NTS REPORT 2016
www.rsis.edu.sg/nts
Public Stockpiling of Rice in Asia Pacific
NTS Report No. 3 | April 2016
Mely Caballero-Anthony1, Paul Teng2, Jonatan Lassa3 , Tamara Nair 3 and Maxim Shrestha4
1AssociateProfessorandHeadoftheRSIS’CentreforNon-TraditionalSecurity(NTS)Studies
2ProfessorandRSISSeniorAdjunctFellow;
PrincipalOfficer,Director’sOffice,NaturalSciences&ScienceEducation,NIE
3 ResearchFellow,RSIS’CentreforNon-TraditionalSecurity(NTS)Studies
4 AssociateResearchFellow,RSIS’CentreforNon-TraditionalSecurity(NTS)Studies
CentreforNonTraditionalSecurityStudies(NTS)
S.RajaratnamSchoolofInternationalStudies
NanyangTechnologicalUniversity,BlockS4,
LevelB4,50NanyangAvenue,Singapore639798
Tel:+6567906982
Fax:+6567932991
RSISPublications@ntu.edu.sg
Singapore,April2016
Contents
Executive Summary ................................................................................... 2
Public stockpiling of rice ........................................................................... 2
Types of public stockpiles .......................................................................... 3
Introduction ............................................................................................. 5
The general practice of stockpiling: a historical perspective .................................................................... 6
Recent trends in the public stockpiling of rice in Asia ............................................................................... 9
APTERR and regional rice reserve mechanisms ......................................................................................... 9
Types/classification of public stockpiles .................................................................................................. 11
General implications of public stockpiling ............................................................................................... 13
General recommendations ...................................................................................................................... 17
Country Profiles ....................................................................................... 19
India ....................................................................................................... 20
Indonesia ................................................................................................ 28
Malaysia ................................................................................................. 34
The Philippines ........................................................................................ 41
Thailand .................................................................................................. 51
Vietnam .................................................................................................. 56
Conclusion .............................................................................................. 60
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Executive Summary
Riceis,withoutdoubt,thesinglemostimportantfood/agriculturalcommodityinAsia.Otherthanits
primacy in terms of agricultural production (both in terms of volume and area dedicated to its
cultivation),thesheerbulkofitisproduced,consumed,andtradedwithintheregionandremainsan
integralpartoftheregion’seconomy,socio-culturallife,andoftentimesitspoliticalsphere.Givenits
uncontested position as the most important staple crop, “food security” is often, equated to “rice
security”intheregion.
Public stockpiling of rice
Thepublicstockpilingofstaplegrainsisoneoftheearlieststrategiesusedtomitigatefoodsupply
instability. After many millennia, it remains an important aspect, if not the cornerstone of many
national food policies around the world. In the case of the Asia Pacific region this essentially
translatestostockpilingandbuildingupricereserves.
Severalobjectivescanbemetthroughsuccessfulpublicstockpilingpolicies.Someoftheseinclude:
a) Stabilityoffoodsupplyandphysicalaccesstofood(duringemergenciesand/orotherwise)
b) Marketpricestabilisationandassuredaccesstoaffordablefood
c) Increased incomes for farmers in agricultural economies so as to incentivise greater
production
Most of the benefits of public stockpiling are short-term. They can be extremely useful stop-gap
measuresinensuringfoodeconomystabilityandarethusausefulbuffertohaveinagovernment’s
arsenal of food security policies. There are however numerous negative (both real and potential)
implicationstopursuingpoliciesofpublicstockpiling.Theseimplicationsarecausedbyanumberof
factors.Firstly,therearenosetnormsordirectivesonhowapublicstockpilingprogrammeoughtto
work,whattheoptimallevelsareorhowtheyaretobecalculated.Secondly,stockpilingpoliciesare
oftenusedtofulfilmultipleobjectivesandbecauseofthis,someobjectivesmayresultinactivities
whichconflictwithotherobjectives.Thesepointsareexploredingreaterdetailinthemaintextof
thereport.
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Types of public stockpiles
AnanalysisofpublicstockpilesmaintainedbycountrieswithintheAsiaPacificregionrevealedfour
different types of national public stockpiles and one regional/multilateral form. They are
summarisedasfollows:
Nationalpublicstockpiles
Emergency/humanitarianstocks:
Stockswhicharemaintainedtoprotectaccesstofoodintheeventofafoodshortageduring
emergencies.
Stocksforfoodsecurity:
Oftenreferredtoasbufferstocks,theseareusedtoensurestabilityintheavailabilityand
priceofrice.
Safetynetstocks
Targeted at lower income segments of society, such stocks are often sold at highly
subsidisedprices.
Stocksfortrade
Thepurposeistoguaranteeminimumprofitmarginsforfarmersandensureexportstability.
Multilateralstockpiles
Regionalfoodreserves
The ASEAN Plus Three Emergency Rice Reserve (APTERR), which comprises the ten ASEAN
member states plus China, South Korea and Japan, was set up to help the region stabilise
ricesuppliesduringemergencies.
Implications of Public Stockpiling
Governments adopting stockpiling policies need to be acutely aware of its implications, on both
domesticandinternationallevels,andbepreparedtomitigatepotentialriskssuchas:
Atthedomesticlevel
•
Fiscalburden
•
Potentiallong-termdependency
•
Politicisationoffood
•
Marketdistortionandcrowdingoutoftheprivatesector
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•
Lossesandinefficiencies
•
Noguaranteeoffoodsecurity
AttheInternationallevel
There are two different dimensions to potential international implications of adopting stockpiling
policies.
•
ImpactonInternationaltradeandeconomics
•
Psychologicaleffects
Despite the negative implications and a chequered history of public stockpiling and reserve
programmes,itseemshighlylikelythatmanygovernmentsinAsiaPacificaregoingtomaintainand
operate rice reserves and stockpiling programmes. There are numerous reasons and rationales to
supportsuchpoliciesinthevariouscountries.Factoringin,andkeepingabreastofdevelopmentsin
public rice stockpiling initiatives and policies in the region is going to be essential and important
whenthinkingof“foodsecurity”fromamacroperspective.
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Introduction
Public stockpiling is considered a strategy for domestic food security and an alternative to tradebased policies for food. This trend is particularly noticeable in countries in the region with large
populationslikeIndia,China,andIndonesia,aswellasamongcountrieswhichhavereliedheavilyon
foodimportsintherecentpastsuchastheUnitedArabEmirates,Bangladesh,thePhilippinesand
Malaysia, among others. The public stockpiling of rice is not new and is gaining interest and fast
becominganimportantaspectofnationalfoodpolicies.
Stockpilingoffood,particularlystaplegrainslikerice,hasbeenusedasamethodtoensurestability
of food supply throughout human history at both the individual/household level as well as
collectivelybygovernments.Maintainingpublicstockshelpstomitigateanumberofrisksfacedby
food insecure and food vulnerable people. Countries with food stockpiles can help its populations
weather (i) global food price shocks; (ii) local supply shocks (failed harvests); (iii) income shocks
(fromeconomicdownturnsorexchangerateshocks);(iv)disruptionsintrade(exportbans),and(v)
emergenciesandcalamities.
Mostcountriesaroundtheworldhaveexperiencewithsomeformofpublicstockpilingoffood.For
many countries with large populations, such stockpiling of food serves as an important pillar of
nationalfoodpoliciesandensuresstabilityinsupply,stabilityinpriceandallowsdistributionoffood
tovulnerablepopulations.Thishasbeenparticularlytrueinthecaseofstaplegrainslikerice,wheat
andmaize.
Theglobalfoodpricecrisisof2007-2008,whichsawtheinternationalpricesofstaplegrainsincrease
drastically,caughtmanycountriesoff-guard.Whileallimportingcountrieswerehitbytheepisode,
developing economies suffered the impacts the most as they found themselves priced out of the
market.Thisexperience,whichrevealedsomeoftheweaknessesintheinternationalfoodmarket,
ledtoare-evaluationofstockpilingstrategies,itspotentialusesandneeds.
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The general practice of stockpiling: a historical perspective
In the 20th Century the practice and popularity of stockpiling of food have gone through ups and
downsduetoavarietyofreasons;suchasworldwars,tradepolicies,technologicalbreakthroughs1
andideology.2
Inthe1940sand50s,therewaswideacceptanceoftheneedforsomeformofstockpiling(especially
emergencyreservesand/orbufferstocks)ofimportantstaplecommodities.3,4Thispositionhowever
took a U-turn with the onset of the Green Revolution which significantly boosted food production
and it was argued that efficient international trade would be sufficient in guaranteeing a steady
supplyoffoodatalowercostacrosstheworld.Thisledtomostcountriesgraduallycuttingpublic
stockpilesfromthe1970sonwards.5
Theresurgenceofpublicstockpiling
Inthe70s,maintainingstockpileswasequatedwithhighfiscalcosts,lossandwastageoffood,and
deemed distortionary to global trade and markets.6 While some countries continued to maintain
nationalfoodstocksofimportantcommodities,theoveralltrendshiftedtowardstradepoliciesand
internationaltradetomeetdomesticfoodsupplydeficits.7
This downward trajectory continued until 2007-2008,8 when the world was hit by the food price
crisis.Afterclosetothreedecadesofsustainedinternationalfoodprices,the2007-2008crisisandits
1
Technological breakthroughs have come about in numerous aspects from seed technology to supply chain
efficiencies, information technology like GPS and satellite monitoring, communications and market
information,tonamebutafew.
2
th
Thisreferstotheideologicalriftsofthe20 Centurybetweenmarketandplanned/stateeconomicmodels.
3
Porter,R.S.,“BufferStocksandEconomicStability”,OxfordEconomicPapers,NewSeries,Vol.2,No.1(Jan
1950)pp.95–118
4
The40sand50sthinkingwasstillinfluencedbyMalthusiantheoriesandthememoryandexperienceofthe
World War II which saw international trade come to a halt was also relatively fresh. Overall agriculture also
commandedarelativelymoreimportantroleinalleconomiesandhencestockpilingpolicieswereconsidered
importantaspectsoffoodandagriculturepolicies.
5
Massell,B.F.,“PriceStabilizationandWelfare”,QuarterlyJournalofEconomics(May1969).
6
Bigman, D., and Shlomo Reutlinger, “National and International Policies Toward Food Security and Price
Stabilization”,AmericanEconomicReview,Vol.69,No.2,(May1979)
7
Bigman, D., and Shlomo Reutlinger, “Food Price and Supply Stabilization: National Buffer Stocks and Trade
Policies”,AmericanJournalofAgriculturalEconomics,Vol61,No.4,(Nov1979)
8
Gilbert, Christopher L. Food Reserves in Developing Countries: Trade Policy Options for Improved Food
Security.IssuePaperNo.37.Geneva:InternationalCentreforTradeandSustainableDevelopment,2011.
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resultant price hikewas anunexpectedshock. In Asia the resurgence of stockpiling, particularly of
rice, emerged after the export bans of rice and grains by India and Vietnam in 2007-2008, and
Russia’sbanonwheatexportsin2010.
Driven largely by increasing and volatile prices for staple grains and some vegetable oils, many
governmentshavesincedeemedinternationalmarketsjitteryandunpredictable.Theresultofthe
upwardpricesandvolatilitysawmanyfarmers,especiallyindevelopingcountries,beingpricedout
ofthemarketanddriventowardshunger.9
This episode also exposed vulnerabilities for most food importing and lower income countries.
Despite having safely relied on international markets to provide food through trade-based policies
for decades the crisis found markets closing on them. Many major exporters of staples like rice
closedtheirbordersbyenforcingexportbanswhichonlyexacerbatedthepanicanddeepenedthe
crisis.10
Maintainingstockpileshaslargelycometobeseenasaresponsetointernationaltradeuncertainties
and volatility.11 The crisis was a result of complex and interrelated reasons and since their
occurrence,thereisgrowingevidencethatcountries,particularlyinAsiaandAfrica,havestartedor
arerevisitingstockpilingpolicyoptionsonceagaininordertoguaranteefoodsecurityforitscitizens.
Thistrendhasbeenmorevisible(andpopular)inbothfoodimportinganddevelopingcountries.12
However,therearespill-overeffectsofadoptingsuchpoliciesinternationally.Inthecaseofthinlytradedcommodities13suchasrice,thedecisiontoadoptfoodstockpilingpoliciesislikelytoresultin
less stock available globally for export, thus potentially leading to limited supply and sustained
9
Hadley,DerekD.andFanShenggen,Reflectionsontheglobalfoodcrisis:Howdidithappen?Howhasithurt?
Andhowcanwepreventthenextone?,WashingtonD.C.:InternationalFoodPolicyResearchInstitute,2010.
10
Timmer,PeterC.,“ReflectionsonFoodCrisesPast”,FoodPolicy35(2010),pp1–11.
11
Gilbert,ChristopherL.FoodReservesinDevelopingCountries:TradePolicyOptionsforImprovedFood
Security.IssuePaperNo.37.Geneva:InternationalCentreforTradeandSustainableDevelopment,2011.
12
WorldBank.UsingPublicFoodgrainStockstoEnhanceFoodSecurity.WashingtonD.C.:TheWorldBank,
2012.
13
Thinmarketsrefertocommoditiesofwhichaverysmallpercentageoftotalsupplyisactuallytraded.For
thecaseofriceitisestimatedthatonly7%oftotalworldproductionisinternationallytraded.
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higher prices.14 Widespread adoption of stockpiling practices would therefore have the opposite
effecttotheirintendedoutcomesandactuallyexacerbatevolatilitiesinfoodsupplyandprice.
RecenttrendsinpublicstockpilingpoliciesinAsiaPacific
Following the 2007-2008 food price crisis, complete reliance and dependence on trade and
international markets for food is no longer seen as a safe option for most food importing
governments. In response, there have been two separate, but interlinked policy directions which
havecometobeseenasfavourableinaddressingfuturemarketuncertainties.Thefirstisintermsof
building up national stockpiles for essential staples like rice; the second is in pushing towards the
goalofself-sufficiency,especiallyinrice,forwhichpublicstockpilingpolicieswillbeinstrumentalto
supportsubsidiesanddefendfloorpricesandfarmers’incomes.
Table 1 offers a snapshot of some of the countries which currently engage in public stockpiling
practices for rice in the Asia Pacific region and the types of stocks they maintain. In recent years
manydevelopingcountrieshaveexpressedinterestineitherstartingorincreasingtheirpublicrice
stockholding levels through domestic procurement and imports. In the same vein, other major
importers in the Southeast Asian region, who have usually depended on trade to make up for
shortfalls in their domestic rice production, are also changing their policies. Indonesia, the
Philippines,andMalaysiaarecurrentlypursuingpoliciesandstrategiesgearedtowards100percent
riceself-sufficiency,andbuildinguptheirbufferstocks.15Ricestockpilingpracticesandpoliciesare
nowseenasanintegralpartoftheirlargerfoodsecuritypolicy.
Table1:Selectedcountrieswithexistingricestockpilingpoliciesandtypesofstocksmaintained
Entity
Country
Countrylevel China
Japan
India
Bangladesh
Indonesia
Food
Security Emergency/
Stockpiles
humanitarian
stocks
ü
ü
ü
ü
ü
ü
ü
Safety
Net Stockpile for
Stockpiles
export
purposes
ü
ü*
ü
14
Timmer,PeterC.,op.cit,pp1–11.
15
BasedonfieldworkconductedbyJ.A.LassaandM.ShresthainIndonesia,PhilippinesandMalaysia,
September-November2014
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Philippines
Malaysia
Thailand
Singapore
Vietnam
Brunei
Hong Kong
(SAR)
APTERR
Regional
level
*.Notofficiallyverified/validated
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
Source:DataderivedfromliteraturereviewandfieldfindingsbyLassaandShrestha,2014.
Recent trends in the public stockpiling of rice in Asia
MostcountriesinAsiahaveahistoryofpublicstockpilingoffood,particularlyriceandotherstaples.
Some of these programmes’ beginnings can be traced back to colonial times, while some were
formedpost-independencetoaddresscertainchallengesandneedsinthedomesticfoodeconomy.
Theresurgenceinricestockpilingwasobservedespeciallyaftertheexportbansofriceandgrainsby
IndiaandVietnamin2007-2008,andRussia’sbanonwheatexportsin2010.Maintainingreserves
for emergencies and/or unforeseen disasters (including those linked to climate change) is another
aspectwhichismakingstockpiling,especiallyforrice,amoreattractiveproposition.
InthecaseofSoutheastAsia,manycountriesintheregionhistoricallyhaveadoptedamixoftrade
instrumentssuchasgovernmenttogovernmenttrade,localprocurement,andprocurementthrough
theprivatesectorinmanagingtheirricestocksandstockpiles.However,ifmostimportingcountries
were to strongly adopt stockpiling policies, this would put additional pressure on stocks available
globally,potentiallyleadingtolimitedsupplyandsustainedhigherprices.16Widespreadadoptionof
stockpiling practices could therefore have an opposite effect to their intended outcomes, and
actuallyexacerbatevolatilitiesinfoodsupplyandprice.Stockpilingcanalsoleadtothepossibilityof
dumpingexcessstockpileswhichwouldthenleadtoasignificantdistortionofworldmarkets.
APTERR and regional rice reserve mechanisms
TheASEANPlusThreeEmergencyRiceReserve(APTERR)andtheASEANFoodSecurityInformation
System (AFSIS) are notable achievements. AFSIS was started in 2003 with the aim of becoming a
centralinformationrepositoryforfivecommoditiesintheASEANregion.Theseincluderice,maize,
16
Timmer,PeterC.,op.cit,pp1–11.
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soybeans, sugar, and cassava. AFSIS monitors and analyses production, import, export, inventory
stock,prices,foodsecurityratioandself-sufficiencyratiosforthesecommodities.
The establishment of the ASEAN Emergency Rice Reserve (AERR) began in 1979 with voluntary
contributions(intheformofpledges)of87,000metrictonnes(mt)bymemberstates.Since2001a
rice reserve mechanism for East Asia was also considered which led to the start of the East Asian
Emergency Rice Reserve (EAERR). However, after the 2007-2008 crisis, the AERR and EAERR were
broughttogethertoformapermanentschemeundertheASEANPlusThreeEmergencyRiceReserve
or APTERR in 2009, as a mechanism to address potential food shortages in the region. The final
formal agreement by the ASEAN +3 states (China, Japan, and South Korea) was signed in October
2011inJakarta.
Table2:CurrentearmarkedricequantitybyAPTERRstates
Countries
EarmarkedRiceQuantity(inMT)
BruneiDarussalam
3,000
Cambodia
3,000
Indonesia
12,000
LaoPDR
3,000
Malaysia
6,000
Myanmar
14,000
Philippines
12,000
Singapore
5,000
Thailand
15,000
VietNam
14,000
P.R.China
300,000
Japan
250,000
RepublicofKorea
150,000
Total
787,000
Source:ASEANPlusThreeEmergencyRiceReserveAgreement,2011
The idea and motivation behind APTERR and AFSIS are important and noble. Understanding and
monitoringfoodsecurityfromaregionalperspective,ratherthanfromjustnationallevels,captures
thedynamicsofaregionalfoodsystemfromamacro-level.Suchaholisticoverviewcanalsoprovide
forusefulinsightsandhelpidentifyproblemareasandconcernswithregardtofoodsecuritywithin
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the region and minimise the need for national public stockpiling policies. To date however these
regionalinstitutionshavenotbeenfullyeffective.
This ineffectiveness has come about due to a number of reasons. Firstly, AFSIS still has difficulty
collectingdatainatimelymannerinordertobeabletoefficientlyevaluateandmonitortheregional
foodsecuritysituation.AnearlywarningsystemissupposedtobeanimportantcomponentofAFSIS
which could then be used to activate APTERR. The lack of timely data and sharing by states has
hinderedthis.
Secondly,theAPTERRmechanismhasstrictrulesandprotocolsintermsofactivationandreleaseof
stocks when requested by governments. Usually this takes a long time as APTERR works on the
principalofvirtualstocksanddoesnotdirectlycontrolanyphysicalproducts.Thismeansthatwhen
there is an emergency such as a natural disaster, the time taken for eventual delivery and
distributionofricetoaffectedareasbecameextremelylengthy.
Types/classification of public stockpiles
Ananalysisofpublicricestockpilesmaintainedinthecountriesstudiedrevealsfourdifferenttypes
ofnationalpublicstockpilesandonemultilateralform.Theyaresummarisedasfollows:
Nationalpublicstockpiles
Emergency/humanitarianstocks:
These are stocks which are maintained to protect access to food, especially for vulnerable
groups,intheeventofafoodshortageduringemergencies.Releaseofsuchstockshappens
in the event of any type of emergency or as part of bigger post-disaster safety nets, as
deemednecessarybygovernments.
Stocksforfoodsecurity:
Oftenreferredtoasbufferstocks,foodsecuritystocksareusedinordertoensurestability
in the availability and price of food. Such stockpiles are usually used by governments to
control domestic supply and domestic prices of food. The theoretical foundation for such
stocks is for governments to procure food from farmers and/or markets on the cheap and
releasestockswhenmarketpricesmoveabovewhatisdeemedacceptablelevelsintermsof
affordability.
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Safetynetstocks:
Safety net stocks are targeted at lower income segments of society. Such stocks are often
soldathighlysubsidisedprices.Thistypeoffoodstocksissometimesmaintainedandstored
together with stocks for food security purposes. However, unlike stocks for food security,
safetynetstocksaretargetedatcertaingroupsorbeneficiariesasclassifiedbygovernments
based on defined poverty lines, as seen in countries like India and Indonesia. Such stocks
generallyintendtoimproveavailabilityandaccessforpopulationswhosufferfromchronic
foodinsecurity.
Stocksfortrade
This type of public stock is often seen as an anomaly since it is held by major exporting
countries that have little urgency in terms of needing to ensure food availability for its
people.Thepurposeofsuchstocksisessentiallytoguaranteeminimumprofitmarginsfor
farmers and export stability (See Table 1). In Vietnam and Thailand, this policy is often a
response to lucrative business in the overseas food trade. In Thailand, the reselling of rice
stocksprocuredbythegovernmentfromitsfarmersishandledbytheMinistryofCommerce
in international markets. Profits or losses incurred by this operation are borne by the
government.
International/Multilateralstockpiles
Regionalfoodreserves
Probablythemostcitedandwellknownexampleofaregionalfoodreservemechanism,as
mentioned earlier, is the ASEAN Plus Three Emergency Rice Reserve (APTERR). Comprising
thetenASEANmemberstatesplusChina,SouthKoreaandJapan,thereservewassetupto
help the region stabilise rice (the region’s staple food crop) supplies during emergencies.
APTERR currently has 787,000 tonnes of pledged rice at its disposal.17 Other examples
include the South Asian Association for Regional Cooperation (SAARC) Food Bank in South
Asia18andtheEconomicCommunityofWestAfricanStates(ECOWAS)regionalhumanitarian
reserve.19,20
17
PersonalinterviewwithManagerofAPTERRSecretariat,Bangkok,13September2014.SeealsoAPTERR
http://www.apterr.org/images/pdf_apterr/APTERR-Leaflet.pdf
18
TheSAARCfoodbankhasyettobeoperationalised.
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General implications of public stockpiling
Public stockpiling policy implications can be evaluated both domestically and internationally. The
implicationsofbotharediscussedbrieflybelow.Governmentsintentonadoptingsuchpoliciesneed
tobeacutelyawareoftheseimplicationsandbepreparedtomitigatepotentialrisks.
DomesticImplications
•
Fiscalburden
Stockpilingpoliciesentailthreemainstages;(i)procurement,(ii)storageandmaintenance,
and(iii)distributionorstockrotation.Allthreeaspectscomeatacosttonationalbudgets
andtaxpayers.Thescaleofthecostsinvolved(fixedandvariable)willdependontheoverall
size of the operation. In theory stockpiling programmes that maintain buffer stocks
primarilyforpricestabilisationshouldbeprofitable/profitgeneratingoperations,however,
mostpastexperiencesuggeststhatthisisnotsustainableinthelong-run.21
•
Potentiallong-termdependency
Effective use of stockpiling can help achieve a number of benefits for national food
economies. However, stockpiling effectiveness may lead to governments’ dependence on
the programme as a long-term solution to food and agricultural problems instead of as a
short-termfix.
•
Politicisationoffood
The politicisation of food seems to have been a common phenomenon in almost all
countries that use public stockpiling programmes. With direct government control,
stockpiling programmes have been used to further political goals of incumbent
governments.Alackoftransparencyandaccountabilityoftenleadstoagreaterlikelihood
ofsuchpoliticisation.22
19
TheECOWASRegionalFoodSecurityReservehasalsonotbeenrealisedyet.Currentlywiththehelpofthe
EU,theprogrammeisstartingtobesetup.
20
Op.cit.,Gilbert,FoodReservesinDevelopingCountries
21
WorldBank.UsingPublicFoodgrainStockstoEnhanceFoodSecurity.WashingtonD.C.:TheWorldBank,
2012.
22
Anexampleofhowfoodandstockpilingprogrammescanbepoliticisediswhengovernmentsusestocksto
interveneinlocalmarketstosupressfoodprices(andinflation)toreappoliticalbenefits.Otherexamplesare
whenincumbentgovernmentsdistributecheap(orfree)foodinfavouredconstituenciesorinsomecases
procuringfromlocalproducersathighpricestoappeasefarmersandrelatedvotingblocks.
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•
Marketdistortionandcrowdingoutoftheprivatesector
With governments becoming directly involved in the domestic (and sometimes
international)marketforfoodcommodities,theprivatesectorcanbecomedis-incentivised
and disenfranchised, and cannot partake in the food market. This can lead to the
governmenteventuallymonopolisingthefoodeconomy.
•
Hampersdiversificationinfood-producingcountries
Oneofthelong-termimplicationsofcontinuouslyrunningafoodstockpilingprogrammeis
thediscouragementoffoodproductiondiversity.Sinceonlyahandfulofcommoditiesare
publiclystockpiled,mostproducersandfarmerswouldfinditsafetoinvestinandproduce
stockpiled crops/food as its sale would be guaranteed. When governments then try to
encourage producers to focus on other equally important crops, producers are often
reluctanttodiversifytheiroutputs.
•
Lossesandinefficiencies
Foodisaperishablegood.Chancesoflossesduringstorageandstockpilingoperationsare
extremelyhigh.Manycasesofstockpilinghaverepeatedlyidentifiedphysicallossesoffood
stocks. There are also other losses due to unaccountability and corruption, such as the
“disappearance”ofstocksandtransportationlosses.
•
Noguaranteeoffoodsecurity
Maintaining and controlling physical food stocks do not guarantee food security for a
country’s population. This fact is often not accepted for political reasons. Some countries
whichmaintainlargevolumesofpublicfoodstockpilescontinuetosufferfromchronicfood
insecurity due to a variety of reasons such as distribution problems, and the lack of clear
operationalguidelinesandmechanisms.
Internationalimplications
Therearetwodifferentdimensionstotheinternationalimplicationsofadoptingstockpilingpolicies.
Thefirstandmoredirectimplicationisintermsofinternationaltrade.Thesecond,morenuanced
implicationdealswiththepsychologicalimpactofstockpiling.
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•
Internationaltradeandeconomics
Thedecisiontopursuestockpilingbyanimportingorexportingcountryautomaticallyleads
toanincreaseddemandforthestockpiledcommodity.Thiswoulddirectlyaffectthesupply
ofand/ordemandforthecommodityintheinternationalmarket.Stockpilingpracticesby
any major importing or exporting country (for the purposes of domestic food security)
wouldthereforeleadtohigherpricesaswellashigherchancesofpricevolatility.
Higherpricesorpricevolatilityintheinternationalmarketwillinturnfurtherpushforand
justify stockpiling programmes, which again increases demand and price volatility.
Eventually this becomes a vicious cycle that entrenches the need for even greater
stockpiling(seeFigure1).Thisisdangerousforinternationalmarketstability.
Figure1.Potentialviciouscycleofstockpilingpolicies
Higher
demand
for
commodity
Decisionto
stockpile
Threatofnot
securing
sufficient
stocksonmme
Increasein
prices
Greater
potenmal
ofmarket
volamlity
Anotherpotentialproblemofbuildinguplargestocksandreservesisthattheremightbea
need to periodically off-load excess stocks as part of either storage rotation or due to
sustained high levels of production. In such instances, particularly for exporting countries,
stocks may be dumped onto the international market, which would lead to an artificial
suppressionofprices.Whilethiscouldbeseenasaboonforconsumers,itcouldcomeat
veryhighcoststoproducersandthelong-termviabilityofaparticularcommodity.
•
Psychologicaleffects
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The practice of stockpiling by importing countries is often a reaction to counter the
perceived (or real) inefficiencies and failures of the international market to provide food.
Stockpiling is thus perceived as a useful option to safeguard against supply and/or price
disruptionsorvolatility.Howeveronecountry’scommitmenttostockpilingoradecisionto
increase stockpiling levels can send a negative signal to the rest of the market. If the
country’sdemandforaparticularfoodcommodityislargeenoughtocreateshocksinthe
supply-demand equilibrium, there is high potential for a cascading effect in world market
psyche. This impact would be relatively greater from countries with larger populations as
wellasthosethatrelyheavilyonimports,comparedtocountrieswithsmallerpopulations
andlessimportdependence.
Thefirstnegativeimpactwouldbetheperceptionofgreatercompetition(duetodemand
pressure). Such perceived threats and risks can lead topanic in the world food market as
wasobservedduringthe2007-2008foodpricecrisis.Secondly,negativeperceptionshave
thepotentialtostarta“stocksrace”especiallyamongcountriesreliantonimports.Inthe
medium- to long term, this would erode trust in the international trading system which
would be detrimental to all countries that rely on international markets for their
population’sfoodsecurity.
Lastly, most public food stockpiling programmes and policies tend to be guarded as state
secretswithlittleornoconcreteverifiableinformationavailable.Thisinformationgapand
the cultivation of a culture of secrecy surrounding national food stockpiles result in
unnecessary hostility, a lack of trust, and tensions in the international community. Such
developmentscanhavenegativeconsequencesforstatesandgovernments.
Mostgovernmentsthatchoosetoadoptpublicricestockpilingdosomainlyfordomesticfoodpolicy
purposes.Whiletherearenumerousimportantbenefitsthatstockpilingpoliciescangeneratethere
are also major negative implications and risks which come with it; both domestically and
internationally. A clear assessment of implications at all levels needs serious consideration with a
proper cost-benefit analysis prior to the decision to pursue or change a public food stockpiling
strategy.
16
Singapore,April2016
General recommendations
Inanearlierstudy,aseriesofrecommendationswerederivedforcountrieschoosingtoadoptpublic
stockpilingoffoodpolicies.Itwasnotedthatsuchpoliciesneedtobecarefullyconsideredgivenits
costs, potential impacts on markets, as well as the necessity of addressing efficiency issues for
effectivenessofhumanitarian/emergencystockpiles.23
Listedbelowaresomeoftherecommendationsbasedontheresearchoncurrentfoodstockpiling
behaviour in the South and Southeast Asian regions conducted by the Centre for Non-Traditional
Security Studies. The research was carried out between November 2013 and July 2015. Below are
general recommendations for national/public entities that are currently pursuing public rice
stockpilingpoliciesorareconsideringstarting(orrevising)theirpolicies.
Generalrecommendations
Advocate close monitoring of stockpiling behaviour and policies of other countries in
•
commodities of interest through data and information available in the public domain.
Potential sources of information include agricultural statistics, news reports, annual
reports of concerned public/ private institutions, changes in national food policies which
could impact stockpiling practices etc. Changes in policies might signal potential
competition for a commodity. It can also signal transitions in international market
dynamics(ifstockpilingisdonethroughimportation)asaresultofthesechanges.
Establisharegionalpublicstockpilingdatabankwithhighlevelsofaccuracyandtimely
•
data. It would be in the interest of all ASEAN countries to share such data since this
develops trust among peers, and transparency minimises chances of panic and extreme
pricevolatilityininternationalmarkets.
• Exploreoptionstowardstherealisationofmaintainingactualphysicalstocksinregional
stockpiling mechanisms to deal with disasters and emergencies (such as APTERR).
Currently,suchmechanismsdonothaveasuccessfultrackrecordandsomepointtothe
virtual nature of stocks as a critical factor. There are also issues surrounding governance
andprotocols.Anyregionalmechanismthatdealswithemergenciesshouldthereforelook
intoexploringthepossibilityofmaintainingatleastsomephysicalstockstobeeffective.
23
Foramoreextensivediscussionsee,Caballero-Anthonyetal.PublicStockpilingandFoodSecurity.
Singapore:RSIS,2015.
17
Singapore,April2016
•
Establishclarityintermsofstockpilinggoalsandobjectivesandinstituteclearoperational
guidelines in terms of procurement, storage, release mechanisms. Often stockpiling
policies have failed or have a bad track record when too many goals and objectives are
sought from them. A lack of clarity in the objectives and purpose of a stockpiling policy
usually creates more problems. For example, if the stockpile is purely for disasters and
emergencies,thensituationswhichcanbeconsideredas‘disasters’or‘emergencies’must
be clearly defined and guidelines for activation and operation developed accordingly.
Stockpilingpoliceswithclearlydefinedguidelineshaveproventobemoresuccessful.
•
Encourage greater private sector involvement in stockpiling for greater efficiency and
transparencyofstockpilingprogrammes.Itisadvisabletoincludetheprivatesectorinthe
stockpilingprogrammetopreventdis-incentivisingorunnecessarymarketdistortions.
Inconclusion,thepracticeofmaintainingpublicstockpilesofessentialfoodcommoditieshasbeena
popular policy by many governments. Experience has shown that public stockpiles can help shield
domestic markets in times of production shortfalls or global price hikes in the short-term. History
hasalsoshownthattherearenumerouschallengesandimplicationsofthepublicstockpilingofrice.
In pursuing publicrice stockpiling policies, governments have to be aware of these challenges and
adopt a system which allows for effective monitoring and governance of rice stocks. It is also
importanttofullyassessandunderstandthelong-termimpactsofstockpilingonthefoodeconomy
and food security goals. Lastly, while focusing on domestic food policies through strategies like
public stockpiling, governments also need to be aware of the potential regional and global
implicationsoftheirdomesticpolicies.
18
Singapore,April2016
Country Profiles
Thefollowingsectionwilllookatthepracticeofmaintainingricereservesandpublicricestockpiling
policiesofsixcountriesintheAsiaPacificregion.Thisislargelybasedonthefindingsoffieldwork
conductedinIndia,Indonesia,Malaysia,ThePhilippines,Thailand,andVietnam.Thesectionaimsto
provideanoverviewandsnapshotofpublicstockpilingofriceintherespectivecountries.
19
Singapore,April2016
India
Table3:PublicStockpilingofRiceSnapshot
TotalPopulation
1.28billion(2014,estimate)
Quantity of public rice Total(in‘000mt),2014
stockpiles
Public
Production
Imports
Exports
Consumption PublicStockpile
106,650
0
11,500
99,251
Stockpiling FoodCorporationofIndia(FCI)
Authority/Institution
Purposeofpublicstockpile
Governanceofstockpile
Dedicated
17,000
•
Farmersubsidy/income
•
Legalobligation(NationalFoodSecurityAct2013)
•
Foodsafetynet/foodsubsidy
•
Market/pricestabilisation
•
Domesticsupplystability
Control
NameofInstitution/Organisation
Public
FCI,MinistryofAgriculture,CACP
infrastructure Facility
forstockpiles
Numbers
Capacity(mmt)
Warehouses(Covered)
(not publicly FCIowned:15.65
CoverandPlinth(CAP)
available)
Rented:21.5
Introduction
NotonlydoesIndiahavealonghistoryofagriculturedatingbackatleast6000years,itconsistently
hasoneofthehighestagriculturaloutputsintheworldandisthebiggestproducerofvariouscrops
andfruits.AlthoughthecontributionofagriculturetoGDPhasbeendecliningsteadilyovertheyears
itstillaccountsforcloseto18percent.24Thesectoralsostillreportscloseto50percentoftotal
employment.25
Historically,Indiaisoneofthelargestproducersofrice.OverthelastdecadeIndiahasalsoemerged
as one of the major exporters of other agricultural commodities. This is largely due to vast
improvementsanddevelopmentinportfacilitiesandinfrastructurewhichhavehadapositiveeffect
onexports,byreducingthecostofshipping.Secondly,productionhasbeenboostedby(i)opening
upofnewareasfortheproductionofstaplegrains,and(ii)changesincroppingpatternsandland
24
WorldBankData,2014.http://data.worldbank.org/country/india(lastaccessedDecember2015).
25
Ibid,2013
20
Singapore,April2016
usewhichhaveresultedingreateryieldperunitareaofland.Boththesefactorshavecontributed
significantlytoproduction.26
India’sdominantpositioninriceproductionandtrademeansfoodpolicyinIndiahasimplicationsfor
otherpartsoftheworld.The2007-2008pricecrisisrevealedasmuchIndia’sdecisiontostopexports
ofriceandwheatduetodomesticfoodsecurityconcerns,tosomeextent,contributedsignificantly
totheinternationalpanicwhichfollowed.
India has publicly stockpiled rice (and other grains) for over five decades now. India is the second
largestproducerofriceafterChinawithslightlyover159 milliontonnesproducedin2013.27India
has also become the world’s largest exporter of rice since 2012, consistently supplying
approximately10milliontonnesintotheinternationalmarketeveryyear.28
Indiahasbeenself-sufficientinricesinceitsindependencein1947.Whileproductionhasnotbeen
anissueaccesstoriceforitspopulationhasremainedamajorconcern.Asoneofthemajorstaple
crops (along with wheat), rice has been stockpiled since the 1960s to try and better guarantee
physicalandeconomicaccessforitspopulation,especiallyforthoseinthelowerincomebrackets.
90.00
3.50
80.00
3.00
70.00
60.00
2.50
50.00
2.00
40.00
1.50
30.00
1.00
20.00
0.50
10.00
0.00
0.00
Yieldt/ha
Consump]onKg/percapita/year
4.00
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Yield-t/ha
Figure2:IndiaRice-AnnualYieldandProductionPerCapita
Riceconsumpmonpercapitakg/yr
Source:FAOSTATandUSDA,2014
26
th
InterviewwithofficerfromMinistryofAgriculture,India,18 Oct2014,NewDelhi
27
FAOData,FAOSTAT,2014.http://faostat3.fao.org/home/E(lastaccessedDecember2015)
28
RiceStatisticsData,IRRI,2014.http://ricestat.irri.org:8080/wrs2/entrypoint.htm(lastaccessedDecember
2015).
21
Singapore,April2016
HistoricalOverview
Food self-sufficiency has been the cornerstone of India’s food policy since independence in 1947.
Howeverthedeficitbetweentheminimumrequiredfoodandsupplyremaineduntilthe1960s.Up
until then India imported both rice and wheat in varying amounts almost annually to supplement
their production shortfall. This gap between demand and supply was successfully closed after the
1960sandintothe1970s,withtheonsetofthegreenrevolution.
The approach to food security in India since its independence has been to boost domestic
productionandminimiseimportdependence.Toachievethis,certainsystemsandinstitutionswere
established. These included the Commission for Agricultural Costs and Prices (CACP), Food
Corporation of India (FCI) and the Public Distribution System (PDS) to better address food and
nutrition concerns through ensuring stability of prices, creating incentives to boost domestic
production, rationing of essential commodities, ensuring availability (especially for the poor and
needy),andcheckingthepracticeofhoardingandblackmarketing.29Theofficialpracticeofpublic
stockpilingofgrains(riceandwheat)startedwiththeseinstitutions.
Stockpiling of grains in India has historically been boosted by and is part of a number of policies.
These include regulation of traders from exploitative marketing practices through the use of legal
andregulatorymeasuressuchaslicensing,levies,stockinglimitsandmovementrestrictionsaswell
asfixingofminimumsupportprices(MSPs).30Itisarguedthatallofthesepolicieshavecontributed
significantly to the increase in grain production which has managed to keep pace with population
growthuntilthepresent.
Asafederationof28stategovernmentsandsevenunionterritories,India’sfoodpolicy,particularly
its stockpiling and distribution activities, are predominantly handled at the state level. The central
government’sroleisinfederalguidanceonMSPs,distributionprices,administrationmechanismand
amountspereligiblepersons.Therearedifferencesinmechanismsbetweenstateshowever,given
thevaryingincomesandfoodsituationatstatelevel.
29
Pangotra,Prem."PublicDistributionSysteminIndia."PhDdiss.,IndianInstituteOfManagement,
Ahmedabad,2010.
30
Acharya,ShabdS."FoodSecurityandIndianAgriculture:Policies,ProductionPerformanceandMarketing
Environment",AgriculturalEconomicsResearchReview22,no.1(2009):1-19.
22
Singapore,April2016
RationaleforStockpiling
The Food Corporation of India (FCI) was set up under the Food Corporation Act 1964 to fulfil a
number of objectives. This has been done with the help of a stockpiling mechanism which it
undertakesandoversees.
TheFCI’sobjectivesinclude31:
•
Pricesupportforfarmerstohelpboostdomesticproduction
•
Distribution of food grains throughout the country through the PDS to ensure availability
(foodsecuritystocks)
•
Make food available at reasonable prices particularly for vulnerable sections of society
(safetynetstocks)
•
Maintain strategic reserve to ensure supply during disruptions and emergencies
(emergencyreserve)
•
Ensure reasonable domestic market prices through intervention when necessary (market
pricestabilisation).
Presentstockpilingpolicyandpractices
Thesizeoftheminimumpublicstockstobemaintainedisdeterminedeveryfiveyearsbyanexpert
group32 taking into account yearly fluctuations in production and government’s commitment in
providing subsidised food. The total amount of actual stocks at any given point in time may differ
fromthenorm.Thishaslargelybeenthecase,forvariousreasons,suchasmarketpricesvis-à-visthe
MSP,whichinfluencehowmuchthegovernmentwouldprocureastheofficialbuyeroflastresort.
Procurement
The CACP announces the MSP for rice prior to planting seasons. Theoretically the MSPs are to be
announcedayearinadvanceoftheharvests.TheMSPiscalculatedtakingintoaccountthecostof
production (inputs), demand and supply in local markets, international and domestic prices and
31
FoodCorporationIndia,www.fci.gov.in(lastaccessedDecember2015).
32
SomeofthemembersoftheExpertGroupincludeofficialsfromMinistryofAgriculture,theNationalFood
SecurityMission,CommissionforAgricultureCostsandPrices,FoodCorporationIndia,andtheMinistryof
SocialJusticeandEmpowerment.
23
Singapore,April2016
impact of prices on consumers. Once the harvesting is complete there are two mechanisms under
whichriceandwheatisprocuredbythegovernment.
Firstisthroughdirectpurchasefromthefarmers.33Thisinvolvesthefarmersthemselvesortraders
whohavepurchasedatthefarm-gatetakingthegrainstoorganisedwholesalemarkets(alsoknown
as mandis) or to procurement centres. FCI, which conducts the procurement on behalf of the
government, is ready to purchase whatever amount at the MSP, provided the grains are of a
minimumstandardquality.
Thesecondprocurementchannelispurchasingricefrommillers.34Millersarerequiredtosellafixed
percentage of their output to the respective state governments at a statutory price. The statutory
price,alsoknownasthelevyprice,iscalculatedbyfactoringinmillingcostsandamodestmarginon
topoftheMSP.Thepercentageofgrainsprocuredfromthislevysystemfluctuates,atpresentitis
estimatedtobebetween30-40percent.
Government procurement as a share of total production is another figure which fluctuates. In the
1980sand90s,itwasintheregionof10to15percent.Since2007-2008thishasincreasedtoabove
30percent.ThischangeexplainsthemassivestockbuildupinIndia.
PublicDistributionSystem(PDS)andreleasemechanism
Distribution of government procured rice to domestic consumers is undertaken through the PDS.
The rice procured by FCI is sold to state governments at an administered price called the central
issue price (CIP).35 The state governments then distribute the stocks to public through fair price
shops. The discounted price for rice sold at the fair price shops is determined by each state
government.36
Thepriceofriceatfairpriceshopsareconsistentlylowerthangovernment’scostofprocurementas
wellasthecostsof,forexample,transportandstorage.Thegovernmentthuslosesmoneyonevery
33
th
InterviewwithofficerfromMinistryofAgriculture,India,18 Oct2014,NewDelhi
34
Ibid.
35
Ibid.
36
Ibid.
24
Singapore,April2016
single kilogramme of rice it sells through the PDS. The total aggregated loss that this incurs is
consideredIndia’s“foodsubsidy”.37
The National Food Security Act (NFSA) 2013 has now made it a legal compulsion of all state
governmentstoprovideatleast5kilogrammesofriceatRs.3/kg(6.3centsSGD),permonth,toall
beneficiaries.38 The NFSA covers approximately two thirds of India’s total population of 1.2 billion.
This means the government of India will need to procure, stock, and distribute sufficient food to
fulfilthislegalobligationonanevenlargerscalethaninthepast.
Storage
Thegovernmentreleasestargetsonminimumstockpositions,oralsoreferredtoasbuffernorms,to
bemaintainedeveryquarter(1stJanuary,1stApril,1stJuly,and1stOctober)ineveryyear.39Theseare
stocks required for public distribution and open market sale to stabilise prices. Actual stock
quantitieshaveoftenvariedandareingeneralmuchhigherthanthesetnorms.
The FCI also holds additional stocks to ensure food requirements in case of crop failure or
unacceptablefoodpriceinflation.Aftertheexperienceofwheatcropfailurein2006andtheglobal
food price crisis of 2007-2008, FCI now also maintains a separate strategic reserve of food. This is
referredtoasthefoodsecurityreservewhichconsistsoftwomilliontonnesofriceandthreemillion
tonnesofwheat.40
A consistent increase in public stocks of rice (and wheat) has been observed since 2007-2008 in
India.Thisincreaseinstockshasputpressureonavailablestoragecapacity.Aportionofthepublic
stocksisheldbyandwithinstates.ForstockownedbyFCIthestorageisspreadbetweenfacilitiesit
owns (approx. 15mmt), and rents from private sector, state agencies and Central Warehousing
Corporation(approx.20mmt).41
Storageofpublicfoodisamixofwarehousesforbaggedgrains(whichconstitutesthemajority)and
somesilos.TheFCIalsomaintainsoutdoorstoragewhichiscoveredwithtarpaulinorsimilarwater
37
Kubo,Kensuke."India:Theburdenofdomesticfoodpolicy."Shigetomi,S.,Kubo,K.,Tsukada,K.,&
Shigetomi,S.(2011).TheworldfoodcrisisandthestrategiesofAsianriceexporters.Chiba-Shi,Japón,Institute
ofDevelopingEconomies,IDE-Jetro(2011).
38
st
InterviewwithofficerfromFoodSecuritymission,MinistryofAgriculture,India,21 Oct2014,NewDelhi
39
FoodCorporationIndia,www.fci.gov.in(lastaccessedDecember2015).
40
st
InterviewwithofficerfromFoodSecurityMisson,MinistryofAgriculture,India,21 Oct2014,NewDelhi
41
Ibid.
25
Singapore,April2016
proofsheets(alsoknownasCoverandPlinthorCAP).Itwasestimatedthatsomefourmilliontonnes
offoodwasstoredinthismannerin2011/12.42
Table4:Bufferstockingnorms(inmmt)
Rice
Period
Jan
April
July
Oct
Jan
Apr
July
Oct
Jan
April
July
Oct
1991-1998
7.7
10.8
9.2
6
7.7
3.7
13.1
10.6
15.4
14.5
22.3
16.6
1999-2004
8.4
11.8
10
6.5
8.4
4
14.3
11.6
16.8
15.8
24.3
18.1
Upto2005
8.4
11.8
8.4
4
16.8
15.8
11.8 12.2
9.8
5.2
8.2
4
17.1
11
20
16.2
26.9
16.2
w.e.f.
20.04.2005
w.e.f.
22.01.2015
Wheat
Total(Wheat+Rice)
5.61 11.58 11.54 8.25 10.8 4.46 24.58 17.52 21.41 21.04 41.12 30.77
Source:FCI,2015
Recenttrendsandemergingissues
The significant stock build-up of rice in India since the global price crisis of 2007-2008 suggests
clearlythatavailabilityandproductioncapabilityarenotproblemsforIndia.Withapproximately50
milliontonnesofgrainsinwarehouses,supplyiscertainlynotaconstraint.43Thebiggerconcernhas
to do with accessibility and affordability of food for the vast majority of the population who live
belowthepovertyline.
ThegovernmentofIndiaisstronglycommittedtomaintaininglargestocksonanannualbasisasway
to combat chronic food insecurity in the country. The passing of the National Food Security
legislationhassetthelegalbasisforcontinuationofstockpilinginIndia.44Therearealreadyahostof
issuesfacingIndiawithregardstoitsstockpilingpolicy.Someofthesearesummarisedbelow.
42
McCreary,Ian."FoodreservesinIndia."ReportfortheCanadianFoodgrainsBank.Winnipeg,Canada(2012).
43
nd
InterviewwithofficerfromFoodSecuritymission,MinistryofAgriculture,India,22 Oct2014,NewDelhi
44
TheNationalFoodSecurityAct,2013(alsoRighttoFoodAct)isanActoftheParliamentofIndiawhichaims
toprovidesubsidisedfoodgrainstoapproximatelytwothirdsofIndia's1.2billionpeople.
26
Singapore,April2016
Fiscalcostsandlosses
Thefiscalburdenonthegovernmenttomaintainandruntheirstockpilingprogrammeissignificant.
For year 2013-14, the total cost of food subsidy (consumer subsidy + stocking costs) was 894.92
billionrupees(approx.SGD18.8billion).45Thisworkedouttoamounttoapproximately16percent
ofthenationalbudgetfortheyear.46
ThecostofstockpilingandthetotalfoodsubsidyinIndiahascontinuedinanupwardtrendsincethe
early2000s.OneofthemainreasonsforthishasbeenthesteadyincreaseinMSPandmarketprices
ofbothriceandwheat,overtheyears,whiletheCIPhasremainedthesamesince2002.Thishasled
toasignificantwideningofthegaptranslatingintocosts.
TheintroductionoftheNFSAalsomeansthatmaintenanceofpublicstockstosubsidisecloseto800
millionpeoplewillcontinuetokeepthecostshigh.Thecostsassociatedwiththetransportationand
movementoffoodgrainsacrossthecountrywillalsocontinuetoincrease.Intermsofstorage,FCI
hasstartedcallingfortendersfortheconstructionofgrainsilosandstoragefacilities.
Losses incurred by the stockpiling programme in India are broken into two separate categories;
transit losses and storage losses. For 2013-14 the total amount of grains lost in
transit/transportationamountedtoapproximately245,000tonnesestimatedat4.76billionrupees
(approx. SGD100 million). While storage losses were recorded at 187,000 tonnes valued at 4.37
billionrupees(approx.SGD92million).47
OperationalChallenges
The wide range of objectives and goals the FCI and its stockpiling programme are expected to
achieveisnotonlyatallorderbutoftentimescanbeinconflictwithoneanother.Forexampleone
challenge which has been faced in the past and could potentially crop up in the future is the
dilemmabetweenmaintainingcertainamountofstocksforpublicdistributionandreleasingstocks
tostabilisemarketpricesandfoodinflation.Thepotentialforsuchscenariosjustifiestheneedfor
holdinglargeramountsofstocksthannecessary.
45
FoodCorporationIndia,AnnualReport2013-14.http://dfpd.nic.in/writereaddata/images/pdf/ann-201314.pdf(lastaccessedDecember2015).
46
GovernmentofIndiaStatistics,2014.http://www.indiastat.com/agriculture/2/stats.aspx(lastaccessed
December2015).
47
FoodCorporationIndia,AnnualReport2013-14,op.cit.
27
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Indonesia
Table5:PublicStockpilingofRiceSnapshot
TotalPopulation
Quantity
of
253million(2014,estimated)
public
rice Total(in‘000mt),2014
stockpiles
PublicStockpilingAuthority
Prod
Imports
Exports
Consumption PublicStockpile
36,300
1,250
0
38,600
Approx3,000
BadanUrusanLogistik/BureauofLogistics(BULOG)
MinistryofAgriculture(MoA)
Purposeofpublicstockpile
PresentStockpileMechanism
•
Emergency/disasterreserve
•
Farmersubsidy
•
Market/pricestabilisation
•
Domesticmarketsupplystability
•
Safetynet
EmergencyStockpile
300,000mt(BULOG)
56,000mt(MoA)
BufferStock
300,000mt
RASKIN
3 million tonnes (average since 20082013)
Dedicated infrastructure for Facility
Numbers
Capacity
stockpiles
1,500
Approx. 4 million
tonnes
Warehouses
Introduction
IndonesiaisthelargestcountryinSoutheastAsiabothintermsofterritoryandpopulation.Itisthe
world’sthirdlargestproducerofrice,afterChinaandIndia.
IndonesiahasbeenconsideredaleaderintheagriculturalrevolutionwhichsweptthroughEastand
Southeast Asia since the 1960s. Currently the sector still employs close to 40 per cent of the
country’sworkforce.Theagriculturesectorcomprisesoflargeplantations(privatesectorandstateowned)aswellassmallholderproductionmodes.
Large plantations are geared towards export commodities like palm oil and rubber. Smallholder
farms are more focused on the production of rice, soybeans, corn, fruits and vegetables. The
28
Singapore,April2016
Indonesian government has recently placed strong attention on achieving self-sufficiency in a
numberoffoodcommoditieslikerice,soybeans,cornandsugar.
Indonesiahasstockpiledriceforthreemainpurposes:(i)toensureadequateincomeforfarmers,(ii)
toensureadequatestockofricetocontrolpricesforensuringaccessforpoorerconsumers,and(iii)
toprovidehighlysubsidisedricetothepoorestinsocietyaspartofthegovernment’sPublicSocial
Obligation(PSO)programme.Thislast“riceforthepoor”programmeiscalledRASKINwhichisrun
byBULOGandwasstartedin2005.
Indonesia’sstockpiledriceoriginatesfromtwosources;domesticprocurementandimports.Ideally
BULOGaimstoprocureitsentirestockfromthedomesticmarketbutresortstoimportationwhen
there is a shortfall in local production. BULOG intervenes in the domestic market by releasing rice
whenpricesaretoohigh,throughwholesalersandlocalmarkets.Directsellinganddistributionof
stockbyBULOGonlyhappensthroughtheRASKINprogrammewhichisreservedforthe“mostpoor”
asdefinedbythecriteriaoftheNationalWelfareMinistryandtheVicePresident’sOffice.
Figure3:IndonesiaRiceStockpileTrend(in‘000mt)
8000
7000
6000
5000
4000
3000
2000
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
0
1961
1000
IndonesiaBeginningStock(total)
IndonesiaEndingStock(total)
EndofFiscalYearStock(government)
TotalRiceforthepoor(Raskinsince2005)
Endingprivatestock
Source:BULOGData,TN2PK2014andUSDA,2014
29
Singapore,April2016
HistoricalOverview
Rice has been an extremely important commodity for Indonesia since colonial times. The Dutch
administrationexertedtightcontrolonthedistributionofricefromsurplustodeficitregionsduring
their rule in order to manage local prices and ensure supply stability.48 This trend continued postindependenceandricepolicyhasremainedcentraltoIndonesia’spoliticaleconomysince.
Controlandstabilisationofricepricehasbeenseenas“thebarometeroftheeconomicsituationin
Indonesia”,andhasthusbeenhighlypoliticised.49ItwaswiththisawarenessthatIndonesia’scentral
food authority, BULOG, was founded in 1967 under the newly established Suharto regime, and
directlyunderthecontrolofthePresident’soffice.Thetermsofreferencefortheinstitutionwason
twolevels:(i)stabilisationofricepricesand,(ii)provisionofmonthlyricerationstothemilitaryand
civilservice.50
BULOG has managed rice price stabilisation through the use of floor prices for farmers and
defendingaceilingpriceinthemarkets.Ithasalwaysconsideredimportationofriceasalastresort,
yetIndonesiahasbeenamajorimporterofriceformostyearssince1970s,exceptinthemid-1980s
whenitachievedself-sufficiency.BULOGhasthereforebeenastatemonopolyinimportationofrice
intoIndonesia.
Thepracticeofpublicstockpilingofricehasbeenseenasasuccessasitscontributiontowardsrice
price stabilisation, especially from the late 1960s to 1980s, has been significant.51 However, its
effectiveness,fromacost-benefitanalysisperspective,deterioratedovertime.Thisislargelydueto
largeaccumulationofstocks,storageandtransportationexpenses,aswellascorruption,especially
duringIndonesia’sself-sufficiencyyearsinthe1980s(1982-85).52
Startinginthe1990s,therewerecallsforreformsandre-evaluationofthestockpilingprogramme.
This was driven largely by an overall direction towards greater decentralisation and the need to
48
Timmer,C.Peter,T.W.Mew,D.S.Brar,S.Peng,D.Dawe,andB.Hardy."Foodsecurityandricepricepolicy
inIndonesia:theeconomicsandpoliticsofthefoodpricedilemma."InRicescience:innovationsandimpact
forlivelihood.ProceedingsoftheInternationalRiceResearchConference,Beijing,China,16-19September
2002.,pp.777-788.InternationalRiceResearchInstitute(IRRI),2003.
49
Ibid.p.781
50
Ibid.
51
Dawe,David."MacroeconomicBenefitsofFoodPriceStabilization."IndonesianFoodJournal6(1995):pp.
43-64.
52
Ibid.
30
Singapore,April2016
design a more market-oriented price policy.53 This direction was further bolstered after the 19971998financialcrisisintheregion.
During the 1997-1998 crisis, Indonesia was hit hard both economically and politically. During this
difficultperiodBULOGlostcontrolofdomesticricepricesinmid-1998.Intheaftermathofthecrisis,
as a result of pressures from domestic politicians and foreign donors, BULOG was stripped of its
monopolyoverriceimportationaswellasitsmandatetostabilisericeprices.
PresentFoodReservePolicyandPractices
In the years following the Asian financial crisis, BULOG, stripped of its mandate, changed to an
agency in charge of procurement and distribution of highly subsidised food to the poor under the
“rice for poor” or RASKIN programme started in 2005.54 Since the international food price crisis of
2007-2008,BULOGonceagainbecameanimportantactorinIndonesia’sfoodpolicy,especiallyfor
rice.
ThereasonswhichjustifypublicfoodstockpilingpoliciesinIndonesiainclude
a) Toincreasefoodproductioninordertomeetdomesticdemand
b) Toincreasefarmers’incomes
c) Toensureavailabilityofsufficientfoodsupplies/stocks
d) Toensureaffordabilityandeconomicaccessofstockpiledfoodcommodities
e) Toensurenutritionalstatusofthepeople(particularlythoselivingbelowthepovertyline)55
RASKINprogramme
Rice stocks dedicated for the RASKIN programme has averaged around 3 million tonnes per year
since 2008. In 2013, the government stockpiled and distributed at least 3.3 million tonnes to the
poor(comparedto3.2milliontonnesin2008).Thetotalnumberofhouseholdsbeingtargetedby
theprogrammewas15.5millionin2013.Thisisareductionfromthe19.1millionin2008.
53
Timmer,C.Peter."Buildingefficiencyinagriculturalmarketing:thelong-runroleofBULOGintheIndonesian
foodeconomy."JournalofInternationalDevelopment9(1997):133-146.
54
th
InterviewwithFormerDeputyHeadofBulog-Solo,8 Sept2014,Jakarta.
55
BULOGPresentationdeliveredattheASEANRegionalWorkshopontheRoleofRiceReserveAgencyin
StrengtheningNationalandRegionalFoodSecurity,8May2009,Jakarta,Indonesia.
31
Singapore,April2016
ThestocksforRASKINisprocuredatmarketpriceandsoldatasubsidisedpriceofSGD1.6/kg.Sofar,
the poor (defined by seven criteria based on data from National Welfare Ministry and the Vice
President’sOffice)aretheonlygroupwhopurchasericedirectlyfromBULOG.56
Stockpileinfrastructureandlogistics
BULOG currently has 1,500 warehouses spread across 33 provinces. The total storing capacity at
presentisabout4millionmt.BULOGdoesnotyethavemodernstorageinfrastructurelikesilos,asit
considersthemnotproperfortropicalclimaticconditions.
Close to 90 per cent of the stocks is dedicated for RASKIN. Currently upgrades (materials used,
aeration technology, and integrated pest control) are happening in warehouses to modernise
facilitiesandreducestoragelosses.Intermsoftransportationofpublicricestocks,BULOGdoesnot
controltheentiresupplychain.Privatetransportationcompaniesareinvolvedintheshippingofrice
bothinternationallyandlocally.
Locallevelricestockpiling
One of the recent developments in rice reserve policy has been the Ministry of Agriculture (MoA)
directive 2012, which was drafted together with Ministry of Internal Affairs and Ministry of Trade.
Accordingtothisdirective,localgovernmentsarenowencouragedtoprocureandmaintainreserve
stocksthroughtheirownmeansandattheirowncosts.Thisisseenasbeinginlinewiththeexisting
Food Law (18/2012) which emphasises the concept of shared responsibility between local and
nationalgovernmentsinensuringnationalfoodsecurity.
As per current practice, the central government through the MoA provides heads of local districts
with special funds to be used according to their discretion for the purposes of ensuring food
security.Thisfundcanthusbeusedto(i)buildormaintainwarehouses,(i)procureofrice,(iii)invest
in local infrastructure, as well as (iv) procure and build up of their own reserve rice stocks.57 This
directivewasdraftedinconsultationwithlocalgovernmentsacrossIndonesia.
Thisricefromthelocalreservecanbe“borrowed”byanymemberofthecommunityasandwhenin
need.Asimilaramountwillhavetobereturnedwithanadditionalamountdesignatedasaservice
chargeorasinterest.Theactualamountofthe“servicecharge”willbedecidedbythecommunity.
56
InterviewwithFormerDeputyHeadofBulog–Solo,8Sept2014,Jakarta.
InterviewwithFormerDeputyofMinistryofAgriculture,Indonesia,11Sept2014,Bogor.
57
32
Singapore,April2016
GovernanceofStockpilechallenges
BULOG has experienced high levels of corruption at the national level in the past. The decision in
terms procurement for BULOG is under the directive of Ministry of Trade. BULOG needs to seek
approval from the ministry before it acts. This is in terms of procurement from the international
market,orforthereleaseofstockstostabilisedomesticprices.
Stockpileasastrategyforemergencies
BULOG maintains disaster management contingency stocks of 100 tonnes per district and 200
tonnes per province. These stocks can only be activated during an emergency. This 100
tonnes/district can be released upon the issue of an official letter from the local Social Welfare
Department.
There is at least 56,000 tonnes of rice set aside for disasters across Indonesia, under the direct
controloftheCentralGovernmentandmanagedwithitsbudget.Thetotalgovernmentricereserve
is300,000tonnes)whichisusedforpricestabilisationandnaturaldisasterresponse(thisisseparate
fromtheRASKINreserves).Giventhescaleandsize(population)ofthecountry,somearguethatthis
figureistoolowandtheidealstocklevelshouldbecloserto1milliontonnes.
Issuesandareasofconcernforcurrentstockpilingprogramme
There are a number of concerns surrounding Indonesia’s rice stockpiling policy. On the one hand
thereareconcernsthatitscurrentstockpilingpoliciesareinefficientandthusshouldbereviewed.
On the other, there are opinions that the stockpiling policies do not go far enough and should be
furtherbolsteredmovingintothefuture.
DespitethemovebytheIndonesiangovernmenttolookmorecloselyintofoodsecurity,especially
of the growing urban poor, opinions are divided. In terms of rice stockpiling, there are now two
separateinitiativestomaintainstockpiles,(i)BULOGstillcontinuestocontrollargeamountsofstock
centrally,and(ii)theMoA’smovetoencouragelocallevelstockpiling.Thoughpotentiallyoffering
thebenefitofhavingsufficientstocksmanagedatthecentralandlocallevels,thedualmechanism
doesposeariskforduplicationofeffortandcostsinvolvedinmaintainingandoperatingthestocks.
33
Singapore,April2016
Malaysia
Table6:PublicStockpilingofRiceSnapshot
TotalPopulation
30million(2014)estimated
Quantityofpublicstockpiles
Total(in‘000mt),2014
Production Imports
Exports
Consumption Public
Stockpile
1,800
Public
950
0
2,750
292
Stockpiling PadiberasNasionalBerhad/NationalRiceCorporation(BERNAS)
Authority/Institution
Purposeofpublicstockpile
Governanceofstockpile
•
Emergency/disasterreserve
•
Farmersubsidy
•
Market/pricestabilisation
•
Domesticmarketsupplystability
Control
NameofInstitution
Public/Private
BERNAS, Ministry of Agriculture and
Agro-BasedIndustries(MoAAI)
Dedicated infrastructure for Facility
Numbers
ricestockpiles
Capacity
(in‘000mt)
Warehouses
44
(not
available)
publicly
Introduction
Malaysiahasbeenanetimporterofricesincethe1960s.Malaysia’sricestockdatasuggeststhatit
hasmanagedtocontrolitsriceimportsfromapercapitabasisoverthelast30years,notablysince
the end of 1970s.58 This has largely been due to improvements in its rice production through
technological and scientific innovations.59 This has happened despite reductions in cultivated land
overtheyearsasaresultofdevelopmentandpressureforalternativeuses.
At present, rice is grown on 400,000 hectares of land in Malaysia. There is however an average
annual short fall of approximately 0.8 – 1.4 million tonnes of rice. This deficit therefore has to be
58
Daño,ElenitaC.,andErnaD.Samonte."PublicsectorinterventioninthericeindustryinMalaysia."State
interventioninthericesectorinselectedcountries:ImplicationsforthePhilippines(2005):pp.187-216.
59
Ibid.
34
Singapore,April2016
procured from international markets.60 Setting realistic targets for rice self-sufficiency at 65 per
cent,Malaysiastillhastorelyheavilyonimportstomeetthegap.
FAOandUSDAdatashowthatthecountryhascontinuedtoincreaseitsproductionoverthelast20
years which has allowed the government to increase its publicly held rice stocks, now mostly
throughdomesticprocurement.
2000
1800
1600
1400
1200
1000
800
600
400
200
0
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Figure4:Malaysiariceproduction,importsandstocks(in‘000mt)
BeginningStock(1000t)
EndingStock(1000t)
Import(1000t)USDA
Producmon(1000t)(USDA)
Producmon(1000t)FAO
Source:FAOandUSDA2014.
60
th
InterviewwithofficialfromStrategicPlanningandInternationalDivision,MoAAI,24 Sept2014,Kuala
Lumpur
35
Singapore,April2016
Historicaloverview
Though rice has been the staple crop of the Malay people throughout history, with the onset of
colonialismitwasperceivedthatMalaysia(thenMalaya)didnothaveacomparativeadvantagein
termsofgrowingfoodcropsandcommodities.Attentionwasthusdivertedtowardsthecultivation
and production of commercial crops. To some extent intentions to invest in and cultivate
commercialcropsratherthanfoodcropspersistedevenafterindependence.
Ricehasnonethelessbeenconsistentlyregardedasastrategicsectorandhasbeenaccordedspecial
treatment by the government.61 The formation of dedicated institutions to oversee the rice sector
over the years highlights the commodity’s importance.62 These include the Rice Cultivation
Committee(1931),RiceCommission(1933),theFederationofMalayaRiceCommittee(1956),Padi
andRiceMarketingBoard(1967),NationalPadiandRiceBoard(1971)andfinallyBERNAS(1994).
Thecountry’sricepolicyhashistoricallybeencentredonthreemainobjectives.
a. Ensuringfoodsecurity(physicalaccess)
b. Raisingfarmerincomeandproductivity
c. Ensuringaffordablefoodtoconsumersatfairandstableprices.63
Based on these three objectives, the government of Malaysia has always considered maintaining
some level of self-sufficiency as a matter of security despite the economic costs for the country.64
Though self-sufficiency levels have rarely ever been 100 per cent, the government believes that
some level of self-sufficiency is necessary to reduce dependence on international markets. It has
oftendedicatedvastamountsofpubliccapitaloninfrastructuredevelopmentaswellasinsubsidies
inattemptstoboostproductionandincreaselevelsofself-sufficiency.
The El-Nino event affecting Southeast Asia as well as North America in 1973 which led to a global
foodcrisis65isseenasamajorturningpointinMalaysia’sfoodpolicy.Duetopricevolatility,overall
high prices, and difficulty in obtaining stocks in international markets, private importers stopped
importingrice.Asaresponseandlastmeasure,thegovernmenthadtointerveneinthemarket,with
61
Daño,ElenitaC.,andErnaD.Samonte.2005.op.cit.
62
Ibid.
63
Ibid
64
InterviewwithStrategicPlanningandInternationalDivision,MoA,op.cit.
65
Formoredetailsonthis,refertoDaño,ElenitaC.,andErnaD.Samonte.2005.op.cit.
36
Singapore,April2016
theLembagaPadidanBerasNegara(LPN)givenagreaterrolebybeingtaskedtolookintosecuring
thenecessaryrice.66
LPNwasgiventhesolerighttoimportriceinMalaysiain1974.Priorto1974,importationofriceinto
Malaysiawasconductedona“quotabasis”throughprivateimporters.67Howeverduringthecrisis
whenLPNgotinvolved,supplywassecuredonagovernmenttogovernmentbasis.Eventhoughthe
internationalpricesofricereturnedtonormalquickly,LPNcontinuedtoremainthesoleauthorised
importerofriceinMalaysia.ThiswasanadditionaltaskforLPNontopofitsexistingroletosupport
domesticriceproductionandricefarmers.LPNcontinueditsroleinoverseeingMalaysia’sricepolicy
whichincludedtheuseofbufferstockingandstockpilingsinceitsestablishmentin1971upuntilthe
early 1990s. In July 1994, LPN was privatised as part of broader reforms in Malaysia to become
PadiberasNasionalBerhad(BERNAS).
The corporatisation (1994) followed by the privatisation (1996) and finally public listing (1997) of
BERNAS was in efforts to make the national stockpiling programme efficient and profitable. All
properties,rights,andliabilitiesofLPNweretransferredtoBERNAS.Thelatterinstitutionwasalso
required to undertake all duties and social obligations of LPN on behalf of the Malaysian
government.TheregulatoryroleoftheLPNwashowevertransferredtotheMinistryofAgriculture.
ThefirstrealtestforthenewlyinstitutedBERNAScameduringtheAsianfinancialcrisis.Duringthe
crisisthepriceofricedoubledasaresultofadevaluationoftheMalaysianRinggit(whilethepriceof
rice in international markets is always denominated in US dollars). BERNAS was able to keep the
domesticpricesrelativelystablebyabsorbingmostofthepriceincrease.
In 2008, despite the costs of imported rice reaching record highs, BERNAS managed to shield the
domesticmarketbykeepingpricesofbothlocalandimportedriceconstantat2007prices.Priceof
ricespiralledupwardsinMalaysiainearly2008,howeverBERNASreactedquicklywithmeasureslike
adoptingaceilingpriceforconsumers,increasingguaranteedminimumprice(GMP)forfarmersand
sacrificing its 2008 profits to keep prices stable in domestic markets.68 This resulted in rice prices
comingdownandstabilisingbysecondhalfof2008,eventhoughitremainedhigherthanpre-crisis
levels.
66
InterviewwithProfessorfromInstituteofAgricultural&FoodPolicyStudies,UPM,23Sept2014,Kuala
Lumpur
67
Daño,ElenitaC.,andErnaD.Samonte.2005.op.cit.
68
Ibid
37
Singapore,April2016
PresentFoodReservePolicyandPractices
Sincethemid-90sBERNAShasbeeninchargeofMalaysia’sricestockpilingprogramme.Aspartof
the privatisation and subsequent corporatisation deal, it currently undertakes a number of noncommercial activities in the interest of consumers. These include stabilisation of rice prices in the
market, ensuring sufficiency of rice stocks, and maintaining the quality and standard of rice in the
market.
Though BERNAS is essentially a corporate entity and a public listed company, the Malaysian
Government retains 51 per cent of the share in the organisation and thus maintains controlling
interest. However the operation costs are its own and does not have an allocation of thenational
budgetorreceivesgrantsfromthegovernmentaswasthecasewithLPN.
Rationaleforpublicstockpiling
Based on these roles of BERNAS it can be deduced that the rationale for maintaining national
stockpileofriceinMalaysiaisfor:
a) Ensuringfarmerincomes
b) Ensuringstabilityinfoodsupplyforconsumers
c) Marketpricestabilisation
d) Distribution/procurementoffoodintimesofemergencies
Stockpilingtargets
BERNAS builds its stocks through procurement from both domestic market and from imports. Up
untilthefoodpricecrisisof2007-2008,theminimumstockpileheldbyBERNASwas92,000tonnes.
Since 2008, this has been revised to 292,000 tonnes. BERNAS manages around 44 warehouses
acrossthecountrytostoreandmaintainitsstocks.BoththeBERNASwarehousesandmillsareused
tofacilitatedistributionofbothimportedandlocallyproducedricetowholesalersandsomedirectly
toconsumers.69
In 2008, the government announced that BERNAS would significantly increase the size of the
nationalbufferstockatanycost.Inmid-January2008itwasannouncedthatBERNAS’stocklevels
wouldbeincreasedfrom92,000mtto550,000mtwhichintheoryextendeditsreservestocksfrom
14daysto90daysofconsumption.However,afterfurtherreviewandconsideration,andoncethe
crisissubsided,itwasreviseddownto292,000tonnes(estimated45daysupply)ofrice.
69
Daño,ElenitaC.,andErnaD.Samonte.2005.op.cit.
38
Singapore,April2016
Intermsof/bufferstocks,Malaysiaplanstostockpile4months’supplyofrice.70Stocksherewould
includeBERNAS,privateandhouseholdstocks.Onecropcycleforriceisonaverage3months.The4
monthsbufferwouldgiveauthoritiesenoughtimetolookforalternativesourcesandsecurestocks,
shouldtheyberequired.71
TheMechanism
BERNASaimstoprocureitsstocksfromdomesticfarmersthroughBERNASricemills.Howevermost
ofthestockdedicatedfornationalstockpileissaidtocomethroughimportation.The292,000tonne
stockpile is not kept centrally at one location but is distributed to strategic locations around the
country.
In terms of domestic procurement, BERNAS procures paddy from local farmers at market prices
(whichareusuallyhigherthanGMP).MajorityofthisprocurementhappensthroughBERNASowned
ricemills.72The32BERNASownedricemillscompetewithotherprivatericemills(closeto400)for
localpaddy.73OnaverageBERNASmillsprocesses400,000tonnesofpaddyeveryyear,givingthema
marketshareof35-50percent.74.
International procurement meets the deficit of domestic production. Most of the rice is sourced
fromThailand,VietnamandPakistan.Therehavebeenattemptstodiversifysourcessince2008to
mitigate against (i) weather related production risk and (ii) high dependence on a single source. It
wasabitterandharshexperiencein2008whenThailand’spricesforriceexportsincreasedbyclose
to300percent.Thisunderscoredtheimportanceoftheneedtodiversify.75
70
th
InterviewwithOfficialfromMinistryofAgriculture,24 Sept2014,KualaLumpur
71
Ibid.
72
Wong,LarryCY,SurayaA.Emrus,BashirahMdBashir,andJohnYSTey."MalaysianPadi&RiceIndustry:
ApplicationsofSupplyChainManagementApproach."InNationalRiceConferenceSwissGardenGolfResort
Lumut,pp.28-30.2010.
73
BERNAS,2015.http://www.bernas.com.my/index.php/2014-06-27-15-49-00/2014-06-27-15-49-1(last
accessedDecember2015).
74
Ibid
75
th
InterviewwithOfficialfromMinistryofAgriculture,24 Sept2014,KualaLumpur
39
Singapore,April2016
Issuesandareasofconcern
Theexperienceof2007-2008wassignificantforMalaysia.Thisexperiencesignificantlyerodedtrust
ininternationalmarketsandhasthusledtotherevisionofstockpilingtargets.
Some of the cited challenges in reducing dependence on imports for stockpiling include (i) aging
farmers,(ii)smallmantolandratio,(iii)landconversionissues,(iv)increasingincidencesofpestand
diseases,and(v)thehighdependencyoffarmersonsubsidies.Thesenegativelyimpactproduction.
AsaresultMalaysiahashadlittlesuccessinsignificantlyrampingupitsproductioncapacity.
With greater reliance on imports, the risk of international price volatility increases significantly.
Should the government continue to try and stabilise local markets and prices in times of
internationaluncertaintyandhighersustainedprices,therewouldbedirectlossesforBERNAS.Asan
institutionanswerabletoshareholderswithapurposetogenerateprofitsandreturns,thiscouldbe
seenasproblematic.
Futurechallengesanddirections
Increasingcostsofstockpiling
Malaysiafindsitselfinadifficultpredicamentwithregardstostockpilingrice.Ontheonehanditis
acutelyawareoftherisingsocialandeconomicchallengestowardsincreasingitsriceproductionto
greaterself-sufficiencylevels.Ontheother,ithaslittletrustandfaithininternationalmarketsand
itsgovernmenttogovernmentriceimportationmechanismithasreliedonfordecadespriortothe
2007-2008experience.
On average, it is estimated to cost approximatelyRM 2,400 (approximately SGD 810) to plant one
hectare of paddy, factoring in all input costs.76 This coupled with the ever increasing levels of
subsidiesgiventoricefarmers,wouldmakethetotalcostofnationalstockpilingsignificantlyhigh.
ThetotalcosttorunthesesubsidyprogrammesisapproximatelyRM1bln/year(approximatelySGD
340million).Thisincludessubsidiesforfarmersandmillers.Thesubsidyformillersistoincentivise
themtomillalltypesofrice.77
76
th
InterviewwithofficialfromStrategicPlanningandInternationalDivision,MoA24 Sept2014,KualaLumpur
77
InterviewwithProfessorfromInstituteofAgricultural&FoodPolicyStudies,UPM,23Sept2014,Kuala
Lumpur
40
Singapore,April2016
The Philippines
Table7:PublicStockpilingofRiceSnapshot
TotalPopulation
100million(2014estimated)
Quantityofpublicstockpiles
Total(in‘000mt),2014
Production Imports
Exports
Consumption PublicStockpile
11,880
Public
1,800
0
13,200
550
Stockpiling NationalFoodAuthority(NFA)
Authority/Institution
Purposeofpublicstockpile
Governanceofstockpile
•
Emergency/disasterreserve
•
Farmersubsidy
•
Market/pricestabilisation
•
Domesticmarketsupplystability
•
Safetynet
Control
Commodity
NameofInstitution
Public
Rice
NFA
PresentStockpileMechanism EmergencyStockpile
15 days national demand = approx.
475,000mt
Buffer Stock Strategic 30 days national demand = approx.
RiceReserve(SRR)
950,000 mt [inclusive of 15 days
emergencystockpile]
Dedicated infrastructure for Facility
Numbers
stockpiles
Capacity
(in‘000mt)
Warehouses
366
Approx.2,200
Introduction
TheagriculturesectorrepresentsamajorpartofthePhilippineseconomy.Itaccountsforcloseto12
percentofthenationalGDPandemploysapproximately47percentofthenationalworkforce.Rice,
corn,sugar,coconuts,andfruitsconstitutesomeofitsmainfoodandcommercialcrops.
41
Singapore,April2016
Rice is the primary staple crop produced and continues to dominate the agricultural food crop
sector. One-third of the country's farmers are engaged in rice production, mostly still on a
subsistencebasisandmorethan60percentofagriculturalinvestmentisspentonriceproduction.
ThePhilippinesisoneoftheworld’stop10producersofrice.Howeveritsproductioncapacityhas
notbeenabletomeetdomesticdemandindecadesandthusPhilippineshasconsistentlybeenone
ofthetopthreericeimportingcountriesintheworld,oftentimesholdingthetopposition.Average
annual importation ranges between one to two and half million tonnes, primarily sourced from
ThailandandVietnam,andmorerecentlyfromIndia.
Due to the consistent shortfalls between the total production of rice and demand within the
country,thePhilippineshasalonghistoryandtraditionofpublicstockpilingpractices,especiallyfor
rice. Stockpiling has been a way to ensure stability in supply in general as well as in making sure
sufficientstocksareavailableduringtheleanmonths(July-September)78andintheeventofnatural
calamitiesanddisasters,towhichthecountryisparticularlysusceptibleto.Ithasalsobeenobserved
that productivity in rice in the Philippines drops during El-Nino years (almost -1tonne/ha in 19971998),whichrequiresadditionalimportstooffsettheshortfall.
0.15
0.10
Yield(t/ha)
2012
2009
2006
2003
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
1970
1967
0.05
Produc]vity(t/person)
0.20
1964
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
-
1961
Yield(t/ha)
Figure5a:PhilippinesRiceYieldandProductivity
-
Producmvity(t/person)
78
Leanmonthsrefertomonthsintheyearwhenriceproductionandharvestsareminimalduetoseasons.
42
Singapore,April2016
10000
8000
6000
4000
ProducmonRiceMilled(FAO)('000ton)
RiceImport(FAO)('000ton)
2012
2009
2006
2003
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
1970
1967
0
1964
2000
1961
Ricein'000tonnes
12000
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
%ofRiceImports
Figure5b:TrendinRiceMilledProductionandImports
PercentageofRiceImport(%)
Sourceforbothfigures:FAOandUSDA2014
HistoricalOverview
Tolentino and de la Pena (2011) summarised the evolution of institutional transformation
concerning food security in the Philippines (Table 8). During the Philippine Commonwealth period
(1935–1946),theNationalRiceandCornAdministration(NARIC)wasinoperation.In1952,theRice
Economic Board (REB) was createdto formulate and oversee the implementation of an integrated
developmentplanandprogrammeforrice.79
President Ramon Magsaysay (1953-1957) introduced the National Rice and Corn Production
Program(NRCPP)anditsRiceandCornCoordinatingCouncil(RCCC)in1955.In1960,theRiceand
CornBoard(RICoB)wascreatedbyRepublicActNo.3018(orRA3018),withthepurposeoflimiting
the rice and corn industry to Filipinos. Then, in 1962, the Rice and Corn Administration (RCA) was
createdtostabilisethepriceofthegrains.80
President Ferdinand Marcos (1965-1986) began his martial law administration in 1973 and issued
PresidentialDecree(PD)No.4(orPD4),whichabolishedtheRCAandRICoBandtransferredtheir
functions into a new, much more powerful National Grains Authority (NGA). PD 1770 (1981)
79
Tolentino,V.,J.Bruce,andB.DeLaPena."StymiedreformsinricemarketinginthePhilippines,1980-2009."
BuiltonDreams,GroundedinReality:EconomicPolicyReforminthePhilippines,AsiaFoundation,MakatiCity,
Philippines(2011).
80
Ibid
43
Singapore,April2016
expanded the scope and powers of the NGA, and renamed it the National Food Authority (NFA).
However,aspartofreformsintheclosingyearsofmartiallaw,theNFA’sscopewasreducedtorice
andcornbyExecutiveOrder(EO)No.1028(orEO1028,s.1985).
Table8.InstitutionalEvolutionofFoodBufferStockPolicyinthePhilippines
Period
Name
of
Food Governmental
Authority
1935
-
KeyPolicyMeasures
Regime
National Rice and Corn Philippine
Local control of corn and rice industry - floor and
1946
Administration(NARIC)
ceilingpricesforpalayandforrice
1952
Rice Economic Board Commonwealth
(REB)
1955
National Rice and Corn Ramon Magsaysay Other commodities were also regulated: feed
Production
Program (1953-1957)
grains,sorghum,mango,peanut
(NRCPP)
Rice
and
Corn
Coordinating
Council
(RCCC)
1960
Rice and Corn Board Republic Act No. limitingthericeandcornindustrytoFilipinos
(RICOB)
3018
President
Ferdinand Marcos
(1965-1986)
1962
Rice
and
Corn stabilisethepriceofgrains
Administration(RCA)
1972
National
Grains 81
Authority(NGA) Rice self-sufficiency; Massive paddy procurement
at government price in 1977-1982; PD 4/1972
covering rice, corn, feed grains and others like
sorghum,mango,andpeanut
1981
National
Food PD1770(1981)
82
Authority(NFA) SupplystabilisationandPricecontrol
1985, Executive Order No. 1028 was issued and
provided for the deregulation of NFA’s non-grains
marketingactivities.
81
RCAandRICoBandtransferredtheirfunctionsintoanew,muchmorepowerfulNationalGrainsAuthority
(NGA)
82
Aspartofreformsintheclosingyearsofmartiallaw,theNFA’sfocuswasreducedtoriceandcornby
ExecutiveOrder(EO)No.1028(orEO1028,s.1985)
44
Singapore,April2016
TheGovernmentofthePhilippineshasgraduallyderegulateditsfoodreserveandstockpilingfroma
more diverse list of food commodities during 1970s and 1980s to only stockpiling three main
commodities, namely rice, corn and sugar. Today, both rice and corn stocks are monitored and
managed by the National Food Authority (NFA) while sugar is monitored and managed by the
NationalSugarAuthority(NSA).
Since1985,theNationalFoodAuthorityhasbeentaskedtoensurethefoodsecurityofthecountry
andthestabilityofsupplyandpriceofmainlyrice.Itfulfilsthisfunctionbymaintainingbufferstocks
which comprises of mostly imported (approximately 95 per cent) and some domestically procured
(3-5 per cent) rice. It performs these functions through various activities and strategies, which
include procurement of paddy from individual farmers and their organisations, buffer stocking,
processingactivities,dispersalofpaddyandmilledricetostrategiclocationsanddistributionofrice
tovariousmarketingoutletsatappropriatetimesoftheyear.
PresentFoodReservePolicyandPractices
TheNFAfallsundertheauspicesoftheofficeofthePresident.Thereishoweverothergovernment
agencies that sit on the NFA council like the Department of Agriculture (DoA), Department of
Finance, Department of Trade and Industry, National Economic Development Authority (NEDA), as
wellasrepresentativesfromtheCentralBank.
Intermsofreach,theNFAasaninstitutionispresentinalldistrictsinthePhilippines,whichserveas
both distribution and procurement centres. The NFA controls over 350 warehouses across the
country,usedprimarilytostorerice.Intermsofdistribution,theNFAsellsitsstockstowholesalers
intherespectivedistrictsandregions,whothenretailthericetoconsumers.NFAisnotinvolvedin
directretailtoendconsumers.83
Rationaleforpublicstockpiling
Therearenumerousgroundsunderwhichpublicstockpilingofrice(primarily)hasbeenjustifiedand
deemednecessary.Someoftheseinclude:
a) ToensurefoodsecurityinPhilippines(intermsofavailability–supplystability)
b) To ensure adequate access to food for the populace (through market intervention and
subsidisingrice)
c) Toguardagainstsupplydisruptions(especiallyduringleanmonthsJuly-September)
83
InterviewwithOfficialsfromNationalFoodAuthority(NFA),14Nov2014,QuezonCity,Manila
45
Singapore,April2016
d) Toensuresufficientstockstorespondtoemergencysituations(naturaldisasters,typhoons)
e) To boost domestic production (through setting of Minimum Support Price – producer
subsidies)
f)
Toensurefarmerincomes
Themechanism
Therearetwodistinctionsmadewithinthenationalricestock.Thefirst,referredtoasEmergency
Stocks,isa15daysupplyofrice.Thisamountsto31,640tonnes(dailyriceconsumptionrateofthe
Philippines,)multipliedby15.84Thisistheminimumamountwhichismaintainedatalltimes.
Thesecond,referredtoasStrategicRiceReserve,isusedtoshieldagainstsupplydisruptions,which
areseasonal.85ForexamplethedryseasonsofJuly-Septembercorrespondswithlowlevelofstocks
inthemarket.ForthisreasonNFAmaintainsaminimumof30daystocks(30x31,640tonnes)from
July1–September30everyyear.86
This30daybufferstockisinclusiveofthe15dayemergencyreserve.87NFAprocuresthenecessary
quantity for the 30-day buffer, mostly through importation, which is then maintained and
strategicallylocatedacrossthecountrybyJuly1stofeachyear.
ThisseasonalpatternofricestockpilingbyNFAcanbeobservedovertheyearsasseeninfigure8
below. Stocks tend to accumulate starting in the months of June/July due to importation in
anticipation of lean months and reach its highest levels in September/October after the harvests.
FebruarytoAprilusuallymarksthelowpointofstocksinmostyears.88
84
InterviewwithNFA.Opcit.
85
Ibid
86
Ibid
87
Ibid
88
NFAdata.2014.http://nfa.gov.ph/about-us/nfa-council?id=101(lastaccessedDecember2015).
46
Singapore,April2016
Figure6:MonthlystockpileofriceinPhilippines
in'000metrictonnes
PhilippinesPublicStockpileofRice(NFA)
2500
2000
1500
1000
500
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
January
February
March
April
May
June
July
August
September
October
November
December
MonthlyAverage
Source:NFAData,2014
Recentstockpilingtrends
ThePhilippinesfoodreservedatashowsasuddenriseinricestockpilingafterthefoodcrisisin20072008.Itrosesignificantlyin2009andpeakedin2010(seeFigures8and9).Since2010theNFAhas
reduceditspublicstocklevelssignificantly.EvenintheaftermathoftheHaiyan/YolandaTyphoonin
2013, which affected the country and its agriculture production severely, there was no sign of
significantincreasesinpublicstocks.
47
Singapore,April2016
Figure7:TrendinPhilippinesPublicRiceStockpile(in’000tonnes)
RiceStockpileTrend(in'000mt)
2000
1500
1000
500
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
MonthlyAverage
Source:NFAdata,2014.
Issuesandareasofconcernofcurrentstockpilingprogramme
Inthe1970sand1980s,theNFAstruggledtomaintainitsthirty-daybufferstocklargelybecauseofa
small procurement share in domestic production, and the insufficient and untimely arrival of rice
imports.Thissituationnow,thoughbetter,doesnotseemtohavechangedmuch.
Findingsofrecentstudies89ontheperformanceandimpactoftheNFAsuggestlittlechangesinthe
impactofNFAondomesticmarketsandfarmpricesandascomparedtoresultsinpreviousdecades.
Both recent and earlier studies have also highlighted the distorting effect of NFA interventions in
reducingtheincentivesforprivatetraderstoundertakepurchasing,storageofstocksandsellingin
themarket.90
Governanceandinefficiencyissues
Food Security policy in the Philippines is governed by multiple agencies, which often leads to
different or competing priorities. The Inter-agency Committee on Rice and Corn consists of DoA
(Lead),NFA,NEDA,NationalIrrigationAgencyandCivilSocietyOrganisation(CSO)representatives.
89
Balisacan,ArsenioM.,MerceditaSombilla,andRowellDikitanan.""RicecrisisinthePhilippines:Whydidit
occurandwhatareitspolicyimplications?"Thericecrisis:Markets,policiesandfoodsecurity(2010):123-142.
90
Sombilla,M.A.,F.A.Lantican,andJ.C.Beltran."RiceMarketingandDistributioninthePhilippines."
EnsuringRiceSecurityforAll:Issues,Constraints,andPolicyDirections,SEARCA,PhilRiceandDA-BAR(2006).
48
Singapore,April2016
Thiscommitteerecommendshowmuchriceshouldbeprocuredandstockpiledforfoodsecurityby
theNFA.
SomeinthePhilippinesarguethatNFAhasnotbeenabletosuccessfullyfulfilitsmandateonhelping
boost production through the use of buffer stocks. When domestically procured, it has been
observedthatNFAhasbeenbiasedtowardsbuyingfromsurplusareasandnotdeficitregions.91This
isseenasjustifiedintermsofstockavailability,howeversuchpracticeoftenmeansthatthebenefits
derivedfromsellingtoNFAisnotrealisedbyfarmersindeficitareas.Asaresultdeficitregionsfall
intoaspiralofdeficitssincefarmersareunmotivatedtogrowrice.
Imports, which constitute the vast majority of NFA stocks, has not been done in an open and
transparentmanner.Timingofprocurementisanotherimportantdimensionwhichhasnotalways
beenadheredtoinasystematicmanner.AsitisalreadyclearthatNFAstockshavetobesecuredby
July, as the lean months start then, decisions in terms of imports would have to happen much
earlier,whichhasnotalwaysbeenthecase.
Otherconcernsincludecostandinefficiencies.Theestimatedlossesduetoinefficiencyinitsbuffer
stockpolicyhavebeenestimatedaroundPHP170billion(approximatelySGD5billion)asof20122013.92 The estimated loss presumably arises from very expensive handling cost in both transport
andstorage,waste,storagelosesduetoinefficientmanagementandsometoincidencesofleakage
and smuggling.93 The problem of over-importation and corruption is also well known and seem to
happenonafairlyregularbasis.94
Futuredirectionofstockpilingprogramme
The future of stockpiling in the Philippines is going to be highly dependent on the results of the
currently on-going NFA internal review and audit.95 There seems to be wide consensus that some
formofemergencystockpileisneededforthecountrygiventhegrowingnumberofweather-related
andclimatechangeimpacts.
91
InterviewwithDrLantican,18September2014,LosBanos
92
InterviewwithofficialsfromNEDA,19Nov2014,Manila
93
Mehta,Aashish,andShikhaJha."Corruption,foodsubsidies,andopacity:EvidencefromthePhilippines."
EconomicsLetters117,no.3(2012):pp.708-711.
94
Ibid
95
InterviewwithofficialsfromNFA,14Nov2014,QuezonCity,Manila
49
Singapore,April2016
Amajorjustificationforthestockpilingprogrammesofarhasbeeninensuringaccesstoriceforall
in the Philippines. In this aspect rice stockpiling is likely to continue due to the high incidence of
poverty that persists. On the other hand with close to half the population dependent on the
agriculture sector, of which rice constitutes the bulk, a stockpiling programme for farmer income
and subsidy purposes is likely to remain politically important. Currently incomes from rice remain
relativelylowinthePhilippinesduetothehighcostofseedsandotherinputs.96
TheotherpotentialdriverforstockpilinginthePhilippinescouldbeincreasedimportation.Should
the government drop its self-sufficiency plans, focus on its comparative advantage, and depend
strongly on importation from the region (currently Thailand, Vietnam and India), the government
mightseeagreaterneedtosecurestocks.
96
InterviewwithDrLantican,18Nov2014,LosBanos
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Thailand
Table9:PublicStockpilingofRiceSnapshot
TotalPopulation
67.2million(2015,projected)
Quantityofpublicricestockpiles Total(in‘000mt),2014
Production Imports
Exports Consumption
Public
Stockpile
18,750
Public
Stockpiling
•
Authority/Institution
300
Public
9,000
11,700
Warehouse
18,000
Organisation
(PWO)
MinistryofCommerce
Purposeofpublicstockpile
Governanceofstockpile
PresentStockpileMechanism
•
Farmersubsidy
•
Exportstability
Control
Commodity
NameofInstitution
Public
Rice
PWO
Stockpilesforexport
No fixed mechanism to determine
minimumquantity.
Dedicated infrastructure for Facility
Numbers
stockpiles
Capacity
(in‘000mt)
Warehouses
Silos
1800
(Not
available)
137
(Not
publicly
publicly
available)
Introduction
Thailand is one of the largest exporters of rice in the world. It has in fact been one of the top
exportersinthelastdecadeandahalffollowedandoccasionallyovertakenbyIndiaandVietnam.
Thebuildingupofstockpileshowever,issomethingofarecentphenomenonforThailand.
ThemainpurposeforstockpilingofriceinThailandisforexportsupplystability.Thisusuallydoes
notrequirelargevolumesandquantities.Therecenttrendisthusarelativelyneweventasaresult
ofinterventionistpoliciesputinplacebyparticularadministrations.
Otherthangovernmentstockpiles,therearealsoprivatestocks.Privatestocksareheldbytraders
andmillers.Combined,thetradersandmillersholdapproximately2milliontonnesofrice.
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WiththeincumbentjuntagovernmentinThailandtakingpower,thestockpilingprogrammeinitiated
undertheYingluckShinawatraadministrationhasbeenhalted.TheThaigovernmentisnotprocuring
anymorestocks.Afullauditofgovernmentheldstocks(inJuly2014)hasalsobeenorderedsoasto
evaluate the quality and also to get the exact quantity of the government rice reserve which was
accumulatedsince2011.97
PresentFoodReservePolicyandPractices
Thailandhashistoricallyhadexcesssuppliesofriceascomparedtoitsdemands.Thishasledtothe
country being a net exporter for over a century and a half. Thailand therefore has no reason to
stockpile rice for food security purposes of its people as many other countries do. The primary
challengeofthericeeconomyinThailandhasbeeninensuringsuitablepricesforitsfarmersfrom
themarketsinordertoguaranteethemagoodincomeandkeepthemincentivisedtoremaininthe
sector.
The recent rice pledging scheme introduced in 2011 under Yingluck Shinawatra’s leadership
promised farmers a minimum price for their rice. This is not an uncommon practice, many
governmentswhichrunstockpilingprogrammestoguaranteefarmerincomesalsopubliclyrelease
and defend minimum support prices (MSP) or a guaranteed minimum price (GMP). In the case of
Thailand the minimum price was set much higher than international prices. The government was
now committed to procure and stock all the rice from the farmers at the promised price, but was
unabletosellthericeintheinternationalmarketswhereitwasintendedwithoutsufferingamajor
lossoneverytonnesold.Thisledtomassivestockbuild-upingovernmentwarehouses.Thericewas
stored in hopes of sale when international prices go up and beyond the pledged price of close to
US$600pertonne.98
Since2012thestockpilesinThailandaveragedapproximately15milliontonnes,reachingcloseto30
million tonnes by 2013-2014.99 Stock levels have started to drop since the junta government
takeoverastheyhavedesperatelytriedtosellstocksatdiscountedprices.
Thejuntagovernmenthasalsosuspendedallprocurementbythestatewhileitcontinuestooffload
and tries to sell existing stockpiles. Despite the resolve to sell its existing stockpile the process is
likelytotakeanumberofyears.Thisisbecausebidsandsalesaredoneinbatchesof500,000tonnes
97
InterviewwithmemberofThailandRiceTrader’sAssociation,11Feb2015,Bangkok
98
Interview,op.cit.
99
InterviewwithofficialfromAFSIS,10Feb2015,Bangkok
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Singapore,April2016
each time.100 The total losses incurred by the Thai state with this round of paddy pledging are
estimatedtobeintheregionsofUS$20billion.101
‘PaddyPledging’programme
Thepaddypledgingpolicywasfirstintroducedinthe1981–1982croppingseasonwiththeobjective
to provide soft loans for farmers who wanted to delay sale of their crops. This was to tide the
farmers over periods when prices are low, so they can hold stocks and sell under more profitable
conditions.Thissystem (ofbeingabletotakeoutloansusingtheirstocksascollateral)continued
until2000.Theprogrammechangeditsobjectivesin2001–2002.Itcouldnowalsoactasawayto
controlricepriceandincreasefarmers’incomes.Thismeantthattherewerenowtwodistinctways
farmerscouldusetheirstocksforgreaterincomes.
The first was now farmers could now borrow ‘soft’ loans102 from the Bank of Agriculture and
Agricultural Cooperatives (BAAC) using their paddy as collateral stored in their own facilities.
Alternatively,theycouldchoosetobringtheirpaddytoagovernment-operatedwarehouserunby
thePublicWarehouseOrganization(PWO)locatedineverydistrictinthecountrywheretheycould
storetheirriceinstead.ThegovernmentofThailandprovidedinterestsubsidyforthefarmersand
paidthefullinterestrateontheBAACloans(about6.0–7.0percent)forfarmerswhochosethefirst
optionofstoringricethemselves.IncaseofthesecondoptionwhenthericeisstoredbyPWO,they
wouldneedtopaythreepercentinterestandthedifferencewouldbecoveredbythegovernment.
100
InterviewwithmemberofThailandRiceTrader’sAssociation.Opcit.
101
InterviewwithDrNiphon,13Nov2014,Manila
102
Softloansareloansatlowerinterestratesandmorefavourabletermsfortheborrowerascomparedto
marketnorm.
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Figure8:Totalpaddyproductionvs.totalpaddyprocuredthroughpledging(inmmt)
35
30
25
20
15
10
5
0
Totalproducmonpaddywetanddry
Totalpledgewetanddryseasons(mmt)
Source:GovernmentStatisticalOffice(amendedfromPoapongsakorn,2010)103
Lessons,issuesandareasofconcernofThailand’sstockpilingprogramme
Politicisationofricepolicy
GiventheprocedureandinstitutionalarrangementofhowricepolicyinThailandisformulated,itis
littlesurprisethatitissosusceptibletopoliticisation.Theinitialreviewwhichstartedthehighlevel
ofpledgingoriginatedinThaksinShinawatra’sgovernmentinearly2000s.Whileitwasjustifiedon
the grounds of helping the farmers, who constitute the low income section of Thailand, public
stockpilingofricecouldalsobeseenasappeasementofhispoliticalbaseandawayofbuyingvotes.
TherewasacontinuanceofsimilarpoliciesbythesubsequentYingluckadministration.Thepledging
policy cost Thailand’s its top position in the international market as it could not afford to sell its
stocksbelowitspledgedlocalprices.
CostsofStockpiling
Other than the direct fiscal costs associated with the pledging programme, there were also large
lossesincurredintermsofphysicalstock.Itisestimatedthatcloseto2milliontonneswaslostdue
103
Poapongsakorn,Nipon,andD.Dawe."ThepoliticaleconomyofThairicepriceandexportpoliciesin20072008."Ricecrisis:Markets,policiesandfoodsecurity(2010):pp.191-217.
54
Singapore,April2016
to a poor rotation system. Another couple of tonnes is now said to be of significantly bad quality,
whichwillbehardtosellorauctionoff.104
Lossesarealsoincurredasaresultofsmuggling.Duringtherecentpledgingprogramme(2011-2014)
smugglingfromneighbouringcountriesissaidtohavebeenrampant.105RicefrommainlyCambodia,
andinsomecasesfromVietnam,weresaidtohavebeensmuggledintoThailandtoprofitfromthe
extremelyhighpledgeprices.Ablackmarketforsmuggledricewassupposedlyoperatingextremely
wellduringtheseyears.106
CrowdingoutofthePrivateSector
The running of pledging programmes in Thailand also had an impact on the private sector. The
private sector has always been an important player for rice both domestically and internationally.
During the pledging programme, the high prices offered by the government meant the private
traderscouldnotprocureanyriceinthemarketforclosetotwoyears(2012–2014).
Thisledtoanumberofbusinessesshuttingdownandexitingthericemarket.Othersmovedtofocus
onothercommoditiesinstead,wheretherewaslow/nogovernmentintervention.Onlyricetraders
andbusinesseswithconnectionstothegovernmentcouldgetaccesstogovernmentstocksandbuy
at low prices.107 The rest were priced out. This is likely to have long-term consequences for
Thailand’sriceeconomy.
FuturedirectionsforThailand’sfoodpolicyandstockpiling
It is now clear that the costs of Thailand’s recent pledging programme have far outweighed the
gains.Afterthisbitterexperienceitisunlikelythatanyfuturegovernmentintheshort-tomedium-
term will likely pursue similar out of control stockpiling policies. Public rice stockpiles are likely to
dropandremainatmore“acceptable”levelsofuptosixmilliontonnes(levelsbeforeYingluck’srice
policyrevision).108
104
InterviewwithmemberofThailandRiceTrader’sAssociation.Opcit.
105
Ibid
106
InterviewwithofficialfromAFSIS.Opcit.
107
InterviewwithmemberofThailandRiceTrader’sAssociation.Opcit.
108
Ibid
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Vietnam
Table10:PublicStockpilingofRiceSnapshot
TotalPopulation
90.7million(2014,estimated)
Quantityofpublicstockpiles
Total(in‘000mt),2014
Production
Imports
Exports
Consumption
Public
Stockpile
28,074
Public
Stockpiling
Authority/Institution
400
6,200
22,100
2,000
•
VietnamFoodAssociation
•
VINAFOOD1(RedRiverDeltaProduction)andVINAFOOD2
(MekongRiverDeltaProduction)
Purposeofpublicstockpile
Governanceofstockpile
Dedicated
infrastructure
stockpiles
•
Farmersubsidy/income
•
Exportstability
•
Market/pricestabilisation
Control
NameofInstitution/Organisation
Public
VINAFOOD1andVINFOOD2
for Facility
Numbers
Warehouses
(not
(Covered)
available)
Capacity(in‘000mt)
publicly Approx.2,000
Silos
Under
VINAFOOD 1 and 2 plans to
None
construction
constructsilosforatotalof4
(numbers
million tonnes of storing
unspecified)
capacity.
Introduction
Vietnam, through VINAFOOD 1 and 2, have mostly been stockpiling two commodities. First is rice
whichservesastheprimegrainthatdominatesVietnam’sfoodproduction.Secondiscoffeeasithas
been an increasingly important agricultural export commodity for Vietnam. Stockpiling of rice and
coffee has largely focused on producers. As mentioned above, every year, the Vietnamese
government announces calls for national stockpiling of rice. During 2014- 2015, Vietnam
experiencedslightlossesofashareoftheworld’sricemarkettoThailandandIndia.
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ThestockpilingpolicyhasbeeninstrumentalforVietnam’sriceexports.Itisawell-organisedpublic
and private cooperative mechanism which ensures continuity of exports. At present, the
government of Vietnam is planning to increase its public stockholding capacity from 2 mmt to 4
mmt.Thismeansthatby2020,itislikelythattheVietnamesegovernmentmayhavestocksofabout
4mmtatanygivenpointintime(orbetween15-20percentoftotalannualdomesticconsumption).
The rationale of the government as expressed and justified by the VFA and VFA members, is that
such an increase in stockpiling will be helpful for the farmers to sustain their production (and by
extensiontheirincomes)andimprovetheiroverallwelfare.
However, there are sceptics of this new proposal.109 The proposed targets are considered
unnecessarybecauseVietnamdoesnotneedlargepublicreservesduetothecostsforthestateto
maintainthestockswhentheprivatesectorcouldbeputinchargeofholdingstocks.Inthepast,rice
reserves were needed especially in the North due to unstable production, these have however
stabilisedinrecenttimes.Vietnamhasagoodinternationalmarketforitsrice,whichalsosuggests
thereisn’taneedtomaintainlarge(public)reservesfordomesticconsumptionpurposes.Vietnam’s
main rice export destinations include China (biggest importer), other Asian countries (Philippines
and Indonesia) as well as Africa (e.g. Ivory Coast and Angola) and Latin America. Critics of
Vietnamese rice stockpiling policy thus feel that what is needed is to promote Vietnamese rice in
morecountriesandregionssoitcanreapthebenefitsfromtheinternationalmarket.Thecostof
stock rotation is also going to be significantly higher – as the government will need to rotate its
entirestocksevery2-4yearstomaintainthequalityofstockpiledrice.
One of the most controversial policies on stockpiling is the Vietnamese Government Decree
109/2011 which regulates minimum stock amounts for rice exports. The decree states that “a rice
businessmusthaveawarehousecapableofstockingatleast5,000tonnesofrice,andaricehusking
plantwitha10tonnesperhourcapacity,tobeeligibletoexporttheirproducts.”110Thepolicywas
initially created to boost rice exports. However this policy has triggered high dropout rates of
exporters from smaller provinces. Furthermore, the decree considers rice to be one homogenous
109
InterviewwithDirectorofResearchDepartmentforPublicServicePoliciesCentralInstituteforEconomic
Management(CIEM),Sept2014.
110
NguyenTrongThua,headoftheAgro-ForestryProcessingandSaltIndustryDepartment,Ministryof
AgricultureandRuralDevelopment.SeeRicestockpilepolicyharvestsall-roundgains[May2013]
25/05/2013http://english.vietnamnet.vn/fms/business/74990/rice-stockpile-policy-harvests-all-roundgains.html[LastaccessedSeptember2014]
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commodity and does not recognise the existence of niche markets for specific rice varieties which
existsintheglobalmarket.Asaresult,thispolicyhasbeenhighlycriticised.111
Vietnam’s rice stockpiling programme started in the mid-1990s and it continues to increase its
stockpileamountsaspartofthe“exportreadiness”strategy112.Theexportsinvolvedifferenttypes
of rice including high value rice, such as Vietnamese aromatic rice and glutinous rice, which have
seenanincreaseintermsofmarketsharerecently.113Thissteadyincrementinstockpileshasbeen
possibleduetoboththeincreasesinyieldaswellasinproductionsince1990s.Vietnamcurrently
produces three crops of paddy every year – Spring, Winter and Autumn. Most of the harvest and
stockpilingoccursduringtheWinter-SpringandSummer-Autumnperiods.
Figure9:TrendofpaddyyieldinVietnam1970s-2012
80
60
40
YieldofCrops:Paddyaverage
YieldofCrops:Paddy:SpringPaddy
YieldofCrops:Paddy:AutumnPaddy
YieldofCrops:Paddy:WinterPaddy
2012
2009
2006
2003
2000
1997
1994
1991
1988
1985
1982
1979
1976
0
1973
20
Source:USDAandFAOdata,2014
Governanceofricestocks
VINAFOOD1inHanoilooksaftersupplyandavailabilityofricefortheNorthernregionsofVietnam.
VINAFOOD2inHoChiMinhCitymanagesriceproductionintheMekongDelta(Southernregions).
While VINAFOOD 1 has rice as its core business, it also functions as a general trading company
111
SeestatementbyTruongThanhPhong,chairmanofVietNamFoodAssociation(VFA),VietnamNews
25/05/2013.http://english.vietnamnet.vn/fms/business/74990/rice-stockpile-policy-harvests-all-roundgains.html[LastaccessedSeptember2014]
112
ExportReadinessCenter2011:Vietnam’sExportReadinessWashingtonStateUniversity,30April2011.
http://export.wsbdc.org/assets/uploads/4fa8635086bf9Vietnam_Country_Report_V5_63011.pdf[Last
accessedNovember2014].
113
SeericeinformationattheVinafood2.http://www.vinafood2.com.vn/EN/Pages/SanPham.aspx
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dealingwithothergrains.114ThroughVINAFOOD1and2,thegovernmentofVietnamhasbeenable
toexport6-7milliontonnesofriceannually.
This price of rice tends to slump during the Winter-Spring harvests (around March).115 In order to
mitigate the sudden shock to farmers' incomes, the government often stockpiles rice through the
privatefirmsinordertoensurethe30percentprofitmarginforthefarmers.116Therealsoseemsto
be pressure on the part of the government and private traders to export the Winter-Spring
stockpiled rice as soon as possible since firms have to start anticipating and planning for the
Summer-Autumnricestockpiles.
GovernanceIssuesofStockpiling
TheVFAhas125officialmembersandabout10associatemembers.VINAFOOD1andVINAFOOD2
are the two key firms which is owned by the government. Its members deal with food and
agriculturalproduction,processingandtradingincludingdealingwithprocessedfood.TheVFAhas
beenmandatedtodeterminethequantityandquotaofgovernment'sfood(rice)procurementfor
stockpiling. Since the head of VFA should come from its members, there are issues regarding the
fairness and the legitimacy of quota policy for each province. There are also issues around nonmemberfirmsthatcanalsoplayarolegiventhefactthatexistingstoringcapacityofVFAmembers
insomeregionhavebeenexhausted.
In addition, cooperation between VFA and local governments is often absent. Local governments
view VFA as unilaterally deciding rice quotas from each region based on a ‘top-down’ approach
without proper local consultations.117 As a result some quotas are not proportional to the level of
localproduction.
114
InterviewwithMr.QuachManhDung,DeputyMarketingManager.(HewrotehisMScthesisonfoodcrisis
2007-2008).
115
VoThanhDo[DeputyheadoftheAgro-ForestryandFisheriesProcessingandSaltIndustryDepartment],
VietNamNet,Stockpilinghelpstoboostricefarmers'profits[12June2014]
116
Dr.NguyenMihnHai,PhoneInterviewon2October2014.SeealsoPhamHoangNgan(2010)
117
HuynhVanGanh,DirectoroftheKienGiangDepartmentofIndustryandTrade.SeeVietnamNews-June,
172013http://vietnamnews.vn/economy/240851/delta-hit-by-low-rice-prices.html.
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Conclusion
Giventhefindingsfromthefieldaswellastheliteratureandsecondarysourcesavailable,itseems
clear that stockpiling of rice is likely to continue, if not expand, in the Asia Pacific region into the
foreseeablefuture.Thereanumberofreasonsforthis,someofwhicharelistedbelow.
•
Most countries have a history in terms of public stockpiling of rice and many have
continuedtooperatesomeformofpublicricestockpilingprogrammesfordecades.Thisis
thereforenotarecentphenomenon.
•
Thereareindicationsthatmostgovernmentshavestartedrevisitingthestockpilingoption
after the experience of the 2007-2008 global food price crisis. Hence there seems to be
greaterresolve.
•
Therecentrevisitingandre-assessmentintermsofpublicstockpileshastwofeatures;(i)in
terms of quantities and volume of rice placed under reserve (ii) types and kinds of
commodities(staples,grainsetc.)tobestockpiled.
•
Reviews and audits are on-going in a number of the countries for institutions which have
been dealing with public rice stockpiling and distribution programmes. Some aim to
minimise losses and inefficiencies experienced in the past. Others are keener to explore
differentorganisationalandstructuraloptionsforbetterefficiencyandcost-effectiveness.
These are welcome signs but also point to the resolve and commitment towards
maintainingstockpiles.
•
One of the main rationales for public stockpiling has been the eroding of trust in the
international markets and long term stability of international prices for key commodities.
Malaysia,PhilippinesandIndiaareexamplesofthis.Henceinternationaldevelopmentsand
factorsarealsobecominginstrumentalinstockpilingpoliciesandnotjustpurelydomestic
ones,whichwaslargelythecaseinthepast.
•
Anincreasingnumberofnaturaldisasters,emergenciesandtheissueofclimatechangeare
also weighing in. This is leading to greater consideration for the need to maintain
emergencystocksespeciallyincountrieslikethePhilippinesandIndonesiawhichareprone
tomajornaturalcatastrophes.
•
Maintaining food reserves is also becoming popular as part of government “social
obligations”.Thisisintermsofprovidingfoodaspartofsafetynetsforthelessfortunate.
India’s National Food Security Bill, Indonesia’s RASKIN programme, and Philippines’ NFArunsubsidisedfoodprogrammesallattesttothis.
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Public stockpiling of rice is therefore likely to remain an important part of food policy for many
governments in Asia Pacific. The justification for this is increasingly on the grounds of “food
security”, which is oftentimes understood and construed in different/varying ways. However given
theimplicationsofstockpilingpolicies,bothonthedomesticfrontaswellasinternationally,whatis
likelytobethenewnormalofgrowingandlargenational/publicreservesiscertainlygoingtobean
importantfacettobeawareof,monitor,andconsiderwhendiscussingAsia’sfoodsecuritymoving
forward.
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