Friday, October 14, 2011

Asian rice fund comes not a moment too soon

October, 14 2011
By Mai Phuong

Storms and floods that have wreaked havoc on rice farming throughout Asia during the past month are a challenge to the region.

Solutions are needed more than ever.

Many crops and mills throughout the region were submerged in flood water from continuous storms in the Philippines, Japan, South Korea, China, Thailand, Cambodia, Viet Nam, India, and Pakistan.

The nations that suffered the most were those along the Mekong River, including Viet Nam and Thailand and southern China - the world biggest rice producers and exporters. Swollen rivers hampered the movement of barges, while ships in port were unable to load cargo because of heavy rains. This is bound to push up rice prices.

Flood-damage to rice crops in Thailand, the world's leading rice exporter, came as the nation's new government introduced higher farm-gate prices for farmers. This will also make the grain dearer for overseas buyers.

Thailand has a population of 67 million and has 10.68 million ha under rice. Viet Nam has 86.97 million people to feed and plants 7.35 million ha of rice each year. Rice prices in Thailand have started moving higher, while, this week, Vietnamese rice prices may rise to their highest in more than three years because of thin stocks, the impact of flooding and speculation over additional demand.

Rice-production costs in Viet Nam could also be high because of the time and money farmers have spent on pumping water away from their crops. This will add fuel to the fire because the market was likely to see an increase as ASEAN+3 (China, Japan and South Korea) governments are due to start an intervention scheme to prevent people running short of the staple food.

Meanwhile, China has more than 29 million ha under rice. It is the world's top rice producer and accounts for over a third of global supply. But it is also frantically trying to recover from the recent floods and rice production may be lower than the average yield of 6.61 tonnes per ha.

The Philippines has a population of about 92 million but only allocates 4.4 million ha for rice production because urban sprawl is swallowing much good farm land. Flood damage has added to the gloom. This is why the nation is the world's biggest buyer of rice.

In 2008 when the rice crisis at its highest peak, the Arroyo administration decided to make sure there would be no rice shortages or rice riots by offering the highest bids for regional rice. That decision drove prices up and made the Philippines the world's biggest spender on imported rice.

In global context, the International Rice Research Institute two months ago warned of the danger of a crisis to rival the rice riots of 2008. Several days ago, the United Nations Food and Agriculture Organisation (FAO), predicted that food-price volatility would be likely to continue and probably get worse next year.

The institute said the possibility of panic buying similar to three years ago could send prices soaring even further. The world food body also warned of a dark future for poorer farmers, predicting they would become more vulnerable to poverty and food insecurity.

Business analysts say international rice markets are "thin". Less than 5 per cent of global rice production was traded internationally - and therefore prices are vulnerable to small changes in supply and demand.

The problem seems serious.

Timely action

After nearly a year of negotiations and preparations, ASEAN+3 have established an emergency rice fund.

This emergency reserve could be a timely solution to the emerging problems. The main benefit would be to balance rice production in most of Asia and control likely price hikes.

As the warning of food price volatility and surge in food demand becomes more and more obvious, the fund should begin activities now to save the region's rice market before it is too late.

It should first take the implementation as a permanent mechanism for an emergency rerserve based on co-operation between their partners.

It should also expand more coverage of rice production and focus support on the most vulnerable areas.

Ministers from the ASEAN+3 nations signed the emergency rice-stockpile agreement late last week in Jakarta. Initially, the 13 countries aim to provide a rice stock of 787,000 tonnes to cope with sudden instabilities caused by natural disasters.

China, Japan and South Korea will prepare 300,000 tonnes, 250,000 tonnes and 150,000 tonnes of rice, respectively, while the 10 ASEAN countries will prepare 87,000 tonnes. Among the ASEAN members, Thailand will be the biggest contributor, 15,000 tonnes; Viet Nam and Myanmar will contribute 14,000 tonnes each; Indonesia and the Philippines 12,000 tonnes each. Brunei, Laos and Cambodia 3,000 tonnes each; Malaysia 6,000 tonnes; and Singapore 5,000 tonnes.

The rice will be kept in each producing country for use as emergency reserves for South-east Asia.

About US$4,001,500 will be set aside to cover the costs of maintaining the reserve. China, Japan and South Korea will each pay $1 million into a fund. Seven ASEAN members - Brunei, Indonesia, Malaysia, the Philippines, Thailand, Singapore and Viet Nam - will contribute $107,500 each, while Cambodia, Laos and Myanmar will each contribute $83,000.


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