Thailand is reviving a four-year-old bad idea. According to Thai media reports, the country is putting together a cartel of rice-producing countries. But unlike oil, rice rots.
The alliance, which could include Vietnam, Cambodia, Myanmar and Laos, may be unveiled at a summit of the Association of Southeast Association Nations later this month. In a Wall Street Journal op-ed published last month, Thailand's commerce minister said the bloc's goal is "to raise rice prices in global markets."
Joining forces might look seductive. Between them, the five Asian neighbours are expected to export about 15 million tons of milled rice this year, accounting for 40 per cent of the total global trade in the staple.
Bangkok, in particular, has good reasons to drive up the rice price. To fulfill an election pledge, Prime Minister Yingluck Shinawatra has spent about 300 billion baht ($9.7-billion) of taxpayers' money in just one year on buying rice paddies from Thai farmers.
With millions of tonnes in its stockpile, Thailand has now extended the crop-buying program into its second year. Since the government is effectively paying 37 per cent more than the benchmark market price, it's a no-brainer for farmers to offload their produce to the government. Adis Israngkura, a professor at the National Institute of Development Administration in Bangkok, recently made an unsuccessful bid to challenge the constitutional validity of the market-distorting program.
Controlling supplies means storing rice at a significant cost – and even then the quality decays over time. The only way the Thai government can continue to buy votes in this way without wrecking its finances is to get other producers on board so that international prices increase.
But with less than 10 per cent of global rice production exported each year, the market is almost impossible to control. India, for example, will export almost twice as much rice this year as in 2011, and may remain a significant challenger to Thailand in 2013 as well.
Moreover, Bangkok's policy mistake gives Thailand's neighbours an opportunity to replace Thai rice in global markets. Why should they join it in promoting a cartel of dubious pricing power? This bad idea deserves to be put back into storage.