A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
Focus on issues

The public policies for stabilizing the rice market in Asia

Jo Cadilhon, Project Manager - Governance and sectors
and Arnaud Millemann,
student engineer at AgroParisTech

Centre for Prospective Studies and the Department of Agriculture

As food prices soared in 2007/8, rice prices saw a delayed but rapid rise before falling sharply and then stabilizing. Yet, according to a report by Jo Cadilhon and Arnaud Millemann for the Centre for Prospective Studies and the Ministry of Agriculture1, traditional explanations seem unable to explain this, be it due to stock levels or weather conditions. So, how can the rice crisis of 2008 be explained? We recommend reading the CPS’s report which demonstrates the effects that announcements made by heads of state as well as the uncoordinated, opaque actions of governments had on the evolution of rice prices. This study recalls how factors other than market fundamentals, particularly supply and demand, impact the evolution and instability of agricultural markets. The psychology of market participants, in a not very transparent context, constitutes a key variable to consider in understanding agricultural markets, which have become particularly complex anticipatory markets.

momagri Editorial board

The analysis of the rice crisis of 2008 coordinated by Dawe (2010) is a reference for understanding the interactions between policy interventions, the games of private market participants and market evolution. With wheat and flour prices increasing by June 2007, the fear of a contamination on the rice market because of substitutions for wheat led India and Vietnam to freeze the use of public stocks and block rice exports. Meanwhile, China announced a surcharge on its exports. As for the government of the Philippines, they maintained the panic on global markets by declaring their intention to buy rice from anyone and at any price in order to meet possible shortages. Finally, the Thai government contributed to the upward bubble by announcing the possibility of blocking its exports, without actually doing so in the end.

These measures were designed to keep some rice on the domestic market in order to reduce prices, protect consumers from inflation and reduce the risk of urban riots. These measures have often failed to prevent rising prices because the announcements fuelled concern among the region’s private market participants. Panicked, all the industry’s players, from the farmer to the consumer, sought to buy rice. Hence the soaring international price in 2008. [...]

Once the crisis was over, public policies in Asia gave preference to long-term action.

Transparency on supply and storage

To learn more about stock and availability, the region’s countries agreed to reinforce information systems and public and national stocks and stocks common to several countries in the region. The ASEAN food security information system enables governments to remain informed about regional food supply, however, it needs to improve its accounting on public and private stocks.

Commitments were made to make the East Asia Emergency Rice reserve operational. By 1979, countries of the Association of Southeast Asian Nations (ASEAN) created an emergency rice reserve. This reserve was a physical rice stockpile that could be used in case of a national production failure of one of the Member States or if they were unable to buy rice on international markets. This method was never used and the stocks generated were too small to meet an actual emergency. From 2001, ASEAN + 3 (China, South Korea, Japan) launched a process of consultation and collaboration to build an emergency supply of rice at a regional level. A pilot prototype of an emergency rice reserve for East Asia was born in late 2003, with political support from thirteen countries. [...]

At a national level stock policies have also been strengthened. In India, the Food Corporation of India is responsible for the storage and distribution of foodstuffs, including rice. It buys paddy on the domestic markets and white rice from grain processors at a price fixed by the government to generate stocks, which can then be restored to the markets. These stocks provide a certain market stabilization, as traders know that there are public buffer stocks. [...]

Safety nets for consumers.

The Asian experience shows that it remains difficult to implement consumer food aid policies that protect them against price spikes. [...] Food aid based on subsidized coupons, currently in the pilot stage, would allow the poorest to buy food at market price while limiting losses. But it is another Indian policy, which guarantees 100 days of employment at minimum wage for the poorest families that has achieved the goal of better food security by providing a stable source of income for this very vulnerable population.

As a significant proportion of net rice consumers are farmers, many Asian countries have reinforced agricultural development activities to improve farm productivity: input subsidies, guaranteed purchase prices, help towards mechanization, investment in rural infrastructures, credit and markets. [...]

Analysis of the soaring price of rice in 2008 shows that this is not so much the evolution of the fundamentals of the agricultural produce market (weather hazards, expected yields, stock availability, and demand) as a misunderstanding of information on the fundamentals of supply and the non-cooperative government decisions that led to panic behaviour. [...]

The lessons from the crisis appear to have been assimilated by Asian countries: in the 30th FAO Regional Conference in 2010, all countries asked to prioritise investment in the productive system, while developing better tools for risk prevention for the poorest consumers. Countries in the region have also called for enhanced grain reserve systems and transparency of information on markets and stocks, in partnership with the private sector. In the future, the application of this collective decision could also avoid the panic of 2008. Finally, in addition to the collective awareness of past mistakes, the construction of a toolbox for effectively stabilizing agricultural markets will be achieved through a process of evaluating the impact of public policies on food expenses in the poorest households, on farmers' incomes and on macroeconomic stability.

1 http://agriculture.gouv.fr/Analyse-no30-juin-2011-Les
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Paris, 16 June 2019