More evidence that there is little appetite for a free market in rice in South East Asia came in today as news spread that Thailand may be planning an OPEC-style international rice cartel—an Organization of Rice Exporting Countries. Cambodia almost immediately chimed in with its support, while the positions of Laos, Vietnam and Burma are still unclear but are expected to be favorable.
The plan isn’t going over well with Asia’s rice importing states. In the Philippines, which just suffered its second failed rice tender after Vietnam was the only country offering to sell, the proposal has been strongly denounced. Filipino politicians and editorials are describing the cartel as a “Mekong mafia.”
Because many nations—including China, Vietnam and India—have imposed curbs on rice exports to secure supply for their domestic market, Thailand already exercises outsized influence on the international rice market. The OREC cartel, some fear, would institutionalize Thailand’s grip on the market. Others are skeptical, however, that rice really can be cartelized in the way oil has because rice production is vastly more decentralized than oil drilling.
Meanwhile, China has promised to develop mutant super-rice that it says will solve the problems of growing demand. Burma responded with a cyclone killing hundreds and wiping out rice crops.
Cartel plan fuels rice fear [The Australian]

Philippines Cancels Rice Tender; Futures Rebound [Bloomberg]

Rice Gene May Help Farmers Double Harvest, Chinese Study Shows [Bloomberg]

Recently laid off from your buldge bracket bank because the buyout business has dried up? Well Bangkok may be where you want to be. Beside the obvious benefits–cheap domestic help and bespoke clothing–the land of smiles may be poised for an M&A boom.
Firms here cannot use tax losses on the books of acquired companies to offset profits of the combined entity. But that may be changing thanks to a newly announced government plan to boost investment.
The tax laws now in place discourage deal making because mergers erase value by eliminating carried tax losses. The change couild unleash value now trapped inside firms, making deals much more attractive. Firms with tax losses on the books will suddenly have a valuable asset.
This is probably somehow related to rice or Buddhism but I’ve probably said enough on that for now.

–John Carney is “on assignment” in Thailand.

There’s a deep irony to all the talk about the global food crunch (they laugh at our “credit crunch” here, you can’t eat credit) portending dark deeds in Thailand. This country is hardly in danger of running out of rice, short term or long term. In fact, it supplies the international market with 30% of its rice. This eclipses many countries, such as China, that produce far more rice but have limited exposure to global markets due to export curbs. Thailand, despite the dire talk of rice price hikes, probably stands to reap huge profits from the Food Crunch.
What’s more, Thailand could produce even more rice than it does. Large parts of its rice fields are underproductive, in part because they are not properly irrigated. Many fields that could produce multiple crops a year produce just one or two. Price controls and other government mucking about contribute to the low-productivity. But, if I were asked, I’d probably say an even bigger role is played by the heat here. It’s really, really hot in the summer. And it’s summer right now. It takes a lot of baht to motivate Thai farmers to work in the summ er. Leisure in this kind of weather is a highly prized commodity. But if prices get high enough, the farmers will dismount from the hammocks and get to planting.
So if Thailand has plenty of rice and could produce more if the price was right, what’s all the fuss about? To understand the issue, you have to realize that in this part of the world rice quite literally has a religious dimension. In the mornings you can find women on the streets given rice to monks to “make merit”–which is Buddhist for scoring religious points. At images of the Buddha throughout Thailand, people leave offerings of rice. High prices are seen as interfering with the religious obligations of the people. Keeping rice prices low is a way of staying right with Buddha.
It’s also pretty much part of every meal. So imagine, if you will, if $117 oil meant we had to cancel Sunday church services and Saturday bbqs. Rice, in Thailand, is food plus religion. And when it gets expensive, dangerous forces can be unleashed.
–John Carney is probably eating too much rice on his vacation in Thailand.

Thailand may have spent the Cold War on the free market side of the Bamboo Curtain but rice socialism still reigns. Price shocks have politicians scrambling to raise rice productivity through irrigation projects, while consumers are now facing new purchasing limits on rice at markets.
Consumers are limited to buying just three bags of rice at the markets. It’s a form of demand side price control made necessary by the supply side price controls exercised by the government. Rice is only allowed to be sold to consumers within certain price bans, which would lead to shortages if market processes were allowed to work themselves out. To avoid market created shortages, the government has decided to preemptively create its own shortages by limiting purchases by consumers.
The next move may be for the Commerce Ministry to release its Strategic Rice Reserves. No really. The government hordes rice in case of shortages here, the way the US government hordes oil. But this possibility may actually lead to further shortages in the long run, as rice farmers may plant fewer crops for fear of downward price pressure from government reserves being released.
All of this is feeding into rumors of a possible military coup. Some say that Thaksin Shinawatra, the populist politician who was ousted in the last coup, may be preparing to come back the same way he was forced out: through a military backed overthrow of the government. He’s popular with the monks and the have-nots of Thailand, and has been spending time in temples across the country. Supposedly this temple tour is to atone–or make merit–for past sins. Thaksin insists that it only looks very much like a political campaign.
The rumors of a Thaksin coup have sparked rumors that his opponents could stage a pre-emptive coup to establish their own version of military rule before Thaksin can build his. No one expects Thailand to become another Burma, but talk of competing coups has many saying it is only a question of who does it first.
– John Carney, who is vacationing in South East Asia, has never stage a coup, military or otherwise.