HIGH RICE PRICES FUEL FEARS OF SHORTAGES

UNCLAS SECTION 01 OF 02 BANGKOK 001068

SIPDIS

SIPDIS

STATE PASS USTR
USDOC FOR 4430/EAP/MAC/OKSA
USDA FOR OCRA, OGA

E.O. 12958:N/A
TAGS: EAGR ETRD ECON TH

SUBJECT: HIGH RICE PRICES FUEL FEARS OF SHORTAGES


1. Summary: Export prices for Thai rice have doubled in the pasta
few months, with white rice hitting $800 dollars per ton. High
domestic prices have led some of Thailand's top rice exporting
competitors like Vietnam and India to restrict exports, reducing an
already thin trade of rice and fueling scares of rice shortages
around the region. Thailand's exports have climbed as a result, but
declining stocks and an inability to quickly increase production
mean exports will soon slow. Although domestic prices are rising
together with export prices, the RTG has thus far held off on
measures to restrict exports and is releasing a portion of
government stocks at low prices to combat domestic price increases.
On the upside, rice farmers are seeing dramatically higher revenues
from this year's second crop, but higher fertilizer and diesel costs
are negating much of the benefits. Burmese refugees in Thailand and
vulnerable populations in other countries are feeling the pinch as
aid organizations struggle to find supplies and stretch budgets to
cover higher food prices. End Summary.


2. Ministry of Commerce officials plan to meet with businessmen and
farmers from the rice industry on Saturday, April 5 to discuss
options on the rapidly increasing price of rice and dwindling stocks
available for domestic consumption and export. As yet there has not
been serious discussion of an imminent limit on exports or domestic
price controls, though Commerce officials have said they may be
considered later in the year if prices continue to soar. Although
urban consumers have been hit with higher prices, the prices have
been a boon to farmers and rural communities, many of which
supported the current administration in recent elections, and the
government may be wary to take any action that would hurt them.
However, Thailand's Cabinet this week did approve a Ministry of
Commerce proposal to repackage rice from government stocks in five
kilogram bags and sell at reduced prices, but it is unclear how they
will be distributed.

High prices, low stocks
--------------


3. Curbs on rice exports from rice exporting nations including
Vietnam, India, China, Cambodia and Egypt have helped increase
demand for Thai rice and nearly double rice prices in the last year.
Prices for 100% white rice have hit $800 per ton, double that of
three months ago, and prices are projected to hit $1000 by June.
Export prices for top-grade jasmine rice have already hit $1009 per
metric ton this week, the highest level since 1974. Mr. Vichai
Sriprasert, president of major exporter Rice Land International,
said that prices may hit $1200 very soon as the Philippines is
expected to issue a large tender on April 17 and may find it
difficult to fill the bid without offering top dollar. Domestic
prices have jumped about 35 percent from the previous year.


4. Already the world's top exporter, Thailand's rice traders are
doing a booming business as volumes have jumped 71.6 percent
year-on-year from January through March 21. Due to Vietnam's limits
on exports of its low-cost rice, Thailand's exports to Africa boomed
in January and February, particularly to Mozambique, Togo, Benin,
Ivory Coast and South Africa. Exports to the U.S. are up 32 percent
in value through February. The U.S. typically purchases
approximately seven percent of Thailand's total rice exports, mostly
high-end jasmine rice.


5. Rice traders have been exporting at a rate of one million tons
of rice per month since last October, but may not be able to long
sustain that rate as stocks dwindle. Much of the increase in
exports in the past year has come from a drawing down of government
stocks that had built up as part of a government rice intervention
program to support local farmers. Those stocks have dropped to 2.1
million tons, down from 4.8 million tons, and will likely be sold on
to the domestic market rather than exported. Despite the big start
this year, the Ministry of Commerce has set an export target of only
8.75 million metric tons for 2008, compared to 9.55 million tons
actually exported in 2007. Rice Land's Vichai said price increases
would likely ease global demand toward the latter part of the year.



6. High export prices are fueling a run on rice stocks to meet
global demand, but rice farmers are unable to ramp up domestic
production to meet the increased demand. Milled rice production is
expected to stay steady at approximately 18.5 million tons for the
year. Despite the higher prices, limited amounts of water and
suitable land in Thailand mean little leeway for quickly switching
cropland to rice production. As well, prices for other commodities
including corn and palm oil are also on the rise, meaning less
motivation for farmers to switch out of other cash crops to meet the
rice demand.


7. Domestic rice supplies are expected to be sufficient in 2008,
albeit at higher prices. However, there are reports of temporary

BANGKOK 00001068 002 OF 002


supply difficulties as speculation has interfered with normal market
movements. Dr. Darmp Sulkontasap, Senior VP of Tesco-Lotus, said
rice is disappearing from the shelves and his grocery stores are
short on rice as suppliers are delivering only about 20 percent of
Tesco's orders. Traders say they have had trouble finding enough
supply to fill orders, either because of a shortage of rice on the
market or because millers are holding on to rice stocks in
anticipation of higher prices. Millers have taken to parking trucks
by rice fields and purchasing crops directly from farmers and bypass
the paddy traders who have also held stocks.

Why are rice prices going up?
--------------


8. Mr. Sumiter Broca, a policy analyst for the U.N. Food and
Agriculture Organization in Bangkok, noted that rising rice prices
have been part of an overall trend of increasing agricultural
commodity prices over the past few years. In the relatively short
term, the recent surge in oil prices pushed up fertilizer and diesel
costs for farmers, and transport and shipping costs rose for traders
and exporters. Droughts in Australia and unseasonably cool weather
in Vietnam and China also helped slow global rice production.
However, Broca said that long run factors have also kept rice
consumption growing faster than rice production. Growing economies
in the developing world have spurred demand for more and better
quality rice, particularly in Africa. At the same time, the
improvements in yields that began during the Green Revolution in the
1960s and 1970s have plateaued, and productivity increases have not
kept pace with population growth. Broca blamed a lack of investment
in rural infrastructure and a paucity of improved rice strains for
the low yield increases. He predicted that prices would stay high
over the next three to five years, though much would depend on
energy prices.

Farmers win, refugees lose
--------------


9. Farm-gate prices have risen strongly since the beginning of the
year, generating sensational press stories of rice thefts and
farmers guarding their fields by night to protect the valuable
crops. Prices for second crop white rice now being harvested have
climbed from an average of 6000 baht/ton (USD 185) in 2007 to over
10,500 baht/ton (USD 330) currently. However, farmers complain that
climbing fertilizer and transport costs have eaten up much of the
extra revenue they have seen from the higher prices. Although
widely suspected of benefiting the most from the higher prices, Mr.
Vichai of Rice Land said rice exporters were struggling with the
rapidly changing prices, signing contracts for prices that become
unprofitable by the time the orders are filled.


10. Relief organizations fear that they will be faced with cuts in
food aid to over 140,000 Burmese refugees on the Thai-Burma border.
Jack Dunford of the Thailand-Burma Border Consortium (TBBC) said his
group faced a USD5.8 million shortfall in overall funding, and was
unable to locate sufficient supplies of affordable rice for the
refugee camps. If present price and funding trends continue, rice
rations will have to be slashed to a level that TBBC estimates will
result in malnutrition in children within 60 days. Paul Risley,
Asia spokesman for the World Food Program, said that higher food
prices had forced the WFP to increase its operational budget in Asia
by an additional 159.8 million, one-quarter higher than its original
budget. Risley said that rice traders had defaulted on three
contracts in the past three weeks, and WFP's warehouses in Cambodia
held enough stocks for only three to four days.
JOHN