quality market
  segment

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So When We Talk About Price...

• We must be precise about the market segment to
  which we refer
• Why do we compare the price of 100 Grade B to
  Emata 25 or Viet 25
• Is Thailand letting the competition set the price?

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What Are Support Prices for Paddy in Other
Countries?

• USA Non-recourse loan 143.30 6.50
• Pakistan Rs 700/40kg 215.04 9.75
• Vietnam VND 4,400 242.77 11.01
• China RMB 1,840 268.85 12.20
• Thailand THB 11,800 353.29 16.03

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High Thai Support Prices

• Thailand, like China, India, and many other rice
  producing countries, count 60-70 of the
  population as rural and subsisting on or engaged
  in agriculture
• The political ramifications of commodity prices
  are obvious, as promises of higher prices to
  farmers win the majority of votes
• Is there a solution?

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Food Security

• The new trade barrier
• The combination of high prices, poverty, and flat
  yields have thrown out 50 years of World Bank/IMF
  policy - almost overnight
• This problem will only get worse, and we predict
  another round of headlines in the (near) future

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Yields are the ProblemMT/Ha
Number 9 ?
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The Battle

• In the battle between the Middle Way and 21st
  century materialism and globalism, the government
  of Thailand is fighting to raise farm income
  armed only with its willingness to acquire some
  of the rice from some of the growers at prices
  well above market clearing levels
• The country will not be successful on its current
  course

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The Battle - 2

• The (unintended) consequences
• Farmers will continually ask for more, the
  taxpayer shoulders the burden, and market signals
  are prevented from working
• The rice milling and exporting industry, which
  should be encouraging high quality rice
  production, which should be expanding research
  AND markets for the special forms and types of
  Thai rice, which should be moving away from
  competing only on price, and which has made
  massive capital investments in its facilties and
  people, is instead captive to rapidly shifting
  government policy. The Thai rice export industry
  is in danger of losing face, of losing customers
  due to the unstable market at home

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The Balance Is...

• 3,658,343 MT or 36.7 of all exports
• Meaning that 63.3 of all exports were
  value-added or high-value or by-products
• Of this balance, 3,289,348 MT were comprised of
  5 - 10 - 15 grades, meaning that only 3.7 of
  all shipments fell into the low quality market
  segment

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Thailand and USA in the Same Boat?

• Only Thailand and the USA export about 50 of
  their rice production
• All other countries are opportunistic exporters,
  consuming 85-95 of their rice at home. Like
  India, they can ban exports at any time if food
  security issues arise
• But the USA has cut government supports for rice,
  and has forced farmers to the market. The US is
  now a major paddy rice exporter - about 50 by
  tonnage

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China and India Struggle to Feed Their Own
Populations, Putting the Rice Trade at Risk
FAO and USDA claim stocks are rising, but the
carryover stocks (and increases) are largely
in those two countries
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More Farm Aid, Less Food Aid
G8 Summit Promises 20 Billion to Teach Africa
How to Grow its Own Food
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African Rice Production Higher

• With more research and new varieties, African
  rice production will continue to grow (Gates, G8)
• Unless export earnings and incomes rise, rice
  imports are likely to decrease

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Opportunities for Thailand

• The world environment for food production not
  improving - all of the problems are still there,
  like loss of arable land, water availability,
  global warming/cooling, increasing population
• Thailand is the largest rice exporter, and has
  been the most reliable. Thailand produces more
  rice that people with money want to buy.

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Assume Leadership

• Create a workable social and economic policy for
  those engaged in agriculture
• Take the lead in setting price by producing more
  of the speciality varieties
• Create public-private partnerships to increase
  paddy storage and reduce post-harvest losses

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Encourage and facilitate selected G-to-G sales to
reduce government stocks
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It is not all bad news
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