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25 Mar 2008


Skyrocketing Rice Prices: Favorable World Markets, Exporters at Risk (Current Issue No.2126)

Rice prices have jumped sharply since early this year in continuation from the steady increases seen last year. This spike can be attributed to many favorable factors in the global rice market, e.g., restrictive policies on Indian rice exports and Vietnam's deferred rice contract with importers. India and Vietnam are the world's second and fourth largest rice exporting countries, respectively. Demand for rice in the global market in 2008 is projected to rise, causing importers to accept costlier rice, which may result in higher demand for Thai commodity.
Amid increasing rice prices, local exporters may be vulnerable to risks from losses on forward purchase orders. These include possible failures to fulfill their orders on schedule. Meanwhile, consumers will inevitably be confronted with the runaway prices of rice, which will require immediate solutions from both public and private sectors concerned.
Prices of rice in the global market tend to continue escalating in the next few years. Although these may induce farmers to expand their plantation areas in the year to come, there will be competing priorities between the cultivation of rice and energy crops, both of which are enjoying higher prices in the global market. A proper solution is to raise the yield per rai of rice. Due attention should be paid on the greenhouse effects, which will result in climatic changes, and widespread of diseases and pests, which will do harm to farm outputs.
The government should hastily seek a long-term policy on rice and other crops to cope with the changing market situation in competing priorities between the cultivation of rice and energy crops, global warming, as well as supply shortages. These new challenges are affecting farmers, agro-industrial factories, household consumers and exporters, which will urgently requires urgent government actions, mainly on appropriate market intervention and acceptable profit-sharing among all concerned.
The point is to lay down a flexible policy in the changing market conditions, notably price volatilities. By nature, farm outputs are almost unpredictable and subject to many risks, i.e., farmers' planting plan, uncertain climatic conditions and productivity of rivals, not to mention trade partners' demand. In principle, the policies should be based on fairness to all parties. These should be measures to prevent shortage of rice in domestic market. Due attention should be paid to current difficulties of farmers because of their low bargaining power, or they earn relatively lower benefits from the rising prices of rice. Instead, they usually experience direct effects from the falling prices. Local buyers should have sufficient volume of rice in the market, amid the runaway prices. Effective solutions can be sought from cooperation with all public and private sectors concerned.

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