THIS APPEARED ON 14TH JULY 2014, FINANCIAL EXPRESS
Rice is a political commodity. Governments all over the world maintain regimentation on rice production and trade through price controls and subsidization, tariffs, phytosanitary and environmental safety -- sometimes in a whimsical manner. On 17.06.2014 United States International Trade Commission (USITC) has notified investigations (to be completed by April 2015) on global competitiveness of U.S. rice “industry” versus other exporting countries like China, India, Indonesia, Thailand, Vietnam, Uruguay, and Brazil including practices adopted by major importing nations. The intention perhaps is to probe morality of international rice trade.
US milled rice at $570-670/mt fob is grossly out priced by $200-$250/mt when compared to Asian origins. US output is 7 million tons (milled) with export of about 3 million tons (mts), mostly to Latin American. In 2014-15, India and Thailand’s export may touch 10mts each, with Vietnam trailing at 7mts.
Despite USA’s average paddy yield of 8-9meteric ton/ha against world’s average of 4 metric ton/ha, farm price of paddy is about $350mt (that makes milled rice $580/mt at conversion factor of 0.66). In India paddy is priced at $235/mt, Vietnam at $240-$260, Thailand $480 till recently-- but now around $260. Is this differential in paddy values that worry US?
Paddy production in developing countries is incentivized through subvention of inputs like seed/fertilizer etc. and higher procurement price while rice is discounted to poor consumers for vote bank politics. Exports of surpluses thus get directly or indirectly subsidized. At the same time, importing nations make rice expensive by high tariffs to protect domestic production/ inefficiencies, which are again followed by subvention to targeted beneficiaries creating arbitrage opportunities for the market players.
Paddy can be processed to rice in many ways (raw, steam, parboiled). Their by- products like husk, bran, bran oil and broken rice can also be traded. Export pricing of rice thus get discounted with realization form such collaterals. Long/ medium/short grain (Non –Basmati rice) and aromatic (basmati) verities can be mingled to average out pricing. The grey area of ethics of pricing a commodity and adherence to fair market practices is diluted due to multiplicity of options available in any business. There is a saying –“never negotiate price with a rice trader” (because trader is capable of supplying the quality you agree to pay for).
India, Thailand, China
Indian Government determines a fixed Minimum Support Price (MSP) of paddy of Non-Basmati rice with open-ended procurement by Food Corporation of India (FCI). Subsidized price of FCI is about 25% of economic cost, which gets distributed to targeted beneficiaries with leakage of 40%-45%. Pilferages get mixed in the market and are supportive of Indian rice exports.
Thailand discovered a novel paddy-pledging scheme in 2011 wherein farmers were remunerated 50% above market price by a Government Bank, till February 2014. Local traders enriched themselves by smuggling cheaper paddy from Cambodia, Myanmar, and Vietnam and selling it to Thai Government at high prices. Currently about 10 million tons of low quality high priced stocks are stuck and waiting to be auctioned by new Military regime. Possibility of distress sale cannot be ruled out and that can trigger collapse of rice prices and destabilize world markets.
China’s rice polices/ pricing / imports/exports are state controlled and cannot be rationally discussed or analysed or investigated.
Importers as distorters
Antics of importers are no less. Nigerian authorities apply high import tariffs to support their own inefficient rice production. Imports of high quality 5% parboiled rice of about 1.5 mts (out of total 2 mts) are shipped to neighbouring Benin and Cameroon to escape high duties, from where they are smuggled by land route to Nigerian territories. Politicians and custom officials are the major beneficiaries. Philippines Government structures tender on “duty paid, destination delivered basis”, which includes inflated local cost of inland transport, compelling hiring services of handling agent(s) by the seller. Such agent(s) also become conduits for distribution of commissions. Allegations of corruption between Vietnam trading company and Philippines Government in recent 800,000 tons tender are already in public domain. Iraq Government defines Uruguay specifications in tenders in preference to Thai or Indian origins. Imports are much above the market prices. Intricate tendering procedure lacks transparency.
USA has patented Basmati as Kasmati / Texmati. This irritates Indian sentiments because geographical identification is defied. USA and EU complain about some chemical content in Indian Basmati rice, while Pakistan gets the approval, though operating under similar ecological conditions. China imports about 3 million tons of Non-Basmati rice per annum from Vietnam, Thailand and Pakistan while India stands ignored. If Pakistan is deemed acceptable, then denial to India is questionable. Iran imports 1121 Basmati rice from India under rupee payment. Some buyers and sellers conclude agreements with a blend of Basmati and non- basmati for commercial viability.
Thus rice trade is full of distortions and discriminations including lack of WTO compliance. Can international competitiveness and cheaper domestic values be regulated when politics, weather and food security dictate rice policies/ prices. No developing can afford replication of Arab spring. Can USITC come up with a universal remedy? Let us wait and watch .