Rice Cartel Plan Resurfaces

A rice mill in Battambang province owned by the Loran Rice Group.

21st March, 2012
Radio Free Asia

Cambodia and Burma look to join forces on the regional rice market.

Cambodia is eager to revive an earlier plan to establish a regional rice trade cartel to help offset fluctuating international market prices and wants another key exporter Burma to join the group.

Officials said the move was discussed during a meeting between Cambodian Prime Minister Hun Sen and his visiting Burmese counterpart Thein Sein in Phnom Penh on Wednesday during which the two leaders considered ways to boost bilateral trade.

Cambodian government spokesman and Minister of Information Khieu Kanharith said Hun Sen requested that Burma join the proposed cartel in order to help stabilize the trade on the key commodity amongst members of the Association of Southeast Asian Nation (ASEAN), of which Cambodia is the current chair.

ASEAN is comprised of Cambodia, Laos, Thailand, Burma, and Vietnam—all net rice exporters—as well as Brunei, Indonesia, Malaysia, the Philippines, and Singapore—which import the majority of their rice.

“We want to establish a rice cartel association because Myanmar [Burma] is improving their rice mills,” Khieu Kanharith said.

“In 2012, Cambodia produced a four million ton surplus of unmilled rice because we don’t have enough good quality and modern rice mills and also because millers didn’t have enough money to buy unmilled rice,” he said.

He added that Cambodian rice farmers were forced to sell their unmilled rice to neighboring countries, such as Vietnam and Thailand where the rice could be processed cheaply and turned around for a profit on the global market.

“Myanmar [Burma] wants to export their rice and work with Cambodia on the issue,” he said.

Thein Sein is currently in the midst of a three ASEAN nation tour. He met with his Vietnamese counterpart Nguyen Tan Dung in Hanoi on Tuesday and will travel to Laos on Thursday where he will meet with Prime Minister Thongsing Thammavong in Vientiane.

Decade-long plan

The first unsuccessful attempt at coordinating rice prices for the global market came during a meeting of senior officials from major rice exporting nations from ASEAN countries and India in 2002.

The movement most recently gained attention in 2008 following remarks by then Thai Prime Minister Samak Sundaravej that his government would try to create a cartel of rice-producing countries in partnership with Vietnam, Cambodia, Burma and Laos.

And while such an organization would benefit large-scale rice farmers in the world’s biggest rice exporting countries, most of which are located in Southeast Asia, the idea has been met with criticism from importing nations which say it could lead to artificially high prices set by monopoly.

Price-fixing could also lead to a drastic increase in food shortages for the populations of the same impoverished nations that are exporting rice.

Regional dependence

Many rice farmers in Cambodia are facing financial ruin this season after an abundant rice harvest and thinning demand from neighboring countries for processed rice led to falling prices.

Instead, they say, Thai and Vietnamese purchasers have focused on buying unmilled rice in Cambodia since the beginning of 2012, which sells for much cheaper than on their local markets, because they are able to process it themselves with modern milling equipment before selling it internationally for a substantial mark up.

One farmer in Battambang province said that a specific type of unmilled rice known as “Phkar Mlis” has recently increased in price because of the number of Thai buyers targeting the variety in Cambodia.

A rice miller named Lim Bunheng told RFA that despite a Thai government policy which prohibits the import of rice, Thai farmers have continued to buy unmilled rice to support their international market demand.

He confirmed that Thai purchasers are now buying “Phkar Mlis” unmilled rice and other dry seasonal unmilled rice to supplement their stocks. But he added that they were willing to purchase milled rice as well to avoid overall increasing rice prices.

“Thai farmers are buying both unmilled and milled rice as long as they can agree on a set price,” he said.

“Rice prices are going up, so they have been trading rice through border corridors even though the Thai government doesn’t want any rice imports.”

He added that if Thai buyers stop buying, the price of all Cambodian rice would drop.

Agriculture expert Srey Chanthy said the Thai market is able to absorb Cambodia’s rice because of high demand from importers like the Philippines and India.

Costs of milling

In February, Cambodia’s Ministry of Economy and Finance said it would guarantee U.S. $25 million as collateral for loans to rice millers, who often lack the capital to purchase large quantities of paddy rice or build processing plants, the Phnom Penh Post reported.

Rice millers also fall short on the collateral needed to secure loans from commercial banks.

The government guarantee against defaults in the rice sector is part of plan to boost production and bring Cambodia closer to Prime Minister Hun Sen’s goal of exporting one million tons of milled rice by 2015.

Experts and officials said last month that falling rice prices had exposed the high costs of Cambodian milled rice production and its uncompetitiveness on international markets.

Rice millers in Cambodia have only exported limited amounts of processed rice to some European countries, the U.S., Russia, Australia, Hong Kong, and Malaysia.

Reported by To Serey and Sithav An for RFA’s Khmer service. Translated by Samean Yun. Written in English by Joshua Lipes.