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Asian Development Bank Calls for End to Rice Subsidies

A farmer cuts grasses at her rice field in Fang district, Chiang Mai province, northern Thailand, August 22, 2011.
A farmer cuts grasses at her rice field in Fang district, Chiang Mai province, northern Thailand, August 22, 2011.
BANGKOK, Thailand — Asian Development Bank economists say higher global grain prices have raised concerns of further price hikes if India bans rice exports due to drought. An ADB report is calling for agricultural policies that do not subsidize high prices.

A new Asian Development Bank report says rice output in South East Asia will increase from 110.5 million metric tons in 2010-2011 to 128.3 million tons by 2012-2022, pushed by an emphasis on high yielding rice varieties less dependent on water and improved land use policies.

But ADB economists are calling for countries to step back from policies restricting rice exports or that artificially boost prices - such as Thailand’s rice-pledging program that has led to a 43 percent decline in Thai rice exports in the past year.

The ADB also called for greater coordination between Pakistan and India in rice policy programs.

ADB economist Lourdes Adriano, speaking from Manila to journalists in Bangkok by way of video link, says the chief concern to rice export supplies, is if in response to drought India reintroduces a rice-export ban. A similar ban helped push global rice prices up by almost 150 percent in 2008.

“If we have a severe monsoon in India and it starts banning again the export of rice, then we will have a major problem," said Adriano. "Because as you know the global rice trade is very thin, there are very few major exports. The large exporters in Asia are Thailand, Vietnam and of course India.”

Reported moves by Southeast Asia’s rice exporting nations - Thailand, Vietnam, Cambodia, Laos and Burma - to move to a formal alliance, or cartel, also came under criticism from the Asian Development Bank.

Adriano said the Association of South East Asian Nations should intervene to halt such moves, which may also lead to higher global rice prices. Some analysts say street and political protests could follow higher food prices.

“ASEAN should step in. It is not just a regional responsibility of the ASEAN, but its also a global responsibility considering ASEAN plays a major role in the global market," said the economist. "The answer is, a cartel will not be beneficial for the major exporting countries nor for everyone in the world; it is a zero-sum game.”

Thailand’s rice-pledging program was an election promise to farmers last year by the governing Pheu Thai Party of Prime Minister Yingluck Shinawatra. Thai-pledging prices to farmers are $300 above the world market. The program is facing criticism over allegations of corruption and increasing storage problems, as well as the impact on the budget.

But the Thai Cabinet agreed to extend the plan, allocating a further $13 billion to the program, after last year’s budget allocation of nearly $10 billion.

The ADB report says the immediate outlook for global rice prices “remained stable” due to reserve stocks set aside after the 2008 price spike.

Meanwhile, assistance agency Oxfam warned Tuesday of the impact of climate change on future food prices in Asia. An Oxfam report says by 2030 droughts in India or extensive floods across South East Asia could lead to rice prices soaring by more than 20 percent, leaving import countries in Africa, such as Nigeria, hit by higher food costs.