Thursday, August 30, 2012



There are amazing similarities in the grain procurement and disposal policies of Thailand and India. Both nations are caught in awkward predicaments of their own making.

In October 2011, Thai 5% broken rice was trading at $600 fob and Vietnam at $575 fob. Thai Government, in the garb of “flood relief”, introduced welfare program for the farmers under which “state will stock different varieties of paddy” (mortgaging of paddy by farmers to the Government) at an average value of $450 (against $330 earlier) till October 2012. That translated into conversion of rice ex-mill at $700 or $ 850-900 fob which till date has remained a “paper value” than a “trad-able price”. Thais also presumed that by hoarding high priced paddy they can internationally throttle and choke supply side. With private rice trade crowded out, it would inflate world’s rice values and Thai Government will bear the mantle of world largest trader of high priced Rice, while buyers had other cheaper options. Governments are inept traders and neither should they act as salesmen. Their regressive isolated policy prescription failed.
With its paradox of plenty, India (in Sep2011) lifted four year old export embargo from private stocks of non-Basmati rice (non-fragrant variety) with abundant availability at $ 410-430 fob (at 1$=Rs 48), while MSP (min. support price) of Indian paddy was about $225/mt.  World prices plummeted by $190/mt and barring Thai-- all other origins-- India, Vietnam, Thailand, Myanmar, Cambodia including South American regions ( (Brazil, Uruguay, Peru and Paraguay etc.) found the softest entry into markets controlled by Thailand. Vietnam abandoned all price linkages with Thailand.  International rice trade of Thailand nosedived.
India initially and informally limited 2 mill tons exports till March 2012 and any further extension was to be reviewed later. Rice importers from Asia and Africa, fearing potential prohibition “any time” on India’s low cost rice, exceeded coverage of their immediate demand; Vietnam and Pakistan lowered their bids to match India’s price aggression; Thai exporters covered part shipments from these cheaper origins including Cambodia while Thai Government continued to amass inventory of paddy estimated currently around 17 mill tons eq to $11 billion. Even Vietnamese and Cambodian paddy is now filtering in Thailand—going either for exports or sucked by mortgage program for better profitability. 
Indian rice export have risen from 3 to 6 mill tons and are continuing; while Thai shipments are forecast down from 11 to 7 mill tons. Authorities in Thailand kept a close watch on India’s draught developments with intent to push prices to $1000/mt fob if India were to ban rice exports. Since Monsoons have considerably improved with no significant impact on output or prices spiking, Thais are feeling the pressure of liquidating their stocks even at a loss. They recently tendered 750,000 mt of rice/paddy for disposal and bids submitted are reportedly at a loss of $200 million approx. Estimated deficit on 17 million inventory may be around $4.6 billion at  current market prices.

At the same time last year, India aggressively pursued concept of National Food Security Bill (NFSB) to ensure 25 kg grains to poorest households that would cost ($7.3 billion) Rs.25000 crores per annum more on ascending scale (marked to higher MSP and inflation) in each coming year . FCI procurement is set to rise form average of 50-55 mill tons to  75-80 mill tons.  There is a muted but intense economic opposition within all sections of Government against NFSB due to almost 50% leakages in the distribution mechanism. To be precise last mile delivery to intended recipients cannot be monitored and ensured in India.
Resale of low priced (virtually free grains at Rs 1/2/3 pkg for maize/wheat/rice resp.) in the grey market is well acknowledged.  Ruling elite preferences for “Vote Bank” may be an incorrigible dilemma for the “Central Bank” and Finance Ministry, if NFSB is formally legislated. Surprisingly opposition parties are not opposing the Bill for fear of being labelled   anti-poor. The introduction of the Bill in Parliament in December2011 was meant to send signal of compassionate largesse of Congress party before elections in Uttar Pradesh of Feb/Mar 2012, where Congress faced humiliating defeat.  Perpetuations of grossly subsidized doles of cereals and pulses provided by all political parties in South India have never given them any advantage nor has poverty been wiped out.
Without NFSB having been legislated but in its anticipation, FCI as of 1st July 2012 hoarded 82 mill tons of wheat and rice eq. to $30 billion (Rs.1,85,000 crores)  though officially covered storage space is 52 mill tons, while 26 mill. tons are in CAP storages. 82 mill tons is four times the mandate for food security.  NFSB has constipated warehouses with stale grains that are awaiting immediate evacuation from Central pool by export or any other means.
Both Thailand and India have erroneously assumed that populist policies work by isolating fundamentals of human behavior and elementary economics.  India is now anxious to export wheat at a loss to make space for Kharif crop and unburden financial liabilities; it intends to distribute grains in domestic market even at a greater loss. Thais cannot export rice unless they retreat from position of possessiveness of elevated paddy prices. Exports  are hit because both Governments need to subsidize and have to justify losses to auditors who are now thrashing policy making and political governance with greater force. For example-- What was the basis of Thais discovering price of $450/mt for paddy and to disable private trade?  What are the criteria for overstocking by India much more than the required food security reserves? How Governments continue to release funds to their ministries by book adjustments without any accountability?
Both Thailand and India are wrong in pursuit of their so called “pious policies” of grains. The dichotomy is that now tenders are being called by India and Thailand for the “purpose of transparency of loss” with sugarcoated term of “price discovery”. The question is where the transparency was when these odd policies were conceived with opacity and impunity. Moreover  these are all physical losses and not presumptive ones.