Business Standard
New Delhi
May 08, 2008
The recent bid by Thailand and Cambodia to revive the long-dormant proposal for creating an Opec-like cartel of five rice-exporting countries of South-east Asia, called Organisation of Rice Exporting Countries or OREC, is both ill-timed and ill-advised; indeed, prima facie, the idea is unworkable. This balloon was floated first by Thailand in 2001, subsequently by Cambodia in 2005, and is supported by Vietnam, Laos and Myanmar. Thailand is the world's largest rice exporter (with annual exports of 10 million tonnes), with Vietnam not far behind (exporting around 6 million tonnes). Cambodia is a smaller exporter, with exports of around 2 million tonnes, but it can expand paddy cultivation to boost its surplus, if assured attractive prices. Together, these three members of Asean (Association of South-east Asian Nations) account for a sizeable part of total rice exports.
The idea has been floated again at a time when global rice prices are already on the boil, having more than tripled since 2006. Supplies are tight, owing partly to the restrictions on rice exports imposed by several countries, including India, Brazil and Egypt, all of which are keen to build up domestic stockpiles. Any adverse price signals at this stage are bound to add to food inflation. An indication of what could be in store came when the rice import tenders floated by the Philippines and Bangladesh failed to attract any worthwhile bid and had to be scrapped early this week. It is no wonder therefore that the first denouncement of the cartelisation move came from none other than a key Asean member, the Philippines, which is a large rice importer. The Asian Development Bank too has been quick to oppose it, maintaining that it would not be good for either exporters or importers.
Going beyond the immediate interests of rice-exporters and -importers, the truth is that a successful rice cartel is almost impossible to visualise. Even if the alliance partners agree on a price band, it will be difficult for them to control production/supply — which is a key requirement for a successful cartel. This is especially so because some of these countries grow three or four crops of paddy in a year and, unlike oil wells, which can be switched on and off, a paddy harvest cannot be so regulated. Stocking up, as an option, could be expensive, especially if prices do not stay high. Nor can farmers be coerced into increasing or reducing rice acreage. The key element is that buyers have an option to go elsewhere, as the other rice-exporting countries are free to sell at prices of their choosing. Indeed, buyers could switch to alternative cereals too.
Regardless of whether a rice cartel is born or not, the alarm bells set off by the Thai attempt may spur fresh efforts to salvage the Doha round of trade talks, stalled for some years now because of disagreement over the liberalisation of agricultural trade. When the rice price manipulation proposal is viewed against the backdrop of the global food crisis, which has resulted in food riots in several countries, the need for free (unhindered) and fair (undistorted) trade in food and other farm products under a globally agreed and legally-enforceable regime will be seen to be all the more urgent.
The idea has been floated again at a time when global rice prices are already on the boil, having more than tripled since 2006. Supplies are tight, owing partly to the restrictions on rice exports imposed by several countries, including India, Brazil and Egypt, all of which are keen to build up domestic stockpiles. Any adverse price signals at this stage are bound to add to food inflation. An indication of what could be in store came when the rice import tenders floated by the Philippines and Bangladesh failed to attract any worthwhile bid and had to be scrapped early this week. It is no wonder therefore that the first denouncement of the cartelisation move came from none other than a key Asean member, the Philippines, which is a large rice importer. The Asian Development Bank too has been quick to oppose it, maintaining that it would not be good for either exporters or importers.
Going beyond the immediate interests of rice-exporters and -importers, the truth is that a successful rice cartel is almost impossible to visualise. Even if the alliance partners agree on a price band, it will be difficult for them to control production/supply — which is a key requirement for a successful cartel. This is especially so because some of these countries grow three or four crops of paddy in a year and, unlike oil wells, which can be switched on and off, a paddy harvest cannot be so regulated. Stocking up, as an option, could be expensive, especially if prices do not stay high. Nor can farmers be coerced into increasing or reducing rice acreage. The key element is that buyers have an option to go elsewhere, as the other rice-exporting countries are free to sell at prices of their choosing. Indeed, buyers could switch to alternative cereals too.
Regardless of whether a rice cartel is born or not, the alarm bells set off by the Thai attempt may spur fresh efforts to salvage the Doha round of trade talks, stalled for some years now because of disagreement over the liberalisation of agricultural trade. When the rice price manipulation proposal is viewed against the backdrop of the global food crisis, which has resulted in food riots in several countries, the need for free (unhindered) and fair (undistorted) trade in food and other farm products under a globally agreed and legally-enforceable regime will be seen to be all the more urgent.
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