Rice price surge a temporary phase: Ammar

Achara Deboonme

The Nation

Rice prices may be contained after the second crop, says distinguished economist Ammar Siamwalla, who foresees a possible slide in the speculation-driven price if other rice-growing countries expect higher output in the next harvest season.

"Prices of agricultural crops naturally tend to fall, due to continued increases in productivity," the honorary adviser to the Thailand Development Research Institute said. "Thailand's rice productivity indeed is low, but Thailand has excess supply for export because of lower domestic consumption."

During an interview, Ammar showed a graphic of rice price movements in the early 1970s when the world faced oil shocks. Rice prices then skyrocketed for a year before falling to the pre-crisis level in the following year, and receded after that.

Ammar expects history to repeat itself, as the current increase is driven by external factors - rising demand for fuel crops, which lead to fewer rice plantation areas, and rising meat consumption in emerging countries like China and India, which spike up animal-feed raw material prices, including wheat. At least the 4 million tonnes coming out from the second rice crop in May should temporarily freeze a further increase.

In line with high oil prices and meat consumption, prices of agricultural products will remain high until all producers have stocked up sufficient supplies. But Ammar noted that rice prices skyrocketed also because of panic buying following export bans in various countries. He also anticipates hoarding in the next stage.

Ammar praised the government for not curbing exports, but urged it to ensure sufficient supply for domestic consumption.

"It's not realistic for a country that produces 20 million tonnes of rice to shoulder the burden of the globe. It also has to protect local interests. Yet it must ensure that export control is not for speculation purposes," Ammar said.

To maintain high export prices and reduce pressure on consumers, Ammar suggested the government charge taxes on rice exports. While that would not deprive Thailand of possible gains from the phenomenon, local consumers would pay less for rice. He noted that if exporters were selling as much as usual, domestic rice prices would definitely go up.

Under the scheme, if the government wanted to maintain the local price at 80 when the global price was 100, the tax rate would be 20.

"To protect farmers' income, the government is reluctant to do so due to fear of lower domestic prices. Yet right now, it's fortunate that Thais' income is high enough that rice becomes a tiny part of their expenses," he said.

He noted that as prices are escalating, exporters can't react accordingly and the globe is panic-stricken. In this condition, things will stand still.

Ammar is not concerned with the report that some rice plantation areas will be used to plant fuel crops, saying that would only reduce the export portion.

He is more concerned with the idea of turning those crops into fuel, given the high cost.

"I am rather concerned that fruit growers will turn their land into rice fields. It's a dangerous period. If the agricultural output, not only rice, is low again, the problem will intensify. Global warming will send a strong impact at times when stocks are low," he concluded.