Don’t count your chickens before they’re hatched: assessing government claims over rice salesBy Bangkok Pundit Sep 19, 2013 3:15PM UTC
MCOT on September 4:
Deputy Prime Minister/Foreign Minister Surapong Tovichakchaikul on Wednesday said Thai rice exported to China is of good quality, for it tended be packaged and exported directly by the Commerce Ministry.
Mr Surapong spoke of the discussion between the Thai premier and her counterpart Li Xiaoqiang on Monday during her recent official visit that China indicated that it would buy one million tonnes of rice from Thailand.
MCOT on September 8:
China has pledged to buy 1.2 million tonnes of Thai rice, along with another several hundred thousand tonnes of agricultural produce with the contracts to be inked in this month, Thai commerce minister Niwatthamrong Boonsongpaisarn said on Sunday.
Mr Niwatthamrong announced the deal after his visit to the People’s Republic of China last week.
Apart from the one million tonnes of Thai rice, the minister said, China will also buy 300,000 tonnes of cassava and another 200,000 tonnes of rubber.
He said the contracts will be inked this month with two state enterprises and the delivery of all produce is expected to be complete within a year.
Matichon on September 8 reports the Minister as stating there is an Agreement with a Chinese State Enterprise to purchase 1.2 million tonnes and to deliver within one year… and the sales contract will be completed this month (รัฐวิสาหกิจจีนได้มีข้อตกลงว่าจะซื้อข้าวเจ้าขาวจากประเทศไทยจำนวน 1.2 ล้านตันจะส่งภายใน 1ปี …โดยจะมีการทำสัญญาซื้อขายกันภายในเดือนนี้). Kom Chad Leuk also has the same essentials (agreement, 1.2 million tonnes within a year and contract will be completed within this month).
BP: The opposition – in particular former Finance Minister Korn – was skeptical of the sale claims and linked to the below Reuters report.
Reuters on September 12:
Thailand’s government said on Thursday it had sold 1.2 million tonnes of rice from its stockpiles to China and that its stocks now stood at 10 million tonnes, a huge drop from the previously reported 17 million and one that traders found hard to explain.
Industry officials were unsure why China would buy so much rice at a time when demand was weak and there were abundant cheaper supplies elsewhere, while a Chinese source said the two sides were still in talks.
“We have signed a contract to sell and it would take about a year to deliver the whole lot,” Commerce Minister Niwatthamrong Bunsongphaisan told reporters. He declined to give prices or other details.
An industry source close to the State Grain Administration, China’s state body responsible for grain trading and distribution, said talks on a government-to-government deal had been taking place with Thailand for some time but nothing had been settled.
“It is impossible for China to import that much rice as China doesn’t need that much,” the source said, referring to the 1.2 million tonnes.
1. Reuters’ skepticism is probably partly based on their previous reports on this issue. Reuters in September 2012:
Thailand, the world’s top rice exporter, said it had signed contracts to sell 7.3 million tonnes of the stockpiled grain to foreign governments in exports from now until late next year, but top importers Indonesia and Philippines denied any deals.
“They are all contracts committed to by other governments, not just MOUs,” Thailand’s commerce minister, Boonsong Teriyapirom, told reporters, adding that rice exports could reach 8.5 million tonnes this year.
He said the contracts had been signed with governments including China, Indonesia and the Philippines. But the two southeast Asian nations flatly denied the remarks, while China has not made any comment.
Philippine state grains agency National Food Authority said the country had not signed any new rice supply deal with Thailand.
“We have not signed any government-to-government deal with Thailand,” NFA Administrator Angelito Banayo told Reuters.
“What we have is a supply arrangement with them for 1 million tonnes, which they have committed to sell to us if we need additional supply.”
In Jakarta, state procurement agency Bulog said it had not signed any rice deal with any country.
“There is no G-to-G rice import contract or deal between the Indonesian government with any country so far, including Thailand,” said Chief Executive Sutarto Alimoeso.
Reuters in January 2013:
Commerce Minister Boonsong Teriyapirom claimed in September that Bangkok had contracts to sell 7.3 million tonnes in 2012 to countries including Indonesia and the Philippines.
The problem was that those countries denied any deals had been signed and traders didn’t see any cargoes leaving Thai ports.
The government did sign a memorandum of understanding with China to allowing rice exports to Beijing, but so far there is no sign of any additional cargoes.
In fact, quite the opposite is true, with Thai rice exports to China falling 52 percent in the first 11 months of 2012 from the prior year, according to Chinese customs data.
BP: At a minimum, the government has been misleading in the past on how it has framed the previous “sales”. Supply arrangements/MOUs/and various other agreements have not always resulted in the export of the large quantities of rice talked about. Whether it is an MOU, an agreement, contract with intention to sell, or even a clear sales contract with specified dates and prices, given the previous history and the fact that things can change meaning rice may or not be sold, until the rice is actually exported, you shouldn’t really focus on the deals. Looking at actual rice exports is the better figure. We will see at the end of the year (although for the China deal it is supposedly within 12 months so we can look at monthly/quarterly exports next year as well).
NOTE: Obviously, there are differences between a mere MOU vs a clear sales contract where the non-Thai side is on the record as confirming the details with the latter being of interest in regards to estimates/forecasts, but actual exports are key.
2. The other part of the Reuters report “It is impossible for China to import that much rice as China doesn’t need that much,” the source said, referring to the 1.2 million tonnes.
The deal has raised suspicions given the low volume of Thai rice exports to China in the past few years. In 2009, Thailand shipped only 328,238 tonnes to China. From 2010 through 2012, the volume was 264,207; 267,846; and 143,082 tonnes.
BP: The past is the past though. Below are previous worldwide imports for China:
SOURCE: ORYZA – this is from earlier in the year.
The Nation in July:
The FAO expects that India will remain the biggest rice producer next year, as it is increasing production, while Vietnam’s output may drop slightly. China will be the world’s biggest importer, at 3 million tonnes compared to the average 1.2 million tonnes per year from 2009-11, as the country is set to build up rice stocks, followed by Nigeria at 2.7 million tonnes.
Kyodo News in August:
China’s imports of rice in 2012 quadrupled from the previous year to 2.4 million tons. In 2013, they are set to reach 3.2 million tons — surpassing those of Nigeria to become the biggest in the world — and in 2014 a record 3.4 million tons, according to estimates released in mid-August by the U.S. Department of Agriculture.
Oryza report from early September:
“China is expected to import about 4 million tons rice in 2013-14, up about 14% from about 3.5 million tons imported in last year, according to the China National Grain and Oils Information Center (CNGOIC). CNGOIC lowered its 2013-14 rice production forecast by one million tons to about 35 million tons, due to ongoing drought in key rice producing areas.
BP: As you see the forecast for rice imports for China is on the rise. Whether it will reach the lofty (read: unrealistic in the extreme) target of Thailand exporting 4-5 million tonnes per year seems very unlikely, but 1.2 million tonnes over the next 12 months (which you could then divide as 600,000 tonnes a year) is at least possible as there is a large increase in demand from China for imported rice.
Why you ask?
In addition, China Daily Asia in July:
Hubei long rice in China has a hefty price tag of $625 per ton, compared with $451 in Vietnam and $598 in Thailand.
From a USDA report in June “Rice imports from Vietnam, Pakistan and Thailand continue to be price competitive over domestic rice“.
BP: China subsidizes their farmers too and the price is seen as too high to buy rice domestically,* but since then the price of Thai rice has fallen with the government trying to sell stock with Reuters noting in August that the price had fallen around 20%:
Thai benchmark 5 percent broken rice RI-THBKN5-P1 has already lost much of its artificial premium to its Vietnamese counterpart RI-VNBKN5-P1, which was caused by Thailand’s decision to build inventories rather than sell at a loss.
The difference between the two is currently $82.50 a tonne, making the Thai grain 21 percent more expensive that its Vietnamese equivalent.
In late January the difference was $180 a tonne, or a premium of 46 percent for Thai rice.
Prior to the start of the Thai intervention scheme, the two traded more or less in lockstep and as at the beginning of August 2011 the difference between them was $10 a tonne in Thailand’s favour.
BP: Agree on the reduction of the artificial premium, but the difference of US$10 was slightly unusual as Thai rice has typically been higher priced that Vietnamese rice as the below FAO report from September 2013 shows:
BP: As you can see regardless of what scheme there has been a premium of 10%-20% on Thai rice compared to Vietnamese rice, but USD$180 a tonne difference was clearly excessive.* The gap is dropping and the price of rice will likely continue to come down so the gap is between the usual 10-20%. If so, the quantity of Thai rice being exported will likely now start to increase over the next year.
B. Contamination problems with Chinese rice
In addition, China Daily Asia in July:
Hubei long rice in China has a hefty price tag of $625 per ton, compared with $451 in Vietnam and $598 in Thailand.
Recent reports of tainted rice found in Hunan province have added to this trend away from domestic varieties. Some Chinese consumers are even switching to more expensive Thai imports.
High traces of cadmium, a carcinogenic industrial chemical, were found in long-grain rice from Hunan sold in Guangdong province. Rice from Jiangxi and Guangdong provinces is also not immune from contamination.
This came at a critical juncture when an excess supply of rice has flooded the global market.
…“This must be music to the Thai government, which is desperately looking for buyers to offload some of its bulging mortgage stocks,” said Samarendu Mohanty, head of the social sciences division at the International Rice Research Institute (IRRI), in a blog entry. “(Chinese imports) should provide much-needed support for rice prices.”
FT in August:
Another reason cited by some analysts for the rise in rice imports is the recent cadmium contamination scare. Concerns about soil pollution affecting the grain from Hunan and Guangdong may have added further impetus to the buying from overseas markets, they say.
BP: These are actual contamination problems and relate to a carcinogenic chemical…
C. Drought in China
Xinhua on August 8:
The 56-year-old farmer in Xinglong village, Qiyang county, Hunan Province, is expected to reap only 10 percent of harvest compared with previous years as his 2 mu (0.13 hectare) of paddy rice, 1 mu of peanuts, 1 mu of sorghum and 1 mu of mung bean and corn all withered up.
About 4 million hectares of farmland have been affected by the drought as of Monday, according to the State Flood Control and Drought Relief Headquarters.
In Hunan Province, which produces 13 percent of China’s paddy rice, 913,333 hectares of farmland have been affected and 1.49 million people as well as 860,000 cattle lack drinking water, according to the provincial flood control and drought relief headquarters.
China Daily on August 13:
Agriculture experts worry that a severe drought that began in June may damage the rice harvest in central and eastern China this year, but add that it’s too early to know whether the entire country will be affected.
Although he doubled his rice planting area this year to 13.3 hectares, Sun estimated that his farm’s output will be 15 to 20 percent lower. “For good-quality rice, the best temperature for pollination is about 32 C. But it has been above 38 C for more than a week,” he said.
Sun said he is not expecting a good harvest this year. Because the output of good-quality rice is expected to be low and high temperatures have increased the cost of irrigation and labor, rice prices will increase, he added.
From a USDA report in August: “China’s 2013/14 rice crop is lowered 1.0 million tons to 142.0 million, down 1 percent from 2012/13. Hot dry weather in the lower Yangtze River Valley and in the southwest stressed mostly the single rice crop. Rice production is likely to be negatively affected in Hunan, Jiangxi, and Anhui provinces”.
BP: Please note that this lowering doesn’t sound like much, but it before the current forecasts of 3 million tonnes of imports for China so hence it does explain the forecasts of 4 million tonnes of imports from China. We are still waiting to see how bad the drought and weather will be and its impact on Thailand, but you see it is good-quality rice that is being affected so perhaps Thailand can take advantage of this.
With increased demand from China for imported rice, we are likely to see more Thai rice being exported, but will it reach 1.2 million tonnes by next year?
*Actually, this is the biggest failing over the implementation of the rice pledging scheme in BP’s view (there is the question of the price, but in BP’s view that is really a question of the policy and not the implementation). It has been clear for a while that India’s decision to start exporting non-Basmati rice at the end of 2011 meant that the rice pledging purpose of rising the price which would push up the world price was not going to work. Delaying sales from Thailand only kept the Thai rice price high.
It seems there was hope by those in the government that there could be a change in the world situation i.e large scale drought or something like what happened in 2008 which pushed rice prices through the roof and then the government could sell the rice at a much higher price and the overall losses from the rice pledging scheme would be limited (like holding onto stocks hoping they would rebound instead of partially cutting your losses and selling some of the stocks). If that had happened, the government could then be vindicated. This hasn’t happened. Since India’s re-entry to exporting non-basmati world rice prices have actually dropped – just look at Vietnamese rice prices – and there is no end in sight to this situation. This is actually fairly simple to understand. There were 32 million tonnes of rice being exported worldwide in 2010 with India exporting less than 2.5 million tonnes with over 95% of it being basmati rice. In 2011, India exported 7 million tonnes with 4.5 million tonnes being non-basmati rice, but the amount of rice exported was only around 35 million tonnes. Such a large increase in the supply of non-basmati rice for export has hurt the world price. Nevertheless, the government should have cut its losses much sooner instead of letting the amount of rice being stored getting so large. It really needs to sell a lot of rice now to reduce the volume of rice being stored to actually be under 10 million tonnes.