ASEAN rice exporters cartel: against the grain of regional cooperation
The Thai-led proposal for five ASEAN countries to establish a regional rice exporters cartel is dividing the region’s rice sector stakeholders. Vietnam, Cambodia, Myanmar and Laos are expected to join Thailand in establishing an agreement by the end of 2012 to collectively increase rice export prices by 10 per cent annually. The group states that an increase in prices will benefit farmers and ensure the viability of the sector in Southeast Asia in the context of rising production costs and increasing competition from outside the region.
Many fear a conflict of interest with Southeast Asia’s rice importing countries, given that the cartel would likely solidify their role as rice ‘price-takers’. Thai domestic interventions to raise export prices indicate that the government believes it can drive up international rice prices on the basis of its rice quality and volumes. With exports down 46 per cent on last year in part due to competition from regional exporters, Thailand clearly requires the cooperation of Vietnam and other regional exporters for its pricing strategy to have a chance at success.
Simply on account of its exclusivity, the establishment of a rice exporters cartel will add fuel to the fire of distrust in the region’s rice trade. Lack of confidence in the market has in part prompted Indonesia, Philippines and Malaysia to boost self-sufficiency in rice, despite the potential inefficiencies of this strategy. Furthermore, amidst the secrecy and opacity of the region’s rice sector, the potential for the cartel to control a large share of market information on prices and volumes is a sobering prospect for rice-importing nations; particularly those with low purchasing power.
Critics also question the feasibility of a successful rice cartel. The Thai Rice Exporters Association argues that varied standards of logistics and storage amongst the five proposed members will undermine its objectives, while the Asian Development Bank says the cartel would be unsustainable because the exporters would continue to compete with each other. Then there is the rice quality aspect: if all prices were elevated to a similar level, exporters with lesser quality rice could not compete with cartel members exporting higher quality rice at similar prices.
Discrepancies between the trading systems of proposed cartel members would further complicate operations, with mixed preferences for government-to-government (G2G) versus private deals, and varying degrees of government trade intervention. For example, Myanmar has sought to transition from government-controlled trade to a sector almost exclusively operated by private traders with minimal government oversight. Meanwhile, Thailand has reverted to an almost exclusive preference for G2G deals since the current intervention program launched in October 2011. This strategy, in combination with high prices, has arguably contributed to Thailand’s decline in rice exports.
Early reports indicated a geographically neutral cartel name, but more recent suggestions that the group will be called the ‘ASEAN Rice Federation’ in spite of its membership exclusivity. If it proceeds, the rice cartel will be launched amidst ongoing attempts to develop freer trade in Southeast Asia and just years ahead of the establishment of the ASEAN Economic Community in 2015. From any angle, it seems that a rice exporters cartel would undermine regional cooperation to improve international market conditions in the rice sector.
Last updated on 10/10/2012