The government may have impressed the public on Wednesday after signing a memorandum of understanding with China on rice. In fact, there is no guarantee the government will be able to dispose of as much rice from its huge stockpile as it has claimed, writes Achara Pongvutitham.

The government may have wanted to take advantage of the occasion of Chinese Premier Wen Jiabao’s state visit early this week to create a good impression of its rice pledging scheme. Wen witnessed two rice deals, including a government-to-government memorandum of understanding and a separate agreement between exporters and China’s state-owned COFCO, its largest grain trader, and other companies.

In addition, the government might have wanted to cool the political heat ahead of the censure debate late this month, in which the price-pledging policy will be a top priority.

It has been remarked that this week’s MoU is totally different from previous government statements that China would purchase 5 million tons of rice from Thailand in three years.

There was no such fixed figure in the MoU but only a statement, without any firm commitment, that China would import high volumes of Thai rice and that Thailand would supply the rice as required by China. In addition, the price will be negotiated based on the market price at the time of any future transaction.

As it is only a memorandum of understanding, either partner can cancel it at any time. In this case, Thailand needs China to import rice to help its dispose of its huge stockpile of about 6 million tons accumulated under its high-priced pledging scheme. Unfortunately, there is no G2G deal at all now.

An informed source at Government House said the MoU was amended a few times before it was signed as China did not want to be obligated on the volume of rice it would purchase.

“I would [say there are] two reasons that China didn’t want to commit to a figure. Wen is an outgoing premier; and China imports rice not only from Thailand but also Vietnam, Pakistan and India. Beijing doesn’t want to create any problems with its other trading partners,” the source said.

However, another interesting question has been raised on why the volume was not fixed: whether China is unhappy with Thailand’s position favoring the United States on political and economic issues.

It needs to be stressed that the two rice deals signed during Wen’s visit were quite separate, one the G2G MoU and the other a standard business agreement by Thai exporters.

The public should also be cognizant of the success of four exporters in particular: Asia Golden Rice, Thai Fah (2511), Charoen Pokphand Group and International Rice and Products. They will export a combined volume of 260,000 tons of rice worth about Bt6.24 billion ($203 million) to China.

A senior Commerce Ministry official who was involved in the memorandum of understanding pointed out that every rice deal Thailand has made with China has also come under an MoU.

So, should we consider this rice MoU a success or a failure? The government is eager to dispose of the huge stockpile in preparation to purchase the new main crop of rice, which will enter the market early next year. However, rice is a buyers’ market globally as the supply is still high while demand has remained unchanged.

Moreover, India, which banned rice export for two years for food-security reasons and resumed shipments early this year, has a huge stockpile of 30 million tons, equal to Thailand’s total annual rice production. Indian varieties such as basmati and parboiled rice are important rivals of Thai rice in the African market.

Vietnam has also swept into the market to beat Thailand as the world’s biggest rice exporter, targeting shipments of 7 million to 7.5 million tons this year. In addition, every type of rice offered by that country is about US$100 per ton cheaper than the Thai equivalent.

Ousted Prime Minister Thaksin Shinawatra has said Thailand will suffer from Pheu Thai’s rice-subsidy policy for two years, after which it will enjoy great benefits.

In fact, the program will increase the country’s public debt to excessive levels in the near future, which will not benefit Thais.

Source: The Nation (Thailand) Nov 2012

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