Forming a cartel among rice producers is expected to be opposed by the United States since such a monopoly would hamper security cooperation within ASEAN.
Also, forming the group would raise global food prices during a time of already high inflation, which could trigger instability.
“To reduce the likelihood of price volatility and improve cooperation with regional partners, the United States could privately implore Thailand and Vietnam to drop their support for a rice cartel. Instead of price fixing, the Thai and Vietnamese governments should implement needed reforms to improve export competitiveness,” Washington-based public policy think tank Center for Strategic and International Studies, or CSIS, stated.
Persuading both major grain producers to veer away from forming a cartel is essential since a clear signal from both governments would support food price stability, “which can be disrupted by market panic.”
When countries, including India and Vietnam, imposed rice export controls in 2008, anxious importers like the Philippines told their citizens to eat less rice. According to the CSIS analysis, the mere mention of cutting back on consumption of the staple grain created panic, “and many Filipinos bought more rice instead of less.”
Within ASEAN, five countries — Brunei, Indonesia, Malaysia, the Philippines, and Singapore — each imports around 50 to 80 percent of their requirements from Thailand and Vietnam.
Elevated rice prices have been linked to political instability, according to CSIS.
When world food prices spiked in 2008, food riots occurred in disparate places, including Guinea, Mauritania, Mexico, Morocco, Senegal, Uzbekistan and Yemen.
In 2011, high food prices were cited as a proximate cause of the Arab Spring.
“A political crisis in a state like the Philippines, a close American ally, would force the US government to expend significant time and financial resources to address the crisis. It also risks a transition of power when the next Filipino president may not be as pro-American as the current one,” CSIS pointed out.
Forming a rice cartel would also limit cooperation in response to Chinese interference in Southeast Asia.
Political and economic leaders from the Philippines and Indonesia reacted especially strongly to the proposal, with one Filipino senator, CSIS said, calling for an ASEAN summit on rice and food security.
Reviving such a contentious issue would encourage China’s continued regional disruption.
According to the think tank, Chinese behavior suggests that “a weak and splintered ASEAN is in its best interests” because Beijing can manage countries individually instead of negotiating with a stronger bloc.
The analysis added that beyond moral considerations, widespread hunger, which a cartel may trigger, increases the likelihood of instability that would require sustained American attention.
Overall, there are humanitarian and strategic reasons to prevent matters from becoming worse, the report said.
Thailand is desperate for a rice cartel because its rice sector suffers from stagnant productivity, an aging workforce, and dependence on subsidies.
Instead of implementing reforms, the Thai government has continually bailed out farmers to no avail.
Vietnam’s rice industry is considerably more competitive, yet it also suffers challenges. To diversify crops, rice farmers must receive permission from local authorities.
The evolving situation regarding rice supply in the region may have to be dictated more by external factors that local monopolists will try to exploit to maximize gains due to the unstable market.
The most potent deterrent to adverse external developments and ensuring food security is to upscale local production, which the government had tried to address through rice tarrification with proceeds directed to developing the local agriculture industry.
The local cartel losing heavily from the government scheme is doing its best to demolish the program and return to the old corrupt ways.