South East Asia rice cartel plan may not work

Business Times 5 May 08;

(BANGKOK) A proposed 'Opec-style' rice cartel in South-east Asia will go nowhere due to the inability of governments to cooperate with each other and control output from their farmers, analysts and traders said on Friday.

Thai Prime Minister Samak Sundaravej, a TV chef whose main contact with rice is cooking it, has revived the long-dormant idea of a price-setting body involving producers Thailand, Vietnam, Myanmar, Laos and Cambodia.

The proposal, which threatens to add to global food supply fears amid record-high rice prices, failed to gain traction seven years ago when it was first floated by Bangkok - and most see little chance it will fare better this time around.

'I don't think it would work. All they can do is agree on a price, but they can't control the supply like oil,' said Graham Catterwell, an economic analyst with 30 years of experience in Thailand and the region. 'It's going nowhere.'

The five mainland South-east Asian nations produce a combined 60 million tonnes of milled rice each year, about 14 per cent of world output. But only Thailand, the world's number one rice exporter, and Vietnam have major surpluses, last year accounting for about 47 per cent of world wheat trade.

'We are all rice producers. Why don't we cooperate in managing prices?' Mr Samak said on Wednesday after talks with visiting Myanmar Prime Minister Thein Sein.

Mr Samak said Mr Thein Sein had agreed in principle to the idea, but the Burmese general did not speak to reporters. Myanmar has resumed limited rice exports this year, mainly to South Asia, after several years off the market, trade sources say.

The proposed group - which includes two democracies, two Communist-led governments and a military dictatorship - appears in no hurry to hammer out the details.

Agriculture ministers will discuss the proposal in September at a meeting of the 10-nation Asean regional group in Vietnam, Cambodian Agriculture Minister Chan Sarun said on Friday.

Impoverished Cambodia, where 85 per cent of a 14 million population are farmers, would join if a cartel offered technology benefits like better seed to boost output, he said.

Cambodia produced 6.7 million tonnes of rice in 2007-08, of which 1.5 million tonnes went for export, well below the nearly nine million tonnes Thailand will ship this year.

Like several other big suppliers including Vietnam and India, Cambodia slapped restrictions on exports this year in an effort to secure domestic supply and keep local prices down.

'We must produce more rice to sell to overseas markets,' Cambodian Prime Minister Hun Sen recently said on state television.

Sharing technology is one thing. It's quite another to set prices and control output like the Organisation of the Petroleum Exporting Countries (Opec), whose member nations have often had trouble singing from the same song sheet even though they pump over a third of the world's oil.

'It's impossible. We can't fix prices as Opec does because we can't control our production like Opec,' Chookiat Ophaswongse, president of the Thai Rice Exporters Association, told Reuters. 'It might be easy for Communist Laos or Vietnam to control their farmers, but we can't do that in a free-market economy like Thailand. Farmers will rush to grow more rice when prices go up and shift to other crops when prices fall,' he said.

Mr Catterwell said the five countries may agree on a broad price band, but it would be hard to enforce and buyers could go elsewhere, such as India, which can export as much as five million tonnes of rice annually.

Even Mr Samak appears to have moved on from the price-setting idea, as he was quoted as saying on Friday he was willing to sell rice to Indonesia at a 'friendly price'.

Thailand first floated the cartel idea in 2001 when it feared losing market share because its export price was around US$40 a tonne higher than Vietnam, India and Pakistan. The proposal fizzled out then, and it appears likely to suffer a similar fate this time around.

'With an oil well, you can just turn the pumps on and off. You can set quotas for how much to produce, but how do you do that with rice farmers all over the country?,' Mr Catterwell said\. \-- Reuters