VZCZCXRO2991
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #1068/01 0950006
ZNR UUUUU ZZH
R 040006Z APR 08
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 2566
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI 5093

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