Southeast Asia Braces for El Niño Drought, Crop Losses
Filipino officials have implemented a program to provide a kilo of rice to rice farmers’ families for every 10 rat tails turned in to the government, an attempt to both minimize crop losses and provide food at a time when El Niño, the recurrent weather phenomenon that cyclically disrupts production, is beginning to tighten its grip and produce drought across Southeast Asia.
Although US weather scientists announced the arrival of a weak El Niño earlier this year, the Australian Bureau of Meteorology on May 12 moved its own tracker status from “alert” to “full-on” and has warned of widespread drought and warmer temperatures across the region. El Niño – ‘the child” in Spanish – takes its name from its periodic arrival off the coast of Ecuador every seven or eight years around Christmas, as trade winds begin to weaken across the entire breadth of the tropical Pacific Ocean, causing the tide of sea water across the thousands of kilometers to slow and begin to heat up in the sun. While the resultant rising humidity usually means intense rainfall on the west coast of the Americas, it means dry weather in Asia.
Weather patterns in some Southeast Asian countries, including the Philippines – the rats’ tails as evidence – indicate that indeed a strong El Niño event is already taking place, with severe continuing drought hitting the dry-season rice crop in Thailand and the Philippines.
According to the Office of Agricultural Economics (OAE), the Thai dry-season rice crop is expected to decline by 30 percent or by 2 million tonnes of milled rice compared with last year’s production. Similarly, drought in Western Visayas and Bohol regions of the Philippines has had some effect on the dry-season crop but, if the drought continues, the main cropping season that starts in May will also be affected.
But so far, the markets don’t seem to care.
“The markets have been quite indifferent to the possibility of a strong El Niño this year,” said the economist Samarendu Mohanty, Head of the Social Sciences Division of the International Rice Research Institute. “India is predicted to be hardest hit along with Indonesia, Malaysia, and the Philippines. But despite such possibilities, rice prices continue to remain weak on the back of surplus Thai and Indian rice in the market.”
Last year, weather scientists cried wolf, or at least cried El Niño but it didn’t materialize, Mohanty said. “That has been playing in the minds of many in the rice market.”
Although not often, since the preponderance of rice is not globally trade, the market can be volatile. In 2008, price increases impelled exporting countries including Vietnam, Cambodia and India to ban overseas sales for no better reason than panic. The global price doubled overnight. Farmers in Thailand, the Philippines and other countries began guarding their fields at night to prevent theft. The crisis however, subsided almost as quickly – and irrationally – as it began although rice prices played a role in government protests from Haiti to India to South Korea.
That doesn’t mean countries are going to get off lightly from the current weather change. In Indonesia, the country has already been hit with falling stocks and may be forced to import as much as 1.6 million tonnes this year, officials said, because of soaring prices and the El Niño threat. Indonesia’s president Joko Widodo has vowed to make the country self-sufficient in rice production within three years. Given the situation, his vow, regarded in any event by most economists as unwise and unworkable, it is extremely unlikely that he will be able to meet those goals.
Across the world, there is plenty of rice – tonnes of it. According to Mohanty, in an interview with Asia Sentinel and writing in his blog, global rice stocks now stand at nearly 100 million tonnes, including 9 million in Thailand that were left over from the country’s controversial rice pledging scheme instituted by the Pheu Thai government headed by Prime Minister Yingluck Shinawatra. Under the terms of the scheme, the government bought rice at rates far above global prices.
The theory was that in addition to buying the longtime loyalty of the country’s rice farmers, Thailand could produce so much rice that it would dominate global markets and prices, a disastrous theory since as the Thais raised global prices India and Thailand stepped in to produce sharply increased stocks as well.
Eventually that left Thailand with Bt682 billion [US$20.3 billion] of surplus rice, and earned Yingluck an arrest for mismanagement. She is now standing trial in a Thai courtroom on the charges although many view the charges as trumped up to drive her and her family permanently from Thai politics.
In any case, the Thai stocks have lent a considerable cushion to global stocks, pushing them to a comfortable level that is expected to thwart any irrational market sentiment and speculation.
“This does not mean that market sentiment will not change in the coming weeks as we draw closer to the advent of the monsoon and main cropping season in many rice-growing countries,” Mohanty said. “Among various factors that can influence the market, India’s monsoon situation will be the key factor influencing market sentiment in the coming weeks. India’s influence on the rice market has never been more than what it is now, with 7 million tonnes of non-basmati exports and 3 to 4 million tonnes of basmati exports. Basmati is a fragrant long-grain rice that is a staple on Indian tables.
It has been raining steadily in India, Mohanty said in an interview, which is expected to add a further cushion to the market. In any case, he said, basmati exports won’t come under the radar in case of a drought. Non-basmati exports will be the target of policymakers to ensure domestic food security.
This year, Mohanty said, public-sector rice procurement stocks through the Food Corporation of India and state agencies are at a level much higher than the strategic stock requirement although procurement sticks have fallen well below what was available last year. Based on the data available on the FCI website, total rice stocks as of 1 May 2015 stood at 22.35 million tons of rice vis-à-vis 28.6 million tons at the same time last year and 34.7 million tons the year before.
“Overall, the market is poised to remain rational and driven by market fundamentals as long as exporting countries remain open for business and refrain from making unilateral decisions to restrict rice trade flows and importing countries refrain from panic buying for domestic stockpiles,” Mohanty said. “The major worry for the market is the countries in the El Niño watch, which include the second-largest exporter, India, and three large importers, Indonesia, Malaysia, and the Philippines. If these countries are affected by drought in the coming season, this could spell trouble for the market.”
On the one hand, he said, India will be pulling out of the nonbasmati market to meet the local shortfall and, on the other hand, demand from importing countries will be rising.
“If this happens, the 9 million tonnes of Thai rice stocks could come in very handy in keeping the market in check and ensuring that importers not resort to panic buying.”