Rice vendors in a market in Cambodia.(Image collection of IRR)
For the first time since the crisis in late 2007, new uncertainties plague the global rice market. A record global rice crop in 2008 kept the situation under wrap, with rice prices dropping by as much as 60% after peaking in May 2008. Favorable growing conditions in the major rice-producing countries definitely helped the situation, as 10 million tons of rice were added to the global rice inventory at a time when stocks reached a level not seen in the last 30 years. Government interventions in the form of a higher minimum procurement price, along with higher input subsidies, also helped production reach a record.
One of the undesirable outcomes of raising the support level, however, has been the diversion of rice away from the market to government warehouses. This is evident in the more-than-normal spread between Thailand and Vietnam rice prices that has been seen in recent months, when higher Thai intervention prices have kept export prices higher. As Figure 1 shows, the price of Thai rice 5% broken is about $100 higher than its Vietnam counterpart, compared with the normal spread of US$10–20. Similarly, retail rice prices in major Indian markets have also witnessed steep increases in the past months, while government grain bins overflow with rice (see Fig. 2).
Experts’ estimates regarding the amount of rice sitting in government warehouses, particularly in India and Thailand, vary. The estimates range from 20 to 25 million tons for India and 6 to 8 million tons for Thailand. In addition, India also had a banner year in terms of record wheat procurement, pegged somewhere around 30 million tons. From the outside, it appears that India is sitting comfortably with these buffer stocks at its disposal. However, more than half of the procurement stocks need to be channeled through the public distribution system to provide subsidized grain to the 65 million people living below the poverty line. The government has also allocated 17 million tons of grain to those above the poverty line who can buy it at less subsidized prices. The challenge for the government now is to strike a balance between the public and private distribution system to ensure a steady supply of grain in the market and keep prices stable.
