is one of our strongest areas.
Based on FAO data
China and India are the most important producers and consumers of paddy by a very long way. They are also among those at the forefront of those increasing productivity. The crop is too important for the two giant Asian countries to be left entirely to market forces, so both have active intervention policies and maintain stocks for food security. Given the fact that between them the two countries produce more than 320 million tons of paddy, the trade in rice in global markets amounting to less than 60 million tons paddy equivalent can easily be affected by what happens to the production of the two leading countries.
Exports depend upon the surplus available in Thailand, India, Pakistan, Vietnam, USA, China and Cambodia. Consumption has been rising but not as fast as production. That is leading to a growing surplus. Production in Thailand, Vietnam and Cambodia is export oriented and developments in the production in these countries have a disproportionately large impact on prices of traded rice. A majority of the paddy produced in Cambodia goes across porous borders mainly to Vietnam where it is milled, ending up being consumed in Vietnam or exported. either way, Cambodian production is in reality an extension of the Vietnamese rice sector. The country gains from an assured market but looses out on milling and export margins.
The forecast for this year indicates no significant problems in production in India or China, or in the main exporting countries. Indeed, reports from Pakistan, Thailand and Vietnam suggest larger volumes will be available despite plumeting prices. This is squeezing farmer incomes with smaller farmers in real danger of returning to marginal to negative profit territory from which they emerged only briefly in 2007 and 2008.
We have just gone through two years of great uncertainty with prices first increasing by up to 300% from around $400 to $1,200 per tonne for milled rice only for the prices to decline to $550. Despite searching for the evidence that this development was due to China and India eating more, bio-fuels or droughts, we are not convinced and suspect that speculation played a major role. IRRI has obviously come to different conclusions and is surprisingly forecasting another hike in prices during 2009 while we forecast and fear the opposite, a collapse in prices leading to dire poverty for farmers.
Trade in cereals nearly always involves Governments. It is simply far too sensitive an area to leave to so called free markets. The leading players do not hesitate in following this pattern and it is nearly impossible for anyone to ignore that. Vietnam, Thailand and India are all trading at state level with the power and the back up that brings with it. They have to do it that way and the states buying like Philippines are happier at the result. The opposite to state intervention has always been the World Bank position and probably is still argued for developing countries while in USA and Europe we are trying to decide what to nationalise next to fight the Depression. This automatic bias against a state role as was exhibited by the World Bank country officer for the Kyrgyz Republic on a project we executed is quite ludicrous and a more case by case approach more likely in the immediate future.
One major problem for farmers is caused by the fact that market prices are falling far faster than input costs. So, they are being squeezed on both sides. The time lag also leads to a larger area planted this year due to high prices last year, that ensures that prices will collapse all the faster and leaves farmers with losses. Those countries that have intervention policies can lessen the adverse impact on farmers but a decline in farmer incomes and an increase in poverty are the most likely results. In the midst of a global recession this development has political implications that may form anorther wave following housing, credit and industrial unemployment.
Roughly 350 million tons of milled rice are produced each year, most of which is consumed within the producing countries. with only some 27 million tons being traded. In 2007/08 there was a bull run leading to panic amongst importers and a very high price. There was actually very little reason for this in the physical world with the situation probably being caused by the actions of speculators.