Column: Tackling Thailands rice discount

Updated: May 5 2014, 10:20am hrs
Indias compliance with WTO obligations for export of wheat and raw sugar is being questioned by the US, Canada, Australia, Brazil and some other nations. The Indian government could be responding appropriately to the WTO, but, at the same time, it should also approach the WTO to stop Thailands massive subsidisation of paddy that will adversely impact Indian non- basmati rice exports in the near future.

Rice exports

Thailands auction of its excess paddyequivalent to 14 million tonnes of milled ricethrough a distress sale every week with it treasury booking huge losses (ranging from $4 billion to $12 billion) is leading to market distortions and is in breach of the WTO norms. This must come to an end forthwith.

India shipped out 25 million tonnes of rice (both basmati and non-basmati) in the last three years (2011-14) from the open market. No exports from official/FCI stocks have taken place and the export subsidisation is nil. India has a clean record of WTO compliance for rice.

If the Thais continue to manipulate the market by under-pricing their stocks, India may not be able to sustain an export of 10 million tonnes of rice in FY15, the figure the country achieved last year as the worlds largest exporter of rice. Other rice exporting nations like Vietnam, Pakistan, Myanmar, Cambodia, the US, Uruguay, Paraguay, Brazil, etc, will also be hurt by Thailands arbitrariness.

Indias 5% broken white rice is now priced at $425 per million tonne versus $400 for the Thai stock on an fob basis. The Thai rice was priced nearly $550 per million tonne almost a year ago with hardly any takers in world market. Thai farmers could not be paid for the high-priced paddy. To service the arrears due to the farmers, the Thai government is now desperately selling paddy at a discount of about $300 per million tonnes, a rebate of nearly 63%. This 63% discount is the difference in the value of paddyprocured at $470 per million tonnes from farmers under the administered price regime of the last three years but now auctioned at around $170 per million tonnes while the open market price is $190-200. Paying the farmers high prices for their paddy could have been politically expedient for the Thai government, but now it is hitting other countries trade.

Wheat exports

Indias compliance with WTO norms on its export of 13 million tonnes of wheat over 2011-2014 is being questioned. However, such concerns are misplaced.

The current policy permits wheat shipments from FCI holdings as well as from privately-held stocks. FCI exports are made through three PSUsthe State Trading Corporation, MMTC Ltd and PEC Ltdagainst internationally-priced (in dollars) tenders provided such bidding covers the cost of acquisition/MSP, inland transport and handling expenses. Exports prices in FY14, on average, were at $285 (R17,385) per million tonne and in FY13, at $305 (R16,775) fob, while the MSP for wheat was R13,500 per million tonne and R12,850, respectively. The rupee/dollar conversion used here is 61 for FY14 and 55 for FY13. The realisation above MSP adequately covers logistical expenses.

Private exporters, in the last three years, have shipped out stocks at prices lower than the PSUs international tender. Realisation from domestic sales by FCI in FY14 stands at R16,020 ($262) per million tonnes versus R17,385 ($285) as equivalent export realisation in the same period. Prima facie, there is no subsidisation in wheat export as well.

Raw sugar exports

Marketing assistance of R3,300 per million tonne on raw sugar export, notified in February 2014, is deemed non-compliant with WTO norms. The Indian government has responded that such small volume shipments of Indian raw sugar will not affect or depress world sugar prices. The WTO is unlikely to be satisfied with the Indian response as its query is about compatibility with the norms rather than any dampening effect on exports of other origins.

There is a growing realisation within policymakers that we could have done without it as local prices have firmed up and are now remunerative. Media reports indicate that the new government may review this subsidy in the light of positive developments in the domestic market and also because raw sugar production will virtually come to a seasonal end by May 2014. India may thus positively respond to signals sent by the WTO.

The lessons to be learnt are that India has to be compliant with the exports norms if it wants the WTO to address the menace of multilateral manipulation and that exports are important for demand expansion and for better price realisation to farmers. International price distortions can be very expensive to all nations. Thus, the issue of the 63% Thai subsidy needs to be addressed with all firmness by the new government.

Tejinder Narang

The author is a grains trade analyst