Economist: Demand, speculation play part

While the government and farming industry have blamed each other for the sharp drop in rice prices, a leading economist says the tumbling prices, particularly for premium fragrant rice, stem from diverse factors.

Somporn Isvilanonda, a senior fellow at the Knowledge Network Institute of Thailand, believes the tumbling prices, particularly for premium fragrant rice, can be attributed to issues at home and abroad.

"Over the past several months, demand and supply for hom mali rice and other aromatic varieties have changed, resulting in reduced prices," he said.

"One of the key reasons is shrinking consumption by premium rice consumers like the US, Asia, Africa and the Middle East," Mr Somporn said. "Their weak economies have led them to buy other lower-grade rice and cereals, including Vietnam's aromatic rice, which is much cheaper."

Some 3.5 million tonnes of milled rice (excluding basmati rice from India and Pakistan) is traded globally. Around 60% of that comes from Thailand, 37% from Vietnam and the rest from Cambodia, he said.

Vietnam's aromatic rice prices are currently quoted at about $570-650 per tonne.

Thai hom mali rice fetched, on average, $1,008 per tonne on the export market in 2015. Late last year prices dropped to $980 per tonne, further hitting $770 a tonne in September and then $725 by the end of October.

Mr Somporn said speculation among millers, traders and exporters is also to blame for tumbling rice prices.

Millers in the Northeast and Central regions are the primary holders of hom mali rice stocks, while exporters normally buy rice once they secure orders," he said.

"Therefore, holding large stocks leads millers to face higher risks from price volatility than exporters. Under current conditions, certain groups of millers are possibly suffering from hefty losses from such speculation," said Mr Somporn.

He added that many millers who failed to dispose of their existing rice stocks have suffered as stocks amassed, keeping them from buying rice from this year's main crop.

More importantly, millers do no have the ability to fix their own selling price, as exporters normally fix buying prices via rice brokers.

The buying prices set by rice brokers fell to only 15-17 baht per kilogramme in October, considerably lower than 24-25 baht per kg set earlier this year.

Millers who are the key paddy buyers from farmers hence have to cut their buying prices for paddy accordingly.

On the supply side, the new harvest of hom mali rice, particularly in the Northeast, has contained up to 30% moisture because of the considerable rainfall during the harvest season, forcing a shift to using harvesters and threshers instead of labours.

"With high moisture plus drastic changes in the rural paddy trading system caused by the previous government's rice pledging scheme, which killed central markets and drying grounds to reduce moisture, farmers have to rely on rice mills after harvest," he said.

There is also the knock-on effect of reduced quality.

"With relatively high-moisture rice, millers have to use drying machines to reduce the moisture. The drying process dissolves the aromatic substances in the hom mali paddy, eliminating once the paddy is milled," he said. "That's why Thai people themselves complain that hom mali rice is not as aromatic as in the past."

More importantly, Mr Somporn said genuine hom mali rice is becoming scarce and existing state-run rice seed centres cannot provide enough quality seed supply to farmers.

In addition, the varieties collected by the farmers or sold on the market are mostly substandard, he said.

"The future of Thai hom mali rice is being burdened by those factors," said Mr Somporn. "If the export market lacks confidence in aromatic quality of Thai hom mali rice, it will be difficult to recover the prices we've enjoyed earlier. We're afraid that non-organic hom mali growers in the Northeast will be hardest hit from the price slump. It will be difficult to survive in a long run if the price fall is prolonged."

Duangporn Rodphaya , director-general of Foreign Trade Department, concurred that the falling rice prices were due to the massive supplies, high moisture and the sluggish global economy.

Source:
courtesy of BANGKOK POST

by PHUSADEE ARUNMAS

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