The Asean Free Trade Agreement (Afta) has directly affected the Thai rice trade because the bloc's other FTAs do not include rice-market liberalisation, Kasikorn Research said.

Rice was not included on the lists of products receiving tariff reductions in the Asean-India, Asean-South Korea and Asean-Japan free-trade pacts.

As for the Asean-China FTA, rice is categorised as a highly sensitive product, so tariffs will be reduced to less than 50 per cent on January 1, 2015, whereas the Asean-Australia/New Zealand framework had stipulated duty-free status for rice even before the FTA negotiations began. Australia accounts for only 4 per cent of the Thai rice export value, however.

The impact of AFTA on rice products should be considered in relation to both exports and imports, the Kasikorn researchers said. The agreement should be based on the principles expressed by the five founding members of the Association of Southeast Asian Nations - Thailand, Indonesia, Malaysia, Singapore and Brunei - as opposed to those strictures expressed by the four newer members of Asean - Burma, Cambodia, Laos and Vietnam, they said.

In addition, FTA-related rice trade issues that should be watched included cross-border smuggling, the establishment of an "Asia Rice Company".

The Thai government is implementing measures to manage rice imports by proposing only the import of broken rice to serve industrial demand. Such imports would be handled by bonded warehouses that have the tools and equipment to examine rice products that could be contaminated with diseases, pests and/or chemical substances, as well as any adulteration with genetically modified rice that could contaminate Thai rice.

In addition, imports would be allowed only periodically by the authorities to prevent any impact on Thai rice prices. As a result, some smuggling exists because of high price differentials.

The Department of Foreign Trade allows paddy-rice imports from neighbouring countries, but limits the location and timing of such trade to prevent any undesirable impact on domestic rice prices. Rice mills in locales permitted for such trade will only be allowed to mill rice bran, and package the white rice derived from that processing for export only.

Currently, Thai rice mills tend to have high capacities, as seen from surpluses at home. They can handle as much as 70 per cent of the rice Thailand cultivates at any time, but actual mill capacity utilisation remains at only 30 per cent. Therefore, Thailand has excess capacity that could serve neighbouring countries such as Cambodia, which has very high cultivation but a shortfall in rice-milling capacity. In this way, Thailand and its countries could gain from an obvious cooperative concept.

ASIA RICE COMPANY

The concept of an Asia Rice Company would encourage cooperation between Thailand and its neighbours in managing rice exports. Thai rice exports to the global marketplace are as high as 30 per cent out of all rice exports worldwide. If the export volume of neighbouring countries is included, the total export volume may be 50 per cent of the global total. As a result, through cooperation, Asean would be able to control rice prices in the global market.

Although this concept sounds interesting, the Kasikorn Research Centre said, in practice it would be challenging to achieve because Vietnam is in active competition with Thailand. Meanwhile, other neighbours, especially the newer Asean members, have established policies towards expanded rice production and may become important rival exporters in the future.

Another factor is that major Asean rice importers, such as the Philippines and Indonesia, have urged higher domestic rice cultivation to enhance their food security. Hence their import volumes will likely decelerate over the coming years, the researchers said.

Source: The Nation