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Asian rice markets may survive WTO

Asian rice growers watch warily as the world moves a step closer to free trade, but analysts say traditional markets may not be lost easily given rice's position as a "relationship commodity".

Poor prices, too much stock and competition in both domestic and international markets were already worries for exporters Thailand and Vietnam, and other growers such as Japan and South Korea, even before the world's biggest producer China entered the World Trade Organisation on Saturday.

China, with 1.2 billion people, is both awed and feared as a market and competitor, and Asian rice growers said at a conference in Malaysia last week that a WTO with Beijing posed more uncertainties in the trade of the world's number one staple.

"The competitiveness of Thai rice products...may be seriously challenged by the full accession of China into the WTO, which is likely to occur in the near future," Thai Trade Representative Prachuab Chaiyasan told the conference in Malaysia's northern Langkawi island.

China's abundant raw materials and cheap, plentiful labour will put more pressure on Thailand's rice exports, already hit by a global glut and price undercutting, due partly to US farmers selling cheap because of government subsidies, Prachuab said.

But industry veterans said long-established markets would not be lost easily in a world where four billion of the 6.2 billion people eat rice.

"A rice buyer is very particular on origin, packing, marking and crop year details and, in most cases, is not ready to switch origins," said Rakesh Sodhia, managing director at Bangkok-based Phoenix Commodities Ltd.

"Hence, rice will remain a 'relationship commodity' and buyer-seller would continue to interact with each other in trading of rice for a much longer period than for other commodities," he told the Langkawi conference.

NO MORE SIMPLE TRANSACTIONS

But exporters had to work harder to fight competition, said the trader of nearly 20 years.

"Buyers expect more than just simple transactions. They expect service: pre-sales and after-sales. And only those who can provide such service would survive," Sodhia said.

Milton Bazley, senior business manager at Australia's Ricegrowers Co-operative Ltd, said value-added products such as rice chips and rice tortillas could help capture new markets in a world flooded with standard meal staple.

Some offered technological help.

"You need a better tool to assess risk in this industry," said Peter Bolton of Malaysia's Bolton Associates, which is coming up with a satellite service to help producers watch paddy fields around the world so they could gauge their crops against the competition.

But most of all, cutting back on production would be the best, said experts, although they doubted this would appeal to a region where rice was both food and work for the poor.

"The problem at the moment is the imbalance between supply and demand," said Alistair McLuskie, who heads a newly-launched online rice exchange at Comdaq.net. "The Asians have no control over their production."

DIPLOMATIC WRANGLING

Producers signalled that diplomatic wrangling -- if not judicial action -- would be their preferred choice in defending their markets, saying they not only had the WTO but also regional trade pacts, such as the upcoming ASEAN Free Trade Area, to contend with.

ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. All except Singapore grow rice for their own consumption, if not export, and have various methods, if not trade barriers, to protect their farmers from external competition.

"The ways out for Malaysia, among others, are to develop and show ingenuity and creativity in making a case for retaining industry supports and regulatory measures in forms compliant with WTO and AFTA, even if they require some compensatory trade-offs," said S Jegatheesan, a Kuala Lumpur rice consultant.

Thailand, which buys rice from its own farmers at higher-than-market prices, said earlier this month it will lobby Washington to end subsidies for US paddy growers, which Bangkok said was hurting international prices.

That was before Prime Minister Thaksin Shinawatra's threat on Sunday of legal action against any US attempt to patent Thai jasmine rice, famed for its flavour and dazzling white colour.

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