Until last week, the next oil — the critical resource growing ever scarcer and prompting desperate behaviour to ensure supplies—was water. Turns out, it’s rice.
That’s at least what some Asian leaders think. Hence a plan in South-East Asia to create an Opec (Organization of Petroleum Exporting Countries)-like cartel to manage rice supplies amid record prices. Thailand and Vietnam account for almost half of global rice exports. Add in Cambodia, Laos and Myanmar and Asia’s cartel would wield even more power over food prices than Opec does with oil.
It’s a terrible idea. For one thing, an Organization of Rice Exporting Countries would presumably favour high prices. That may benefit producers, but hurt consumers everywhere. For another, the timing is awful with commodity prices reaching unprecedented levels.
Asian Development Bank (ADB) president Haruhiko Kuroda says “the agriculture market should be market-driven” and that “any kind of cartel isn’t good for the exporters and the importers.” Philippines senator Edgardo Angara says it would “create an oligopoly and it’s against humanity.”
It’s hard to see how a rice cartel would work. With oil, you have reserves — actual stockpiles. Rice needs to be harvested. Its production depends on weather, the cost of fertilizer and the availability of arable land and water. And how exactly can you control farmers growing rice or not?
Move over Opec
Asia’s disparate economies also aren’t renowned for cooperation. Among Mekong Delta nations you have a constitutional monarchy, an immature multiparty democracy, two communist states and a military regime — all at very different levels of development. Seriously, folks, good luck making that work.
The real story is: The very idea of a rice cartel speaks to the desperation with which Asia is treating food price trends. Food security hijacked recent meetings of ADB and the Association of Southeast Asian Nations. At ADB event in Madrid, there was vague, yet worrisome talk of 1997-like crises in some nations. Not a regional meltdown that sends contagion across the globe, but scattered ones.
One sign of the anxiety coursing through Asia is talk in India of suspending trading in more food futures as political pressure grows. India has already halted trading in wheat, rice and lentils. Now there’s pressure to ban dealing in cooking oil, sugar and other commodities.
The idea of banning commodities trading sounds farfetched. Markets play an important role in valuing goods and redistributing them. Yet speculation is causing froth in prices. There’s a speculative bubble in speculation.
It says something about the crazy market environment we’re living in when George Soros leaps out of retirement to get in on it. Good timing, too: Soros earned an estimated $2.9 billion (Rs11,948 crore at current rate) last year, according to Institutional Investor Inc.’s Alpha Magazine.
“If rightly or wrongly people perceive that commodities futures trading is contributing to a speculation-driven rise in prices, then in a democracy you will have to heed that voice,” Indian finance minister P. Chidambaram told Bloomberg on 4 May.
It makes you wonder why exchanges don’t start demanding that buyers take delivery of the commodities they trade. The bottom line is that Wall Street doesn’t realize the effect that food prices are having on the developing world.
Talk of trading bans is enough to send chills down the spines of Milton Friedman’s disciples. Then again, one could argue that those who believe oil prices are set by the market are delusional. Opec ultimately controls the value of oil—not traders.
Asia is especially vulnerable to rising food costs. It’s home to the bulk of the world’s population and families living in poverty. Many of the most promising markets are also there.
Global food prices surged 57% in March from a year earlier, according to the United Nations. ADB officials estimate food expenditure accounts for 60% of household outlays for poor families—75% when fuel costs are added.
It isn’t hard to see why Asia is considering drastic measures. To many in the region, creating a rice cartel seems no more irrational than the Federal Reserve saving Bear Stearns Companies Inc. from collapse. Yet Opec’s influence is a cautionary tale.
Cartel won’t help
US President George W. Bush in January travelled through the Persian Gulf begging for an increase in oil production to give US consumers a break. His pleas fell on deaf ears.
On the campaign trail, Hillary Clinton has ratcheted up the rhetoric on Opec. While the summertime gas-tax holiday proposed by US presidential candidates Clinton and John McCain is just plain stupid, she’s right to question Opec. “They can no longer be a cartel, a monopoly that get together once every couple of months in some conference room in some plush place in the world and decide how much oil they’re going to produce and what price they’re going to put it at,” she said in Indiana this week.
Given how global markets are held hostage by Opec, a rice cartel hardly seems like a wise move.
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