Business

With Rice Cartel, Critics Say Burma Must Learn to Walk before It Runs

By William Boot 12 December 2012

Burma’s rice industry leaders have renewed their support for a Southeast Asian price-fixing cartel between exporting countries, though they have not yet addressed fundamental problems preventing an improvement in domestic production.

Support from the Myanmar Rice Federation for the Thailand-led cartel is at odds with a number of other countries in the Association of Southeast Asian Nations (Asean), the UN Food and Agriculture Organization (FAO) and the World Trade Organization (WTO).

Critics have described a cartel as unworkable and probably illegal under global trading rules, while the Asian Development Bank has labeled it as “irresponsible.”

Meanwhile, the International Rice Research Institute (IRRI) suggested such a move by Burma would be a case of running before the country had learned to walk. It said Burma’s rice industry could have a bright future as an independent, major exporting country—if it first addressed serious problems such as poor management, lack of investment, and damage risks to land and crops caused by extreme weather.

In an IRRI report, institute scientist David Johnson detailed what Burma’s rice sector still needed to do before becoming a serious exporter, never mind joining a cartel.

“Interventions to reduce the vulnerability of [Burma’s] farmers to extreme weather being caused by climate change mean promoting the use of rice varieties that can tolerate floods, salinity, and drought, as well as management approaches that support optimum performance of these improved rice varieties,” Johnson wrote in the report, titled “Asia’s next rice granary: Myanmar?”

“If the two million hectares rice-producing areas in the [Irrawaddy] delta use better management practices and appropriate rice varieties, they could easily boost Myanmar’s domestic and export capacities, critical for a country whose per capita rice consumption is the highest in the world at 190 kilograms per year,” he added.

Rice provides more than 70 percent of daily calories for most Burmese people.

The IRRI is working in Burma with other specialist groups, using satellite information to identify rice-growing areas susceptible to flooding, drought or salty conditions. The Philippines-based institute can then introduce varieties of rice capable of coping with these extreme conditions.

“IRRI also develops management technologies that not only help deliver higher yields but also promote environmental sustainability and reduce costs,” Johnson said in the report.

The proposal for a price-fixing cartel—modeled after the oil cartel OPEC, the Organization of the Petroleum Exporting Countries—is being driven by Thailand, which is currently the world’s biggest single rice exporter. Locking rival Vietnam and potential rival Burma into a joint price scheme would most likely benefit Thai producers and exporters, eliminating the risk of being undercut by a rising rice star at its western border.

Bangkok has invited Vietnam, Burma, Laos and Cambodia to join the cartel. The five Asean member countries produce only 12 percent of rice worldwide per year, or about 63 million tons, but are responsible for 56 percent of exports, or 19 million tons.

The Thai government says its objective is to stabilize international rice prices—and enable an annual price increase of up to 10 percent, critics say.

“The formation of an exporter-only cartel is not allowed under WTO rules. It may have very negative effects for global food security in the short term, but I do not believe it can be sustained in the longer term,” FAO economist Concepcion Calpe told the rice news website Oryza recently.

“Rice is different from petroleum, as many countries are able to respond to the surge in prices by stepping up production,” she added. “The collusion of the five major exporters could propel world prices very high in the short term, but this will foster a general move toward self-sufficiency programs which will eventually erode the very basis of the cartel.”

Regardless, Soe Tun, an official from the Myanmar Rice Federation, said Burma’s President Thein Sein had called on his country’s rice industry leaders to support the cartel idea.

The federation will “mainly work on two items: to boost the quality of rice exports and increase prices,” Soe Tun told Burmese media.

The federation, which recently changed its name from the Myanmar Rice Industry Association, includes groups for producers, traders and millers. Earlier this year, it said tens of millions of dollars were needed to rebuild Burma’s rice industry infrastructure, including its rice mills.

Thailand wasn’t always the preeminent rice exporter. In the mid-20th century before the onset of World War II, Burma held that title, shipping 7 million tons of rice abroad annually in the late 1930s when Thailand was still a subsistence agricultural backwater.

War and decades of incompetent military rule in Burma reversed these roles. In 2011, Burma exported 778,000 tons of mostly poor quality, broken rice, while Thailand dispatched 10 million tons of quality grain.

A rice export cartel, which would fix collective export prices, is being pushed by the Thai government, which has introduced a subsidy scheme guaranteeing Thai farmers a minimum price regardless of market conditions. The one-year-old scheme has coincided with a slump in Thai exports, expected to be down by more than 40 percent this year from last year’s exports. This has led to a huge stockpile in Thailand.

Some observers see the subsidy as politically driven.

“The government buys rice direct from farmers at about twice the normal market price,” said The Economist newspaper recently. “This benefits mostly small-scale rice farmers in Thailand’s poor rural north-east and central plains, a constituency fiercely loyal to the ruling Pheu Thai party of [Prime Minister] Yingluck [Shinawatra].”

But not all Thais support a cartel. Economist Ammar Siamwalla of the Thailand Development Research Institute described the idea as “stupid,” not least because rice could not be stored indefinitely, like oil.

And although Burma’s industry federation says exports are growing, it is not clear just how much rice the country produces.

“Production statistics vary markedly depending on the source,” the IRRI said in a separate report recently. “From our household surveys and focus group discussions, farmers harvest only about 3.5 tonnes per hectare in the [Irrawaddy] delta.

“If rice production in [Burma] is increased, poverty may be alleviated and the livelihoods of rural poor would improve.”

On the evidence, a price-fixing group seems primarily designed to support the Thai government’s expensive domestic subsidy scheme.

“Thailand’s position as the world No. 1 rice exporter is under threat from Vietnam and India because of meddling by the Thai government, which has held back exports this year as a consequence of the subsidy program, and which is expected to cost the country between $1 billion and $2 billion this year,” said an industry insider in Bangkok, speaking on condition of anonymity due to the sensitivity of the subject. “I think it would be a mistake for Myanmar [Burma] to get drawn into a scheme which would benefit Thai farmers more than Burmese farmers.”

Thailand’s Ministry of Commerce, which hosted the cartel negotiations, said the five would-be members would resume talks early next year.

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