High on Rice

I’m not sure if Deputy Prime Minister and Commerce Minister Mingkwan Sangsuwan has been mainlining rice extract but I have to ask after reading this:

Mingkwan said the continuing trend would help turn Southeast Asia into a prosperous region, comparable even with the Middle East.

First let’s overlook the fact that Mingkwan has not sung a consistent tune during this entire rice incident (I’ll get to that in a second) and let’s focus on the assertion that rice will turn Thailand into the next Dubai.  That is his implication, isn’t it?   Unless I’m misunderstanding him and he was actually talking about other places in the Middle East like Lebanon or Syria. 

Checking Wikipedia, the common definition of Middle East is:

The Middle East defines a geographical area, but does not have precisely defined borders. The modern definition of the region includes: Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, the Palestinian territories, Qatar, Saudi Arabia, Syria, Turkey, the United Arab Emirates, and Yemen.

So what countries is he unlikely to be comparing Thailand to?  Let’s assume they are:  Egypt, Iran, Iraq, Lebanon, the Palestinian territories, Syria, and Yemen as they are either war-torn, in some sort of other geopolitical crisis that makes them unlikely targets for other countries to aspire to, or have a lower GDP per Capita than Thailand currently has.

That would leave:  Bahrain, Israel, Oman, Qatar, Saudi Arabia, Turkey, and the UAE.  So let’s look at GDP per Capita of each of these countries:

Thailand:  $8,000

Bahrain:  $34,700

Israel:  $28,800

Oman:  $19,100

Qatar:  $75,900

Turkey:  $9,400

Saudi Arabia:  $20,700

UAE:  $55,200

* source is the CIA Factbook

So unless Mingkwan was hoping to catch up to Turkey, his aspirations of comparing in prosperity to the Middle East would involve more than doubling the entire nation’s GDP in order to catch Oman and Saudi Arabia.  Regardless of how high rice goes that seems rather unlikely. 

The other problem is that Mingkwan must not be up to date on economics.  Unlike the commodity that brings wealth to the Middle East nations Mingkwan aspires to catch up to rice is not a finite resource.  More of it can be grown and the higher the price goes the more people will convert land for that purpose.  Nations that import rice like the Philippines might start producing rice themselves if the prices remain at such high levels.  Exceptionally high prices justify investments in irrigation and other improvements needed to successfully harvest good rice crops.  And as supply begins to catch up with demand then prices start dropping until supply exceeds demand and prices either level out or drop even further as economies tend to act on pendulums rather than precise timing instruments.  In other words, people will still be trying to get in on the rice bonanza long after the market has begun to swing back in the other direction and eventually there will be a glut of rice on the market driving down prices to levels that drives producers out of the market in an attempt to achieve that ever elusive parity of supply and demand. 

So contrary to Mingkwan’s pipe dreams, the most likely scenario is that in the coming year or two there will begin to be an oversupply of rice which will have a devastating effect on rice workers in Thailand three or four years out.  And instead of building golden skyscrapers in Isaan poverty will likely get worse.  But your lowly rice farmer probably knows nothing about supply and demand curves so this should keep getting people elected for a few more years so tell them what they want to hear. 

But that’s if there is actually a shortage.  Some are saying it’s a pricing issue and that exporters are hoarding stock in order to keep the prices going up.  In the Philippines where the shortage has become nearly a crisis the Secretary of Agriculture Arthur Yap told the BBC, "The problem is not with supplies, but with price."  People are holding back selling what they have hoping to get a higher price later. 

That would support the claims of Vietnamese rice farmers (as well as many Thai rice farmers) who claim they are not benefiting from the rise in prices. 

"The rice price has gone up 50 percent over the past three months, but I’m not making any more money because I have to pay double for fertilizer, insecticides and labor costs," said Nguyen Thi Thu, 46, a farmer in Ha Tay province, just outside Hanoi.

Another farmer, Cao Thi Thuy, 37, in Nam Dinh province, 120 kilometers (75 miles) south of Hanoi, said exporters have actually been paying less for rice over the last week.

"If the world prices are going up still, then Vietnamese rice-exporting companies are benefiting, not us," she said. "They tell us that now weather is better, and rice can grow more easily, so we should not expect higher prices."

Oh, and since I promised to follow up on Mingkwan’s flip-flopping, here’s a Breaking News alert from the Bangkok Post which isn’t dated but based on recent events must have been sometime in the not too distance past.

The idea of releasing a portion of rice in government’s stockpile was first floated by Deputy Prime Minister and Commerce Minister Mingkwan Saengsuwan and approved by the Cabinet on April 1.

But Mr Mingkwan changed his theme on Saturday when he chaired a meeting of 13 rice-industry and related-groups – presumably after talking it over with his prime minister.

Mr Mingkwan said participants agreed there was no need to release state stocks to the public.