In spite of fears that El Niño will deliver a possible monsoon failure in India and Southeast Asia, the fate of existing rice stocks have failed to perturb the market.
However, the embattled Thai government’s failure to raise funds to continue its pledging scheme has led to the steep decline in the country’s rice prices over.
Between February 2013 and May this year, the Thai price for 25% broken rice declined by more than 40%. Over the same period, the large spread of US$150–200 per ton between Thai and countries like India, Vietnam and Pakistan more or less disappeared. In some cases, the price of Thai rice even fell below its competitors.
However, this has enabled Thailand to export greater quantities, and during the first four months of 2014, its exports increased by almost 1m tonnes to 2.93m over the same period a year ago.
Although the Thailand’s military junta is concerned about low rice prices for farmers, it is not clear what measures it will implement to raise these, especially as the authorities have yet to reveal how they will release existing stocks to the market.
At this stage, we hope that the current government will not repeat the mistake made by its predecessor and will find a non-distorting way to support farm income if it is happy to let the market work.
If this happens, Thai rice exports will continue rise and, undoubtedly, the country will become the world’s top exporter again—a position it lost in 2012, when India and Vietnam for the first time sold more rice.
The El Niño effect
Apart from Thailand’s political confusion, the world’s rice market also faces weather uncertainties over the coming months as a result of El Niño.
Many rice-growing countries in South and Southeast Asia are cautiously optimistic about the rainfall distribution over the next few months that will determine the fate of the biggest crop of the year.
In the case of India, currently the biggest exporter in the world, where the wet-season crop accounts for more than 85% of the total crop, the southwest monsoon arrived in Kerala five days late.
There is uncertainty about how quickly it will spread to the rest of the country. Earlier this season, forecasters had predicted the monsoon rainfall in India this year to be around 95% of the long-term average. Indonesia and the Philippines are also bracing for weather disruptions from El Niño.
Where the market is going all depends on the fury of El Niño. If the drought is severe in large parts of the region, it will put pressure on rice prices despite adequate global rice stocks right now.
Stocks well placed
We are undoubtedly in a much better position with a global stocks-to-use ratio of 23.5% now, compared to 18.5% in 2007, while stocks have increased by 36m tonnes since 2007 to their current level of 111m tonnes, according to estimates by the US Department of Agriculture.
But the bad news is that almost all the increases in these rice stocks are primarily with India, China, and Thailand, and the majority of stockpiled rice is in government warehouses, rather than in the hands of private traders.
In case of a crisis or production shortfalls, this may create panic among rice-importing countries as they will be unsure whether these government-held stocks will be available for sale, and at what price.
In the case of India, it is not clear how the new government—already jittery about the poor prospects of monsoon crops—will react to any significant production shortfall caused by weather disruptions.
Although the current government rice stock of 28m tonnes is at an adequate level, this quantity has declined by 4m tonnes from 32m tonnes at the same time last year.
The new government will be under pressure if planting is substantially delayed because of the late onset of monsoon and it may take measures to restrict exports, at least for non-basmati rice, to safeguard its domestic food supply and keep enough in its warehouses to meet the need of the National Food Security Act.
No return for pledging scheme
With Thailand, it is becoming more evident that its rice-pledging scheme will not come back, and without it, it is a no-brainer that Thai farmers will plant less rice in the wet season.
However, this should not be a problem for the global market because Thailand has plenty of stocks to make up for the shortfall.
Indonesia and the Philippines are also expected to be affected by El Niño. As of April 2014, the Philippines had a rice stock of 2.18m tonnes, which is sufficient for 64 days of domestic consumption.
Similarly, Indonesia has 6.8m tonnes of rice stock to meet its domestic consumption for 62 days, so any significant weather disruptions will push these countries to import more, and so raise global rice prices.
China, the largest importer of rice in the world, is also expected to be affected by El Niño in the form of heavy rains and flooding in its major rice-growing areas. If the rice crop is affected and the domestic rice price goes up, Chinese traders will have more reasons to import more than pundits have predicted.
Overall, the market is well positioned to handle a moderate drought and other incidences of extreme weather.
Thai rice stocks will come in handy to keep the market stable to some extent, but significant weather disruptions in key rice-growing countries will eventually move prices higher.
We hope that countries will not repeat the mistakes they made in 2007 by imposing an export ban and stockpiling in anticipation of shortage. Otherwise, we might be heading for another crisis.
- Samarendu Mohanty is head of the social sciences division of the International Rice Research Institute