Editorial: Unworkable cartel
Business Standard / New Delhi May 08, 2008
The recent bid by Thailand and Cambodia to revive the long-dormant
proposal for creating an Opec-like cartel of five rice-exporting
countries of South-east Asia is both ill-timed and ill-advised;
indeed, prima facie, the idea is unworkable. This balloon was floated
first by Thailand in 2001, subsequently by Cambodia in 2005, and is
supported by Vietnam, Laos and Myanmar. Thailand is the world's
largest rice exporter (with annual exports of 10 million tonnes), with
Vietnam not far behind (exporting around 6 million tonnes). Cambodia
is a smaller exporter, with exports of around 2 million tonnes, but it
can expand paddy cultivation to boost its surplus, if assured
attractive prices. Together, these three members of Asean (Association
of South-east Asian Nations) account for a sizeable part of total rice
exports.
The idea has been floated again at a time when global rice prices are
already on the boil, having more than tripled since 2006. Supplies are
tight, owing partly to the restrictions on rice exports imposed by
several countries, including India, Brazil and Egypt, all of which are
keen to build up domestic stockpiles. Any adverse price signals at
this stage are bound to add to food inflation. An indication of what
could be in store came when the rice import tenders floated by the
Philippines and Bangladesh failed to attract any worthwhile bid and
had to be scrapped early this week. It is no wonder therefore that the
first denouncement of the cartelisation move came from none other than
a key Asean member, the Philippines, which is a large rice importer.
The Asian Development Bank too has been quick to oppose it,
maintaining that it would not be good for either exporters or
importers.
Going beyond the immediate interests of rice-exporters and -importers,
the truth is that a successful rice cartel is almost impossible to
visualise. Even if the alliance partners agree on a price band, it
will be difficult for them to control production/supply =97 which is a
key requirement for a successful cartel. This is especially so because
some of these countries grow three or four crops of paddy in a year
and, unlike oil wells, which can be switched on and off, a paddy
harvest cannot be so regulated. Stocking up, as an option, could be
expensive, especially if prices do not stay high. Nor can farmers be
coerced into increasing or reducing rice acreage. The key element is
that buyers have an option to go elsewhere, as the other rice-
exporting countries are free to sell at prices of their choosing.
Indeed, buyers could switch to alternative cereals too.
Regardless of whether a rice cartel is born or not, the alarm bells
set off by the Thai attempt may spur fresh efforts to salvage the Doha
round of trade talks, stalled for some years now because of
disagreement over the liberalisation of agricultural trade. When the
rice price manipulation proposal is viewed against the backdrop of the
global food crisis, which has resulted in food riots in several
countries, the need for free (unhindered) and fair (undistorted) trade
in food and other farm products under a globally agreed and legally-
enforceable regime will be seen to be all the more urgent.
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