TheStar: Thailand, the world’s biggest rice exporter, said yesterday that it wants to form an Opec-style cartel with four South-East Asian neighbours so that together they have more control over international prices of the commodity. (This cartel will be known as OREC- Organisation of Rice Exporting Countries). Thai Commerce Minister Mingkwan Saengsuwan plans to talk with his counterparts in Laos, Myanmar, Cambodia and Vietnam about forming a cartel to gain more influence over prices, said government spokesman Vichienchot Sukchokrat. “Though we are the food centre of the world, we have had little influence on the price,” Vichienchot said. “With the oil price rising so much, we import expensive oil but sell rice very cheaply and that’s unfair to us and hurts our trade balance.” Rice prices have tripled this year, with the regional benchmark hitting US$1,000 a tonne for 100% Grade B white rice. Laos Foreign Ministry spokesman Yong Chanthalansy said yesterday the Laotian government would “seriously consider” the idea of creating a cartel because it would give the five countries “bargaining power. The run-up in rice prices has come amid global food inflation, poor weather in some rice-producing nations and demand that has outstripped supply. Cambodia, which in the past has championed the rice cartel idea, also welcomed the latest proposal and said it was a “necessity” given the current global food crisis. “By forming an association, we can help prevent a price war and exchange information about food security,” Cambodia’s chief government spokesman Khieu Kanharith said. Vichienchot, the Thai government spokesman, confirmed that Prime Minister Samak Sundaravej brought up the idea of a grouping modeled after Opec during his discussions Wednesday with Myanmar’s Prime Minister Lt Gen Thein Sein in Bangkok. MyTake: Although the formation was considered “opportunistic”, “anti poor”, fanning hunger and "wrecking" poverty, it would enable these countries better pricing and production control. This is especially so when previously higher energy , fertilizer, machinery and labour cost were not being able to be passed on to consumers resulting losses to the industry. Basically, these countries wanted the good times now to go on. The more stable and higher price offered by the Cartel would improved the livelihood of the millers/wholesalers/farmers etc and increased foreign exchange for the benefit of the nation but at the expense of others! However, I believe there are some obstacles needed to overcome first before OREC becomes a reality:-
a) Rice is probably slightly elastic demand in nature, ie if rice is getting more expensive due to OREC’s meddling, consumers will probably eat lesser of it or substitute it with other carbohydrates produce like wheat based food such as noodles and bread, potatoes, tapioca, vegetables, fruits, beans etc. To work well, cartel’s product ideally should be inelastic in demand eg oil (with OPEC) or diamond (with De Beers).
b) Agreement on a common pricing, quality, industry output, market shares, allocation of customers/territories need to be worked out. It will be a headache and I suspect Thailand and Vietnam would have an upper hand in decision making compared with the smaller and poorer partners as both controls more than 40% of worldwide exports(“UN Food & Agriculture Organisation). I understand even in OPEC, members of the group frequently break rank to increase production quotas.
c) Unlike OPEC which makes up of a few countries with a few multinational companies to deal with, the OREC would have to deal with millions of farmers and thousands of wholesalers. Are there going to be acquisitions by rich individuals/companies which resulted the poor farmers to loose out? You bet! Further, it would be time consuming and costly.
d) Due to the differences in economic and financial situation in different countries, the rice cultivation varies in terms of infrastructure, technical knowledge, farm mechanization, selection of seeds, nursery and land preparation, not to mention management of water, fertilizer, pest control and harvesting . Unless the OREC is able to streamline the process among its members, the timing of production and yield will not have the desired result to influence rice pricing.
These days, every producers, wholesalers, distributors and traders keep telling you prices have gone up and there are no profit to be made if they do not follow the rise. However, noticed their proportionate selling price increase is much higher then their increase in the cost price? Are they sincere in what they are saying or are they so greedy in making money for themselves while making a fool out of the consumers?
* Currently, the world’s rice production and consumption is almost the same ie 422 million tonnes. The major exporters are Thailand, Vietnam, India, China and US. Why would Thailand also include Myanmar, Laos and Cambodia as these 3 countries are not even able to produce enough for its population? “Strategic” thinking, I guess.
a) Rice is probably slightly elastic demand in nature, ie if rice is getting more expensive due to OREC’s meddling, consumers will probably eat lesser of it or substitute it with other carbohydrates produce like wheat based food such as noodles and bread, potatoes, tapioca, vegetables, fruits, beans etc. To work well, cartel’s product ideally should be inelastic in demand eg oil (with OPEC) or diamond (with De Beers).
b) Agreement on a common pricing, quality, industry output, market shares, allocation of customers/territories need to be worked out. It will be a headache and I suspect Thailand and Vietnam would have an upper hand in decision making compared with the smaller and poorer partners as both controls more than 40% of worldwide exports(“UN Food & Agriculture Organisation). I understand even in OPEC, members of the group frequently break rank to increase production quotas.
c) Unlike OPEC which makes up of a few countries with a few multinational companies to deal with, the OREC would have to deal with millions of farmers and thousands of wholesalers. Are there going to be acquisitions by rich individuals/companies which resulted the poor farmers to loose out? You bet! Further, it would be time consuming and costly.
d) Due to the differences in economic and financial situation in different countries, the rice cultivation varies in terms of infrastructure, technical knowledge, farm mechanization, selection of seeds, nursery and land preparation, not to mention management of water, fertilizer, pest control and harvesting . Unless the OREC is able to streamline the process among its members, the timing of production and yield will not have the desired result to influence rice pricing.
These days, every producers, wholesalers, distributors and traders keep telling you prices have gone up and there are no profit to be made if they do not follow the rise. However, noticed their proportionate selling price increase is much higher then their increase in the cost price? Are they sincere in what they are saying or are they so greedy in making money for themselves while making a fool out of the consumers?
* Currently, the world’s rice production and consumption is almost the same ie 422 million tonnes. The major exporters are Thailand, Vietnam, India, China and US. Why would Thailand also include Myanmar, Laos and Cambodia as these 3 countries are not even able to produce enough for its population? “Strategic” thinking, I guess.
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