A Thai vendor fills bags with a variety of rice at a shop at a market in Bangkok on Sept. 25, 2011. A populist policy aimed at boosting the incomes of Thai farmers has raised fears of global rice price turbulence, but experts say the kingdom could just be hurting itself.CHRISTOPHE ARCHAMBAULT
No commodity price in Asian markets carries quite the emotion of rice, a staple in about half the world's diet.
A decision by a new Thai government to guarantee its farmers a higher price for their rice crops -- winning the hearts of the working-class in the aftermath of that country's political turmoil -- is having some rocky consequences.
Thailand is the region's main exporter of rice, providing an estimated 10 million tonnes annually. Earlier this month, new Thai prime minister Yingluck Shinawatra -- sister to ousted favourite of the working class Thaksin -- pledged to begin paying farmers nearly 15,000 baht, or just over $480 (U.S.) a tonne, up from the present 10,000, starting in October. That, in turn, has pushed the price of 100 per cent B-grade Thai white rice up to around $619 a tonne this week.
There are moderating influences; India, normally a careful hoarder of its rice stores, has just released two million tonnes for unrestricted export. Neighbouring Vietnam is also expected to help compensate with its own growing production.
And China -- by far the largest consumer, but also the world's seventh-largest exporter of rice -- has its own stable supply. Analysts say the country has overall stock levels "comfortably" higher than they have been in years.
Still, even Chinese officials must have some concerns -- which may be why state-controlled newspaper headlines here this week crowed about the accomplishments of scientist Yuan Longping, who has achieved a world-record yield --13.9 tonnes per hectare, or more than double the average -- with one of his hybrid rice strains. Improving the yield of limited farmland is a high priority in a country with 1.3 billion people to feed, particularly when rising food prices are driving the country's inflation.
"If the international price of rice rises, this can put upward pressure on rice in China as well: locals will have greater incentives to export," wrote Frederic Neumann, co-head of Asian economics for HSBC, in an e-mail interview. "That said, rice is not the main driver of food costs currently in China, where the biggest jump over the past year has been in pork and vegetable prices, as well as wheat due to a drought in the North … Increases in the international price of food should have an only marginal impact on China's domestic food prices."
However, Mr. Neumann warned in a separate report that the rising cost of rice may well impact inflation in the rest of the region. "If sustained, the rise in the cost of rice could stem any downdraft in headline inflation across the region, " he wrote.