26th september 2014 daily exclusive oryza e newsletter by riceplus magazine

26th September, 2014

TOP Contents - Tailored for YOU Latest News Headlines…  Oryza Overnight Recap - Chicago Rough Rice Futures Little Changed as Improved Export Sales Compete with Negative outside Markets  Fiscal Indiscipline, Monopolization and Corruption Dominated Rice Pledging Scheme, Says TDRI Researcher  Global Rice Quotes  Oryza Afternoon Recap - Chicago Rough Rice Futures Slip Slightly as Grains Tumble under Market-Wide Sell-off  China Takes Measures to Halt Cross Border Rice Imports from Myanmar  Thailand Rice Sellers Increase Some of Their Quotes Today; Other Asia Rice Quotes Unchanged  China imports 1.5 Million Tons of Rice in First Seven Months of 2014, Down 6% from Last Year  Oryza Global Weekly Weather Rice Recap  Vietnam 2014 Paddy Rice Production Estimated at 45 Million Tons, Up 2% from Last Year

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News Detail‌

Oryza Overnight Recap - Chicago Rough Rice Futures Little Changed as Improved Export Sales Compete with Negative outside Markets Sep 25, 2014

Chicago rough rice futures for Nov delivery are seen 0.5 cents per cwt (about $0.11 per ton) lower at $12.725 per cwt (about $281 per ton) during early floor trading in Chicago. The other grains are seen trading lower this morning: soybeans are currently seen 0.7% lower, wheat is listed about 1.7% lower and corn is noted about 1% lower. U.S. stocks declined on Thursday, a day after the S&P 500 jumped the most in more than a month, as Wall Street weighed a drop in orders for durable goods and a less-than-expected rise in weekly jobless claims.

Economic reports had orders for long-lasting goods falling 18.2% in August, while applications for unemployment benefits rose by 12,000 to a seasonally adjusted 293,000 last week, less than the 300,000 estimate.

A third number came from financial-data firm Markit, which said its initial services Purchasing Managers Index for September came in at 58.5 versus an expected 59.0. The Dow Jones Industrial Average shed 109.94 points, or 0.6%, to 17,100.12. The S&P 500 lost 15.69 points, or 0.8%, to 1,982.61, with industrials the greatest laggard and utilities faring best among its 10 main industry groups. The Nasdaq declined 42.46 points, or 1%, to 4,512.98. Gold is currently trading about 0.3% lower, crude oil is seen trading about 0.4% higher, and the U.S. dollar is currently trading about 0.2% higher at 9:30am Chicago time.

Tags: chicago rough rice futures, U.S. rice prices, U.S. rice market

Fiscal Indiscipline, Monopolization and Corruption Dominated Rice Pledging Scheme, Says TDRI Researcher Sep 25, 2014

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Oryza Speaks with Nipon Poapongsakorn of Thailand Development Research Institue (TDRI) about the Thai rice sector, the problems it encountered right from the inception of the most controversial rice pledging scheme to the current reforms initiated by the military government. Dr.Nipon says there is no problem with the paddy pledging scheme per se but the main problem was the then government's failure to place a budget constraint on the policy. He adds that the policy was considered as a means to monopolize the global rice trade taking advantage of the global reputation enjoyed by Thai rice.

It was intentionally designed to rake off the taxpayers’ money for the politicians rather than for benefiting the farmers, he says. He highlights some points which show that the scheme was associated with corruption at high level. He says the main culprits were the most influential political leaders who did not have any position in the government and the National Anti Corruption Commission (NACC) should find evidences in that direction. His final research report on corruption in government rice sale and how the politically connected traders have resorted to stealing the tax payer money is to be released shortly.

Expressing doubts whether the reforms suggested by the National Council for Peace and Order (NCPO) would be really effective, he highlights what the Thai rice sector needs at this time. Excerpts from the interview: Oryza: The rice pledging scheme introduced by the previous government has confronted many criticisms since its inception. Can you highlight the reasons behind its failure? Was it a policy failure or an execution failure? What are the lessons learnt?

Dr.Nipon: It had both policy and execution problems.

Policy failure: Constitution failure and accountability problem: While the government announced in an election campaign that it would buy “every grain� of rice at 15,000 baht (around $465) per ton (which was 50% higher than the market price), it failed to consider and publicly announce the fiscal cost of the policy. Note that the paddy pledging policy to buy paddy at 15,000 baht in itself was not wrong. Other countries like the US government used to have very high price support policy. But the problem is that no budget constraint was put on the policy.

After presenting its policy statement to the parliament, the government never submitted the budget for the paddy pledging policy to the parliament for an approval. Unlike the regular fiscal budget, financing the rice

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pledging policy (and other populist policies) through off-budget loans from the state financial institutions does not need to be approved by the parliament. Thus the government practically has an absolute power to spend “unlimited” amount of money without any accountability, let alone fiscal discipline.

As a result, total cost (cash and in-kind) ballooned to 939.03 billion baht in 5 crops (4% of GDP in 2012 and 2013, or almost 73% of value added of paddy and rice mills in 2012) of which 857.24 billion (around $27 billon) is the cost of paddy purchase. According to a case study submitted by TDRI, accounting loss is at least 594.5 billion baht (around $18 billion), if the remaining stock is valued at the April 2014 price.

Monopoly policy: The big mistake is that Mr. Thaksin and the government thought (or used to think) as the world’s largest rice exporter, Thailand can control the world rice price like Saudi Arabia controls the world oil market. Its policy was to monopolize the rice trade both internationally and domestically, arguing that the world rice market is imperfect and that the large Thai exporters always bought rice at low prices. But rice is not oil.

When rice price increases, farmers will grow more rice, while oilreserve cannot be increased. Oil can be stored without storage cost, while there is high storage cost for rice.

The government, particularly Mr. Thaksin, thought that by monopolizing the rice trade and limiting the quantity of rice export, it would be able to sell Thai rice at the higher price. The government used to insist that it might be able to sell rice at the price of “cost plus” i.e., at least $800 per ton (around $24) (15,000 baht ÷ milling ratio).

The government (and probably Mr. Thaksin) did not understand the nature of the world rice market. Although Thai export price increased in the second quarter of 2012, the Indian export prices continued to decline after the Indian government eliminated an export ban in the late 2011.Vietnamese exporters decided to reduce the export prices to be competitive with Indian rice. Vietnamese rice production also increased between 2011 and 2013, contrary to Mr. Thaksin’s belief. As a result, Thailand dropped from being the world largest rice exporter to the third largest in 2012 and 2013 as its export dropped sharply. Thus replacing the competitive market with monopoly resulted in export and welfare loss for the society. Many exporters and rice brokers went out of business. Some exporters were forced to do business in the neighboring countries.

Note that the 2007 constitution (clause 84) stipulated that the government must support the free and fair economic system through the use of market mechanism, and the government must not compete with the private sector except for the security of a nation or public interest.

The related problems arising from the monopoly policy is the government’s support of cronies, which is the execution failure (more on crony capitalism below).

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Finally the large exporters do not have “an easy life” as claimed by Mr. Thaksin. Exporters could not simply buy rice at low price and sell high because unlike in the 1960s to 1980s, now Thailand no longer has any monopolistic power, as shown by the latest econometric study. There are now new low cost competitors, such as Vietnam, Cambodia and Myanmar. In Thailand there are more than 150 exporters. Thus the gross margin is declining. Though the large exporters still manage to make profit, it is the return to their investment in information cost and risk taking. They have to invest heavily in information cost because the world rice market is imperfect as almost every government – importers as well as exporters – heavily intervene in the domestic market. Consequently, the world rice prices fluctuate widely. If the exporters make a wrong decision, they could easily suffer huge loss.

Consumer subsidy added additional cost: Although it successfully shored up the Thai rice price in the international market, it chickened out on the domestic price policy. Instead of allowing the domestic retail price to follow the international price, which would help contain the cost of the policy, the government also had a policy to stabilize the domestic retail price of rice (see figure). Consequently, the policy cost ballooned. (out of the estimated accounting loss of 594.5 billion baht (around $18 billion), 296.53 billion baht (around $9 billion) is attributed to the farmer subsidy, the consumer subsidy 138.46 billion baht (around $4 billion), loss due to selling at the prices which are lower than the wholesale price (or corruption in rice sale) 84.48 billion baht (around $2.6 billion), operation cost 74.995 billion baht (around $2.3 billion) and impairment value of rice in the stock 17.65 billion baht (around $547 million).

Execution failure Liquidity problem is confounded by the lack of financial accounts in a multi-billion baht policy: In the mid 2012, the government realized that the spending on rice purchase exceeded the approved loan. It began to float an idea of reducing the pledging price from 15,000 baht per ton (around $465) to 13,000 baht (around $402) and to limit the amount of purchase from each farmer. But after the farmers’ protest, it decided not to do so in its third pledging project (the 2012/2013 wet season crop), and only began to limit the sale by each farmer to 500,000 baht (around $15,489) in the fourth project and then 350,000 baht (around $10,842) in the fifth and final project. By that time it was too late, because actual spending already exceeded the total guaranteed loan of 500 billion. Yet the MOF refused to raise the loan ceiling, citing fiscal discipline. Instead it pressured the MOC to sell rice so that revenue could be recycled to finance additional paddy purchase. But the MOC failed to do so.

This explains why the government could not pay 130 billion baht (around $4 billion) to 1 million farmers when it abruptly dissolved the parliament in December 2013. The 2007 constitution prohibited the acting government to create any fiscal burden for the new government. The farmers’ protest in the early 2014 forced the

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government to put the rice stocks on fire sale, which caused the Thai export price to decline sharply to the level which was lower than that of Vietnam for the first time in the history.

One important reason that the government ran into liquidity problem is the lack of consolidated accounts as will be explained in Question 5 below. Since each step of the policy implementation was done separately by different agencies, the government did not have any clue on the current financial situation of the scheme.

Crony capitalism, incompetent cronies and loss of Thai rice reputation: To control the rice trade, the government replaced the competitive rice market with a monopoly. But instead of a government monopoly, it used one private company which was orchestrated by its executive and a few influential political leaders who did not hold any position in the administration. The government sold most of its rice to the company at the prices which were lower than the wholesale price (see estimates of corruption below). Anyone – package rice wholesalers, millers and exporters - who wanted to buy rice from the government, had to buy from the monopoly. The government also sold rice to a few other companies which publicly supported the rice pledging policy.

Despite the fact that the cronies were able to buy rice from the government at very low price, they were totally incompetent in exporting riceas evidenced by the sharp decline in Thai rice exports in 2012 and 2013.

Moreover, some of the rice the crony company exported to Indonesia and Iraq were rejected because of the quality and delivery problems. Both governments stopped importing rice from Thailand for a while.

Corruption, especially rice sale corruption: The government did not have a real intention to prevent corruption in the rice pledging scheme, let alone apprehending and convicting the wrong doers. A number of rice experts warned the government that there was corruption at all stages of the rice pledging scheme. But the government turned deaf ear and blind eyes. The Democratic Party’s members of parliament presented solid evidence on fake G-to-G sale and corruption in the censure session. The Chairman of the Account Closing of the Paddy Pledging Policy disclosed that 2.9 million tons of rice went missing from the government’s rented warehouses. Instead of admiring her, the Minister of Finance ordered the MOF to set up a committee to consider her fault. Although the government ordered a one day stock checking nationwide, it did not disclose the report. The Chairman of the stock-checking subcommittee was the deputy secretariat of the PM, who is a politician, not an independent person.

It refused to disclose any G-to-G information citing the confidential nature of the deals. Thailand has a public information law which stipulates that all government information is publicly available, with a few exceptions.

But when the media wrote a letter to get an access to the G-to-G information, the government refused to disclose. Moreover, the MOC also moved to conceal most information on the rice pledging policy, e.g., stop uploading all regulations and ministerial orders on its web site. But the most important move was to withdraw

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its authorization that allowed the Chamber of Commerce to issue the permits to export white rice. Since May 2013, such export permits have to be issued by the MOC. As a result, no one has access to the information on rice export by exporters who bought rice from the government, particularly the exporters who are not members of the Thai Rice Exporter Association (TREA).

In effect, the rice pledging scheme is intentionally designed to rake off the taxpayers’ money for the politicians.

My study for the Thai Research Fund finds that the value of corruption in the government rice sale is 84.5 to 111 billion baht (around $2.6 – 3.4 billon). There are four types of corruption, i.e., G-to-G (45 billion baht – around $1.4 billion), secret rice sale to those who tendered their offer (21.5 billion baht – around $666 million), cheap packaged rice policy (12.3 billion baht – around $381 million) and missing rice from the government stock (32.1 billion baht – around $994 million).

Lessons learnt: To prevent the elected governments from abusing its power and introducing bad policies that will seriously damage the economy, there must be a law that requires the government to get an approval from the parliament on the off-budget for its policies. The government will also have to be required by the law to make the consolidated accounts for its policy and disclose the information every quarter. The public information law will also have to be revised so that all public information concerning the policy implementation cannot be kept secret by the government. Finally, government intervention in the market should also be minimized. Thus the government must justify its intervention and more important present concrete evidence to the public that the intervention really benefits the public.

Oryza: How do you think the government planned to manage such high costs associated with the rice pledging scheme?

Dr. Nipon: If the question means the Yingluck government, I think it never planned. It’s a policy on the run.

When the Chairman of the Rice pledging Account Closing Subcommittee and rice experts disclosed that the scheme resulted in large loss, the government always came out to deny that reports. When the liquidity problems emerged in the late 2012, it should have taken immediate action to reduce the cost of the policy. But it did not. Though it floated an idea to reduce the pledging price and amount of pledged rice per farmer, it was forced to backtrack by the farmers protest. It only begun to reduce the amount of paddy sale per farmer in the last two projects (i.e., the 2013 dry season crop and the 2013/14 wet season crop) which was already too late.

It beganto partially fiscalise the debt that it owes to the BAAC. But I do not think it will “fully” fiscalize all the debts because doing so would severely limit government borrowing. When Mr. Thaksin was the PM, his paddy

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pledging scheme resulted in a huge debt which he did not care to fiscalize. It was the military government that fiscalised most of the debt recently.

Oryza: Did any other country/government implement such a scheme earlier? What could have been the influencing factors for the government to adopt such a scheme?

Dr. Nipon: In fact the paddy pledging policy is similar to the US loan rate policy in the past which created large fiscal burden and huge stockpiles in the 1980s and early 1990s. Since then the US government reformed its policy in such a way that it did not hold large stock of rice. Today the US government has a complex system of price support for the agricultural products.

The Korean government, a rice importing country, used to have an expensive procurement policy for the sake of rice self-sufficiency. As a result it used to hold large stockpiles of rice. After the policy reform in 2000s, it adopts the price support policy similar to that of the US government, i.e., direct payment, plus counter cyclical payment, etc.

India also has the price support policy and holding large stock of rice to stabilize domestic price of rice. But its main objective is rice self-sufficiency which is different from the Thai government.

Influencing factors: (1) Main factor is the political reason, i.e., to win the votes of farmers who constitute the largest group of voters. (2) A belief (which is myth) that most, if not all, farmers are poor. The Household Expenditure Survey in 2011 shows that almost one million rice farm households are in the top 30% of Thai households with highest household income.

Oryza: From media reports, we understand that you have unearthed many facts regarding the implementation of the scheme in your research. Can you share some of them with us?

Dr.Nipon: I and my colleague, Dr. Ammar Siamwalla, presented an evidence to refute a belief that most farmers are poor and a claim that the rice pledging policy benefited the poor farmers. In fact, the middle class and rich farmers, who constitute the majority of rice farmers - and the single largest group of voters - benefited most from the policy. Moreover, there are almost one million rich rice farm households in the top three income decide households.

I first pointed out that it was not possible for Thailand to export 2.18 tons of parboiled rice in 2012 because practically all dry-season rice crop was sold to the government in 2012. While estimated dry-season production was 12.2 million tons, total quantity of pledged paddy was 14.7 million tons. Note that the pledging policy never allowed rice mills to produce parboiled rice and all paddy sold by the farmers to the government must be

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milled within a certain period, normally 7 days. The production process of parboiled rice is to stream paddy, then dry and mill.

We presented the fact that the government successfully maintained the stability of retail price of rice (See figure). To explain why the retail price was as low as that in the Apisith government, while the paddy price was high, I used the rice balance sheet method. I showed that the government had to release adequate amount of rice to balance the demand with the supply. It turned out that the minimum amount of rice sale was larger than what the government told the public. We also showed that it must have sold rice at the price which was below the Bangkok wholesale price, using the government document. This is an indirect evidence of corruption in rice sale.

I also presented evidence that the rice pledging policy generated large economic rent to participants, especially farmers and rice millers. The high paddy price is the main reason why the cost of production increased rapidly, particularly land rent which increased by 100-200%. This is a classic economic proposition that “price determines cost� and not the other way round-which is a popular belief.

Moreover, because of the economic rent, the millers hadsignificanltly increased their capacity. In fact, our survey showed that millers began to increase their capacity during the period when Thaksin first began to increase the pledging price to the level which was higher than the market price in the 2003/04-2005/06 period.

Today there are about 90-100 million tons of annual milling capacity, while total production is 34-37 million tons per year. Thus when the pledging policy is abolished, many millers will go bankrupt, resulting in nonperforming loans of some commercial banks.

I also found that the government sold 2 million tons of old rice stock in 2012 and early 2013. These stocks came from the rice pledging scheme of Thaksin government (2003-06), Samak and Somchai government (20082009). No rational rice traders would want to buy old rotten rice. The millers who bought the old stock of rice are the participants in the rice pledging scheme who illegally sold the pledged rice in the market. Thus they had to buy cheaper rice to deliver to the government warehouses in place of the new rice that they stole.

In the next two weeks, I will release my final research report on corruption in government rice sale. In addition to the estimates of 84-111 billion baht of rice sale corruption, I’ll describe how the politically connected traders stole the tax payer money. There are four methods of corruption, the missing rice (about 3 million tons) G-to-G deal, rice sale to those who tendered their purchasing order and package rice (which was investigated by a senate committee).

Oryza: What was the exact role of the former Prime Minister in this whole process? Do you think she and some of the (accused) ministers really encouraged corruption in the implementation of the scheme?

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Dr.Nipon: I believe that Thaksin’s strategy was to distance Ms. Yingluck from the execution of the rice pledging policy. This is why she delegated her authority as a Chairman of the National Rice committee to the Minister of Commerce. One of the most important decisions that were delegated was the authorization of rice sale. In Apisith’s government the deputy PM, Mr. TrairongSuwankiri was responsible for rice sale but the cabinet had to be informed of his decisions (and, I think, the cabinet had to approve his decisions).

But as the chief executive of a nation, she had to be responsible for the execution of the policy. She knew all the problems because she had been officially informed. For example, the reports on account closing of the rice pledging projects were directly submitted to her by the Minister of Finance. In the press interview with the Minister of Commerce, she also had information about the G-to-G rice deals.

I don’t know whether or not she encouraged the corruption in rice sale, but I’m sure that she was informed of the problems. The followings are the evidence on what the PM and her ministers, who were responsible for the policy, did.

An examination and tracking of the government documents related to the rice pledging policy clearly showed that the government intentionally kept most of the crucial information, particularly the selling prices and the amount of G-to-G sale, highly confidential. The way that the project operated was designed is to keep everybody completely blind. Each step of operation is done separately by different agencies, i.e., the farmer registration was done by one department (DOAE), the paddy procurement and storage by another (PWO and FMO), the cash payment to farmers by BAAC, the selling by another agency (DOF). Yet there are no consolidated accounts for all operations, despite the fact that this is what the policy makers must be held responsible for. One cannot believe that the government did not keep track of the cash flow of the multi-billion baht projects. I was told that the Public Warehouse Organization (PWO), which is responsible for the government rice stock, did not have the proper accounts and record of stock movement. I think other responsible government agencies, except BAAC, do not keep proper accounts for the rice pledging scheme.

Five months after the coup, the military junta still cannot inform the public of the actual amount of government rice sale, prices and actual loss of the rice pledging scheme because some agencies still have not provided all the information.

Worse, when Ms. Supa, a chairman of the rice pledging policy account closing subcommittee – which was officially set up by the National Rice Policy Committee chaired by the PM - tried to set up the consolidated accounts of the overall system, she had great difficulties in obtaining the required documents from those operating agencies. When she disclosed the results of her findings, she was strongly criticized by the PM and her ministers. The PM also asked the minister of finance to set up a committee to investigate her wrong-doings, instead of praising her.

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The PM did not use her authority to prevent or to stop the corruption. Although the government set up a subcommittee to check the rice stock after a report of missing rice, she did not disclose the report of the subcommittee. When the Chairman of the sub-committee on account closing of the paddy pledging project gave a testimony to the senate committee that there was high risk of corruption at all stages of the policy execution, the PM and the ministers were angry at the chairman and the Ministry of Finance set up a committee to investigate the chairman’s wrongdoing. When the PM was informed that the chairman was cleared, an informed source told me that the PM was angry.

Personally, I think the minister of commerce might not directly involve in corruption. But he and the PM are not the innocent by standers. They knew there was corruption at high level. I cannot tell whether or not the minister, his deputy minister or the high ranking officers at MOC encouraged corruption. But the public can answer your question themselves simply by considering what he did. First, why did he lie to the public about the G-to-G deals? Since the government rice sale must be approved by him, why didn’t he disclose the information, particularly price, amount of sale, and names of buyers? Why did the MOC sell rice only to a few companies?

As you knew, now the Anti-corruption commission (NACC) gathered enough evidence that linked the former deputy minister of commerce and a secretary to the minister of commerce to the corruption charge. The NACC has not yet finalized its charge against the minister of commerce.But the NACC will never been able to apprehend and convict the real culprits - the most influential political leaders who did not have any position in the government.

Oryza: Few days back, the President of the TDRI slammed the NACC for using your research as evidences against the former PM? Can you tell in what way the NACC tried to use your work?

Dr.Nipon: A research paper that NACC refers to is my previous work focused on the fiscal cost and rent seeking activities in the rice pledging policy during Thaksin government. The NACC had informed Yingluck that her pledging policy resulted in high cost and damage similar to the previous policy implemented by her brother as shown by my study. So it warned the government to review the rice pledging policy. Since Yingluck did not follow the advice- why should she? – NACC files a charge claiming that she’s already known that her policy resulted in damage but she did not stop the policy. The major evidence against her is the corruption by her ministers.

Two reasons created confusion in the media about my research. First, in his lecture on law and econ last month, a commissioner of NACC – Nr VichaMahakun –gave an unclear statement about the usefulness of my previous research for the work of NACC commission. Secondly, I do not understand why a spokesman of the general attorney told the media that NACC only sent a cover page of my research to the attorney office. The attorney

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general should fully understand from the NACC document that my research has nothing to do with the corruption in the Yingluck’s rice pledging scheme.I do not want to speculate on the spokesman’s motive.

Oryza: The Office of the Attorney General has sought more evidences against the former PM? The Office also stated that they along with the NACC would gather more evidences? Do you think the process is going on fairly?

Dr.Nipon: I believe that if there is no political intervention, the cooperation between OAG and NACC on the evidence gathering would be fair. A few legal experts on public law believe that the NACC is not as good as the OAG in preparing a file of case. One major weakness of the file of case against the PM is that the NACC has been too obsessive with its argument that the PM did not stop the rice pledging policy despite the fact that NACC had warned her a few times that the policy would result in serious damage.

The NPCO chief has also clearly stated in the public that he and NPCO do not want to find fault with any politicians. They will let the NACC and OAG independently carry out the legal charges against the wrong doers. But whether or not the NPCO and Thaksin have any deals with each other, I don’t know.

Oryza: The newly appointed Commerce Minister and his Deputy have said that they would prioritize rice sector reforms. What kinds of reforms are really needed to put the Thai rice industry on track?

Dr.Nipon: So far it is not clear what kind of reforms that the new government will adopt except (1) a no market intervention policy (i.e., no rice pledging policy, no income guarantee policy); (2) The short-run measures of cost reduction which will require the total budget of 4,747 million baht (around $147 million). The objective is to reduce the production costs by 432 baht per rai (around $33 per hectare) which amounts to 9% reduction. It plans to reduce the cost of fertilizer, seeds, harvesting service fee and land rent by asking for cooperation from companies and landlords; subsidizing the farmers’ credit at the interest rate of 3% for the maximumloan of 50,000 baht (around $1,549) per farmer ; (3) disaster insurance policy, especially the areas that have high risks of disasters ; (4) the long term policy to restructure the rice production by adopting the zoning measures, but it is still not clear how it will implement the zoning policy.

The new Minister of Ministry of Agriculture and Cooperatives (MOAC) wanted to reduce rice production by paying some farmers to stop producing rice; and (5) the government wants to clear the 755 billion baht ($23 billion) of rice debt in 7 years by partly fiscalization and rice sale. In 2015, 70.13 billion baht (around $2.17 billion) has already been budgeted to pay for the debt. The BAAC manager reckons that the government should be able to sell up to 60 billion baht of rice stock in 2015. But the DG of the Department of Foreign Trade told me that the government will be able to sell at most 10 billion baht in 2015, given the complicated problems of rice stock inspection and accounting. At the moment, the government is more concerned about the export of the

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dry-season harvest and the new wet-seasonharvest in the coming months. Rice auction will take place regularly (see questions 11-12).

Oryza: What are your comments on the measures taken by the military government for the rice sector?

Dr.Nipon: a) The cost reduction measures will not be effective. Yet the production cost will decline following a fall in paddy prices, e.g., when fewer farmers want to grow rice, the demand for inputs will decrease.

Although big fertilized companies agree to reduce their price, it is impossible for the bureaucrats to force all land owners to reduce the rent. The service cost of harvesting has been constant for the last 10 years at 500 baht per rai. Some of the service providers (mostly big farmers) have promised to reduce their fee provided that their trailers are not caught by the police on the charge that they transport too wide the combine harvester. But who will monitor the highway police?

So the measures are simply a means to give comfort to the farmers. I don’t think the farmers appreciate the policy. b) In fact the real problem of high input costs is the inappropriate use of fertilizer, sub-standard fertilizer and misleading advertising of fertilizer by the small and medium-scale fertilizer producers. Although there are voluminous literatures on the use of site-specific fertilizer use which will cut down the cost of production by 2030%, and there are a number of academicians and NGOs who provide intensive training for farmers on how to use the fertilizer, most farmers still do not embrace the idea. This is because of the long delay in the public service of soil testing, and the time cost and inconvenient use of site specific fertilizer.

Although there is a law governing the quality of fertilizer and controlling the advertisement, the Department of Agriculture has no resources to enforce the law. c) Most government officers (as well as the private sector) still have a myth that agricultural zoning will be able to solve the problem of shortage and surplus. Yet they are smart enough to know that they can’t give any order to the farmers. So why do they still advocate such a ridiculous policy? I believe that it is all about budget. Some officers may sincerely believe that with some incentives and disincentives, they can convince the farmers to follow their advice on what crops are most appropriate for each zoning area. They forget that they do not know best. Their information may be wrong. When things go wrong, the bureaucrats do not bear the cost of mistakes.

Oryza: Leaving apart the rice pledging scheme, can you highlight the problems faced by the Thai rice farmers compared to their counterparts in other rice producing Asian countries?

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Dr.Nipon: Farmers complain about so many problems, especially the low paddy price, high production cost, etc. Paradoxically, they keep on increasing their production.

Perhaps the most important problem faced by the Thai rice farmers is that their farm is too small. (But keep in mind that farm size in Thailand is the second or third largest in ASEAN. Malaysia has the largest farm size). So even if they make very high profit per ton, their farm income is too small to maintain a living standard of the middle class. The key policy challenge is how to consolidate land.

Another serious problem is that Thai farmers are rapidly aging, with the average age of almost 60 years old. But most of their children do not want to farm, particularly those who have high education.

The related issue is the lack of old aged pension for the farmers. In the past, when farmers get old, their children will take care of them. But in the near future, there will be no one to look after because their children are in the city. If they sell their land, it may not be enough for them to live until they die.

Sadly, the Yingluck government refused to implement the national saving fund act which was passed in the Apisith’s government. The law will provide a kind of old aged insurance for informal workers and farmers. The fund will be financed by the contribution of workers and the government.

Other problems include (1) no market for varieties of rice. As a result farmers cannot grow the niche products unless they form their own farmer group to market their rice varieties. (2) Output fluctuation as a result of flood, drought an pests, etc., In addition to the problems faced by the farmers, the Thai rice sector has several serious problems, for example: (1) agricultural research is under-funded. Research intensity for agriculture and rice (measured by research expenses as the share of agricultural value added) declined from 0.9% in the mid 1990s to 0.25% in the 2010s.

Politicians prefer to spend more on extension because it produces short – term effect which is important for voters. In addition, higher share of budget of the Rice Department is allocated to activities that have no clear impact on productivity. (2) The research projects are still supply driven and not driven by demand (3) Thai jasmine rice has declining quality, particularly the fact that today Thai Hom Mali is no longer as aromatic as it was in the past. There are several hypotheses, but there are no definite research studies that can effectively solve the problem.

(4) Thai farmers in the irrigated area still use free water despite the fact that water has become scarcer. (5) Comparing to other less developed Asian countries, the cost of production in Thailand is increasing rapidly, particularly the cost of non-traded inputs such as land labor.

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Oryza: Most of the importers are keen on buying stocks from latest harvests, in which case the stocks in warehouses may be left idle. This means the quality of stocked rice has become a major issue. Can the government manage to dispose of all the 18 million tons of rice stocks it is currently holding in such a situation? Do you think the government may plan to use the rice stocks mostly for domestic consumption?

Dr.Nipon: The government is now facing several constraints and challenges. The rice pledging policy generated 755 billion in debts and the huge stock of 18 million tons. If it wants to clear rice debt as soon as possible, rice sale will affect the domestic paddy price, which will hurt the farmers. On the other hand, if it sells only small amount of rice, loss will increase as the quality of rice in the stock deteriorates.

The BAAC reckons that it will take about 7 years to clear the whole debt based on the government’s current repayment rate and sale of rice stocks. Given the past performance and the huge stockpiles, I think it will take at least 10 years to clear the stock, much of which will be rotten and cannot be sold.

My understanding of the current rice sale policy is the followings. The new minister of MOC (General Chatchai) said the government is not in a hurry to sell its rice stock because it already repaid the debt that it owed to the farmers. Since the government’s main concern is the paddy price, its strategy is now to export the upcoming crop by as much as possible so that the price of paddy can be maintained at the target range of 8,5009,000 (around $263 - $279)baht per ton. Meanwhile it will regularly and transparently auction rice from the stocks that are already inspected and problem free. The new auction policy allows the bid winners to file complaints after the purchase if the buyers find out that there are problems with the rice that they bought. This will create more confidence among the bidders, who, in turn, will be willing to offer higher price. The old auction practice was that the bid winners had to accept to buy all the rice that they successfully bid, regardless of its quality. That is why in the past the bid prices were very low.

At the moment, the government is still struggling on rice stock inspection and gathering records of rice sale and rice in-flows and out-flows from 2,000 rented warehouses. It is a snail – pace and complicated process because it still does not get rid of the old staff at the PWO. They tried all the tactics not to provide accurate information.

After more than 2 months, the government has just managed to appoint the new board of directors for PWO. It will not be long to fire the executive director of PWO. But it will be a long and complex process to remove all the corrupted staff who are responsible for the warehouses and rice stocks.

Although the Thai consumers prefer the one – year old rice and are willing to pay the premium, it is not possible to use rice stock mostly for domestic consumption because the domestic demand is highly inelastic to price.

Total domestic use, which is about 10 million tons per year, is not going to increase significantly unless the price is much lower.

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Oryza: Any suggestions on how the stocks could be cleared without impacting prices?

Dr.Nipon: I and my colleagues (DrAmmarSiamwalla) told the media that the government should quickly inspected the rice stocks, separate those with poor quality from the good ones, and then disclose the information. The government should have a clear policy to destroy those rotten rice because if they are large (I estimate that there should be at least 4-5 million tons of poor quality rice), it will affect market expectation.

Note that although the government does not sell the bad stocks, it has not yet finalized its stock inspection.

We suggest that the government should sell rice regularly by small lots through the auction and through the Futures Market Channel. It should have a target floor price at which it will stop selling. It should not sell rice when the new crops are harvested in mid October.

Although the government still auction rice by big lot (all the stock in each warehouse), some of the stocks in the same warehouse that are found to have quality problems are not put on auction. But the small lot sale through the Futures Market is not progressing due to several technical problems.

Oryza: Thai rice exporters are hopeful that the country would reclaim its top rice exporter status this year after losing it to India for last two years. What are your comments on Thai rice exports given increasing competition from India, Vietnam, Pakistan, Cambodia and Myanmar?

Dr.Nipon: The rice exporters are bullish because the government has a clear policy of non-market intervention.

In addition, the MOC is now seeking advice and cooperation from exporters who are members of TREA. The government realizes that if it does not work closely with TREA, the domestic price of paddy will be low, creating political pressure from the farmers. As a result, TREA has been discussing the possibility of rice export with several countries.

As of end of August 2014, Thailand already exported 7.34 million tons, thanks to its competitive prices relative to Vietnam and plentiful supply in the domestic market as well as expected 2% increase in the wet season crop in the coming months. For the first time, Thai 5% white rice is sold at lower or similar price as the Viet doublewater polished milled rice. Thai exporters also won the recent bid to sell 300,000 tons of white rice to the NFA, the first sale in so many years, thanks to the competitive price. They have also been able to sell to Indonesia.

Therefore, the target of 9.5-10 million tons is very feasible. India’s export will decline because of smaller crop and increased consumption. Vietnam is believed to increase its export, but the expected total export (6.7 million tons) is already smaller than the Thai export in the last 8 months (7.3 million tons).

Oryza: Any other issues you would like to share with our readers?

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Dr.Nipon: The government is still very slow in making the consolidated accounts of the rice pledging scheme.

Although the accounting rice stock is 18.6 million tons in May 2014, we still do not know how much rice are actually in the stock. It does not yet know how much rice was actually sold by the previous government because there was no account. Believe it or not, the one-trillion scheme has no account! The Yingluck government does not have any responsibility, let alone accountability. Though it always claimed that it was an elected government, the way it managed the policy is not what the truly democratic government does.

Dr.Nipon is a distinguished fellow, Thailand Development Research Institute.Former president of TDRI and dean, Faculty of Economics, Thammasat University.

Tags: Thailand rice pledging scheme, Thailand rice exports, Thailand rice farmers, Thailand rice prices

Global Rice Quotes Long grain white rice - high quality Thailand 100% B grade 450-460

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Vietnam 5% broken

440-450

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India 5% broken

425-435

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Pakistan 5% broken

405-415

↔

Cambodia 5% broken

465-475

↔

U.S. 4% broken

525-535

↔

Uruguay 5% broken

610-620

↔

Argentina 5% broken

610-620

↔

Long grain white rice - low quality ↔

Thailand 25% broken

NQ

Vietnam 25% broken

400-410

↔

Pakistan 25% broken

360-370

↔

Cambodia 25% broken 450-460

↔

Daily Rice E-Newsletter by Rice Plus Magazine www.ricepluss.com News and R&D Section mujajhid.riceplus@gmail.com Cell # 92 321 369 2874

India 25% broken

380-390

↔

U.S. 15% broken

515-525

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Long grain parboiled rice Thailand parboiled 100% stxd

435-445

Pakistan parboiled 5% broken stxd

↑

440-450

India parboiled 5% broken stxd 415-425

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U.S. parboiled 4% broken

600-610

↔

Brazil parboiled 5% broken

595-605

↔

Uruguay parboiled 5% broken NQ

↔

↔

Long grain fragrant rice Thailand Hommali 92% Vietnam Jasmine

1065-1075 585-595

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India basmati 2% broken

NQ

↔

Pakistan basmati 2% broken

NQ

↔

Cambodia Phka Malis 880-890

↔

↔

Brokens Thailand A1 Super

NQ

↔

Vietnam 100% broken 335-345 Pakistan 100% broken stxd Cambodia A1 Super India 100% Broken stxd

↔

325-335

360-370

↔

↔

330-340

↔

Daily Rice E-Newsletter by Rice Plus Magazine www.ricepluss.com News and R&D Section mujajhid.riceplus@gmail.com Cell # 92 321 369 2874

Egypt medium grain brokens

NQ

U.S. pet food

↔

460-470

Brazil half grain

NQ

↔

↔

All prices USD per ton, FOB vessel, oryza.com

Oryza Afternoon Recap - Chicago Rough Rice Futures Slip Slightly as Grains Tumble under Market-Wide Sell-off Sep 25, 2014

Chicago rough rice futures for Nov delivery settled 2.5 cents per cwt (about $1 per ton) lower at $12.705 per cwt (about $280 per ton). Rough rice futures turned negative today as bearish outside markets weighed on prices. Considering that the other grains each suffered anywhere from a 1%-1.5% loss on the day rice futures faired pretty well, however they were unable to test nearby overhead resistance at $12.800 per cwt (about $282 per ton) and the high of the day fell short of this level. However, the market did manage to chart a higher low and high than it had in the previous session, a fact that is seen as supportive of prices for tomorrow’s trading direction. Soybeans closed about at $9.2275 per bushel; wheat finished about 1.3% lower at $4.7400 per bushel, and corn finished the day about 1.1% lower at $3.2600 per bushel.

U.S. stocks declined on Thursday, a day after the S&P 500 jumped the most in more than a month, as Apple tumbled on glitches tied to its new smartphone and as investors considered a proposal in Russia that would let its courts seize foreign assets. Reuters reported the draft law, submitted to Russia's parliament on Wednesday by a pro-Kremlin deputy, and would also allow state compensation for those whose assets were taken in foreign jurisdictions. After a 262-point drop that pushed it below 17,000, the Dow Jones Industrial Average was lately off 256.18 points, or 1.5%, to 16,953.88. The S&P 500 lost 27.00 points, or 1.4%, to 1,971.30, with technology knocked the hardest among its 10 main industry groups. The Nasdaq declined 75.45 points, or 1.6%, to 4,479.77. Gold is trading about 0.3% higher, crude oil is seen trading about 0.6% lower, and the U.S. dollar is seen trading about 0.2% higher at about 1:00pm Chicago time.

Daily Rice E-Newsletter by Rice Plus Magazine www.ricepluss.com News and R&D Section mujajhid.riceplus@gmail.com Cell # 92 321 369 2874

Wednesday, there were 282 contracts traded, down from 312 contracts traded on Tuesday. Open interest – the number of contracts outstanding – on Wednesday increased by 65 contracts to 9,169.

Tags: chicago rough rice futures, U.S. rice prices, U.S. rice market

China Takes Measures to Halt Cross Border Rice Imports from Myanmar Sep 25, 2014

The Chinese authorities are taking requisite measures to halt cross border rice exports from Myanmar via the Muse border, according to local sources.Usually, Chinese traders buy rice at the Muse border and transport it inside China.

However, serial checking of imported rice and arrests of some Chinese buyers by the Chinese authorities have stopped Chinese traders to buy rice from the Muse wholesale border. Most of the rice purchased by China is exported from Mandalay through the Mandalay-Muse highway. With these restrictions in place, Myanmar traders have also stopped exporting rice from Mandalay to the Muse border.

Some Chinese traders told local sources that the authorities are very serious over allowing cross border imports and that they are being severely interrogated. Some Myanmar traders noted that this kind of interrogations are common during the harvest season but it is on a larger scale this year.

Chinese authorities treat these cross border imports as illegal as there is no formal rice export agreement between China and Myanmar. Both the countries are keen on finalizing such an agreement.China has been complaining for a long time that the quantity of illegal rice exports from Myanmar has been increasing and has expressed concerns that Myanmar rice is not adhering to China’s plant quarantine rules. The Chinese government had also recently demanded a formal sanitary and phyto-sanitary agreement on rice standards with Myanmar.

Recently, Myanmar's Commerce Minister told local sources that they will begin negotiations with the China's Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) authorities soon seeking a framework highlighting aspects for legalizing rice exports to China. They will also seek to fix an export quota to ensure that all rice exports from Myanmar are legal. Further, they are also planning to finalize a free trade agreement (FTA) with China, including rice as well as other agricultural products.

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Myanmar's rice exports to China increased almost 125 times since 2011 and most of it is through northern borders, according to a report by the World Bank in June this year. In 2013 alone, Myanmar exported 747,000 tons of rice to China through the Muse border.

Tags: myanmar rice exports, China rice imports

Thailand Rice Sellers Increase Some of Their Quotes Today; Other Asia Rice Quotes Unchanged Sep 25, 2014

Thailand rice sellers increased their quotes for parboiled rice by about $5 per ton to around $435- $445 per ton today. Other Asia rice sellers kept their quotes mostly unchanged.

5% Broken Rice Thailand 5% rice is quoted at around $435 - $445 per ton, about $5 per ton discount to Vietnam 5% rice shown at around $440 - $450 per ton. India 5% rice is quoted at around $425 - $435 per ton, about $20 per ton premium on Pakistan 5% rice quoted at around $405 - $415 per ton.

25% Broken Rice Thailand 25% rice was last quoted at around $350 - $360 per ton, about $50 per ton discount to Vietnam 25% rice shown at around $400 - $410 per ton. India 25% rice is quoted at around $380 - $390 per ton, about $20 per ton premium on Pakistan 25% rice quoted at around $360 - $370 per ton.

Parboiled Rice Thailand parboiled rice is quoted at around $435 - $445 per ton, up about $5 per ton from yesterday. India parboiled rice is quoted at around $415 - $425 per ton, about $25 per ton discount to Pakistan parboiled rice last quoted at around $440 - $450 per ton.

100% Broken Rice Thailand broken rice, A1 Super, was last quoted at around $310 - $320 per ton, about $25 per ton discount to Vietnam broken rice shown at around $335 - $345 per ton. India broken sortexed rice is quoted at around $330 $340 per ton, about $5 per ton premium on Pakistan broken sortexed rice quoted at around $325 - $335 per ton.

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Tags: Thailand rice prices, Vietnam rice prices, pakistan rice prices, India rice prices

China imports 1.5 Million Tons of Rice in First Seven Months of 2014, Down 6% from Last Year Sep 25, 2014

China has imported around 1.503 million tons of rice in the first seven months of 2014 (January - July), down about 6% from around 1.587 million tons imported during the same period last year, according to data from China Customs General Administration.

In July 2014, China imported around 180,000 tons of rice, down about 25% from around 240,000 tons imported in June 2014, and up about 25% from around 144,019 tons imported in July 2013.

USDA estimates China to import around 3.9 million tons of rice in 2014, up about 24% from around 3.144 tons imported in 2013.

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Oryza Global Weekly Weather Rice Recap Rain is expected across southwest China from Thursday to Saturday. The heavy showers in the Yangtze Valley this month maintained abundant moisture supplies for late-crop rice but slowed other summer crop maturation and harvesting.

Rain is expected across lower North, Central and Northeast Thailand from Thursday to Saturday.

Rain showers are expected in central and southern Vietnam on Thursday and Friday.

Rain is expected in some places in Southern India for the next two days. Thereafter, light rain is expected at few places in West Bengal, Maharashtra and Interior Karnataka from September 28-30.

Mainly hot and humid weather is expected in most parts of Pakistan for next two days.

Light rain is likely to occur at many places over Rajshahi, Rangpur, Chittagong , Sylhet divisions, Barisal, Dhaka and Khulna divisions in Bangladesh today and tomorrow.

In Indonesia, showers are expected across northern Borneo, southeaster Borneo and northern Sumatra on Thursday and Friday.

About 46% of the U.S.’s rice crop was harvested by September 21. Producers in the Upper Coast of Texas had finished up harvesting rice. Overall, 74% of the rice crop was reported in good to excellent condition in the US.

Vietnam 2014 Paddy Rice Production Estimated at 45 Million Tons, Up 2% from Last Year Sep 25, 2014

Vietnam's 2014 paddy rice production is estimated at around 45 million tons (around 28.125 million tons, basis milled), up about 2% from around 44.17 million tons (around 27.6 million tons, basis milled), according to Reuters.The Agriculture Ministry was quoted as saying that the increase is mainly attributed to increased output from the winter-spring crop. The Ministry said the winter-spring crop produced around 20.83 million tons of paddy (around 13 million tons, basis milled), up about 4% from around 20 million tons (around 12.5 million tons, basis milled) produced last year.

Vietnam exported around 4.453 million tons of rice in January 1 - September 18, 2014, down about 15% from about 5.22 million tons of rice exported during January - September 2013, according to data from the Vietnam Food Association (VFA).USDA estimates Vietnam to produce around 44.8 million tons of paddy rice (around 28 million tons, basis milled) in 2014, up about 2% from around 44 million tons (around 27.54 million tons, basis milled) produced last year. It estimates Vietnam to export around 6.5 million tons of rice in 2014, down about 3% from around 6.7 million tons exported last year.

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