Public Stockpiling of Rice in Asia Pacific - rsis.edu.sg · Public stockpiling of rice ... Recent...

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)Studies2ProfessorandRSISSeniorAdjunctFellow;PrincipalOfficer,Director’sOffice,NaturalSciences&ScienceEducation,NIE3 ResearchFellow,RSIS’CentreforNon-TraditionalSecurity(NTS)Studies4 AssociateResearchFellow,RSIS’CentreforNon-TraditionalSecurity(NTS)Studies

CentreforNonTraditionalSecurityStudies(NTS)S.RajaratnamSchoolofInternationalStudiesNanyangTechnologicalUniversity,BlockS4,LevelB4,50NanyangAvenue,Singapore639798Tel:+6567906982Fax:[email protected]

www.rsis.edu.sg/nts NTS REPORT 2016

Singapore,April2016

1

Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Public stockpil ing of r ice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 Profi les . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

The Phil ippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Vietnam .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Singapore,April2016

2

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

uncontestedpositionas themost importantstaplecrop,“foodsecurity” isoften,equated to“rice

security”intheregion.

Public stockpil ing of r ice

Thepublicstockpilingofstaplegrains isoneoftheearlieststrategiesusedtomitigatefoodsupply

instability. Aftermanymillennia, it remains an important aspect, if not the cornerstone ofmany

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,someobjectivesmayresult inactivities

whichconflictwithotherobjectives.Thesepointsareexploredingreaterdetail inthemaintextof

thereport.

Singapore,April2016

3

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, theseareusedtoensurestability intheavailabilityand

priceofrice.

Safetynetstocks

Targeted at lower income segments of society, such stocks are often sold at highly

subsidisedprices.

Stocksfortrade

Thepurposeistoguaranteeminimumprofitmarginsforfarmersandensureexportstability.

Multilateralstockpiles

Regionalfoodreserves

TheASEANPlusThreeEmergencyRiceReserve (APTERR),which comprises the tenASEAN

member statesplusChina, SouthKoreaand Japan,was setup tohelp the region stabilise

ricesuppliesduringemergencies.

Implications of Public Stockpil ing

Governments adopting stockpiling policies need to be acutely aware of its implications, on both

domesticandinternationallevels,andbepreparedtomitigatepotentialriskssuchas:

Atthedomesticlevel

• Fiscalburden

• Potentiallong-termdependency

• Politicisationoffood

• Marketdistortionandcrowdingoutoftheprivatesector

Singapore,April2016

4

• 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 arenumerous 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.

Singapore,April2016

5

Introduction

Public stockpiling is considered a strategy for domestic food security and an alternative to trade-

based policies for food. This trend is particularly noticeable in countries in the region with large

populationslikeIndia,China,andIndonesia,aswellasamongcountrieswhichhavereliedheavilyon

food imports intherecentpastsuchastheUnitedArabEmirates,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 insecureand foodvulnerablepeople.Countrieswith food stockpiles canhelp itspopulations

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 themost as they found themselves priced out of the

market.Thisexperience,whichrevealedsomeoftheweaknessesintheinternationalfoodmarket,

ledtoare-evaluationofstockpilingstrategies,itspotentialusesandneeds.

Singapore,April2016

6

The general practice of stockpil ing: 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

tookaU-turnwith theonsetof theGreenRevolutionwhichsignificantlyboosted foodproduction

and it was argued that efficient international trade would be sufficient in guaranteeing a steady

supplyoffoodata lowercostacrosstheworld.This ledtomostcountriesgraduallycuttingpublic

stockpilesfromthe1970sonwards.5

Theresurgenceofpublicstockpiling

Inthe70s,maintainingstockpileswasequatedwithhighfiscalcosts,lossandwastageoffood,and

deemed distortionary to global trade andmarkets.6While some countries continued tomaintain

nationalfoodstocksofimportantcommodities,theoveralltrendshiftedtowardstradepoliciesand

internationaltradetomeetdomesticfoodsupplydeficits.7

This downward trajectory continued until 2007-2008,8 when theworld was hit by the food price

crisis.Afterclosetothreedecadesofsustainedinternationalfoodprices,the2007-2008crisisandits

1Technologicalbreakthroughshavecomeabout innumerousaspects fromseed technology to supply chainefficiencies, information technology like GPS and satellite monitoring, communications and marketinformation,tonamebutafew.2Thisreferstotheideologicalriftsofthe20thCenturybetweenmarketandplanned/stateeconomicmodels.3Porter,R.S.,“BufferStocksandEconomicStability”,OxfordEconomicPapers,NewSeries,Vol.2,No.1(Jan1950)pp.95–1184The40sand50sthinkingwasstillinfluencedbyMalthusiantheoriesandthememoryandexperienceoftheWorldWar IIwhichsaw international tradecometoahaltwasalso relatively fresh.Overallagriculturealsocommandedarelativelymoreimportantroleinalleconomiesandhencestockpilingpolicieswereconsideredimportantaspectsoffoodandagriculturepolicies.5Massell,B.F.,“PriceStabilizationandWelfare”,QuarterlyJournalofEconomics(May1969).6 Bigman, D., and Shlomo Reutlinger, “National and International Policies Toward Food Security and PriceStabilization”,AmericanEconomicReview,Vol.69,No.2,(May1979)7Bigman,D.,andShlomoReutlinger, “FoodPriceandSupplyStabilization:NationalBufferStocksandTradePolicies”,AmericanJournalofAgriculturalEconomics,Vol61,No.4,(Nov1979)8 Gilbert, Christopher L. Food Reserves in Developing Countries: Trade Policy Options for Improved FoodSecurity.IssuePaperNo.37.Geneva:InternationalCentreforTradeandSustainableDevelopment,2011.

Singapore,April2016

7

resultantpricehikewasanunexpectedshock. InAsia theresurgenceofstockpiling,particularlyof

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

governmentshavesincedeemed internationalmarkets jitteryandunpredictable.Theresultof the

upwardpricesandvolatilitysawmanyfarmers,especiallyindevelopingcountries,beingpricedout

ofthemarketanddriventowardshunger.9

This episode also exposed vulnerabilities for most food importing and lower income countries.

Despitehavingsafely reliedon internationalmarkets toprovide foodthroughtrade-basedpolicies

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.Inthecaseofthinly-

tradedcommodities13suchasrice,thedecisiontoadoptfoodstockpilingpoliciesislikelytoresultin

less stock available globally for export, thus potentially leading to limited supply and sustained

9Hadley,DerekD.andFanShenggen,Reflectionsontheglobalfoodcrisis:Howdidithappen?Howhasithurt?Andhowcanwepreventthenextone?,WashingtonD.C.:InternationalFoodPolicyResearchInstitute,2010.10Timmer,PeterC.,“ReflectionsonFoodCrisesPast”,FoodPolicy35(2010),pp1–11.11Gilbert,ChristopherL.FoodReservesinDevelopingCountries:TradePolicyOptionsforImprovedFoodSecurity.IssuePaperNo.37.Geneva:InternationalCentreforTradeandSustainableDevelopment,2011.12WorldBank.UsingPublicFoodgrainStockstoEnhanceFoodSecurity.WashingtonD.C.:TheWorldBank,2012.13Thinmarketsrefertocommoditiesofwhichaverysmallpercentageoftotalsupplyisactuallytraded.Forthecaseofriceitisestimatedthatonly7%oftotalworldproductionisinternationallytraded.

Singapore,April2016

8

higher prices.14 Widespread adoption of stockpiling practiceswould 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 directionswhich

havecometobeseenasfavourableinaddressingfuturemarketuncertainties.Thefirstisintermsof

buildingupnational stockpiles for essential staples like rice; the second is inpushing 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 theAsia Pacific region and the types of stocks theymaintain. In recent years

manydevelopingcountrieshaveexpressed interest ineitherstartingor increasingtheirpublicrice

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 Food SecurityStockpiles

Emergency/humanitarianstocks

Safety NetStockpiles

Stockpile forexportpurposes

Countrylevel China ü Japan ü India ü ü ü ü*Bangladesh ü Indonesia ü ü ü

14Timmer,PeterC.,op.cit,pp1–11.15BasedonfieldworkconductedbyJ.A.LassaandM.ShresthainIndonesia,PhilippinesandMalaysia,September-November2014

Singapore,April2016

9

Philippines ü ü Malaysia ü Thailand üSingapore ü Vietnam ü üBrunei ü Hong Kong(SAR)

ü

Regionallevel

APTERR ü

*.Notofficiallyverified/validated

Source:DataderivedfromliteraturereviewandfieldfindingsbyLassaandShrestha,2014.

Recent trends in the public stockpil ing of r ice 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’sbanonwheatexports in2010.Maintainingreserves

foremergenciesand/orunforeseendisasters (including those linked toclimatechange) isanother

aspectwhichismakingstockpiling,especiallyforrice,amoreattractiveproposition.

InthecaseofSoutheastAsia,manycountriesintheregionhistoricallyhaveadoptedamixoftrade

instrumentssuchasgovernmenttogovernmenttrade,localprocurement,andprocurementthrough

theprivatesectorinmanagingtheirricestocksandstockpiles.However,ifmostimportingcountries

were to strongly adopt stockpiling policies, thiswould 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 r ice reserve mechanisms TheASEANPlusThreeEmergencyRiceReserve(APTERR)andtheASEANFoodSecurityInformation

System (AFSIS) are notable achievements. AFSISwas started in 2003with the aim of becoming a

centralinformationrepositoryforfivecommoditiesintheASEANregion.Theseincluderice,maize,

16Timmer,PeterC.,op.cit,pp1–11.

Singapore,April2016

10

soybeans, sugar, and cassava. AFSISmonitors 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 reservemechanism forEastAsiawasalso consideredwhich led to the startof theEastAsian

EmergencyRiceReserve (EAERR).However, after the2007-2008 crisis, theAERRandEAERRwere

broughttogethertoformapermanentschemeundertheASEANPlusThreeEmergencyRiceReserve

or APTERR in 2009, as amechanism to address potential food shortages in the region. The final

formal agreementby theASEAN+3 states (China, Japan, andSouthKorea)was signed inOctober

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 andmotivation behind APTERR and AFSIS are important and noble. Understanding and

monitoringfoodsecurityfromaregionalperspective,ratherthanfromjustnationallevels,captures

thedynamicsofaregionalfoodsystemfromamacro-level.Suchaholisticoverviewcanalsoprovide

forusefulinsightsandhelpidentifyproblemareasandconcernswithregardtofoodsecuritywithin

Singapore,April2016

11

the region andminimise 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/classif ication of public stockpiles

Ananalysisofpublicricestockpilesmaintainedinthecountriesstudiedrevealsfourdifferenttypes

ofnationalpublicstockpilesandonemultilateralform.Theyaresummarisedasfollows:

Nationalpublicstockpiles

Emergency/humanitarianstocks:

Thesearestockswhicharemaintained toprotectaccess to food,especially forvulnerable

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 forgovernments toprocure food fromfarmersand/ormarketsonthecheapand

releasestockswhenmarketpricesmoveabovewhatisdeemedacceptablelevelsintermsof

affordability.

Singapore,April2016

12

Safetynetstocks:

Safetynet stocksare targetedat lower incomesegmentsof society.Suchstocksareoften

soldathighlysubsidisedprices.Thistypeoffoodstocksissometimesmaintainedandstored

togetherwith stocks for food securitypurposes. 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 bymajor exporting

countries that have little urgency in terms of needing to ensure food availability for its

people.Thepurposeofsuchstocks isessentially toguaranteeminimumprofitmargins for

farmers and export stability (See Table 1). In Vietnam and Thailand, this policy is often a

response to lucrativebusiness in theoverseas food trade. InThailand, the resellingof rice

stocksprocuredbythegovernmentfromitsfarmersishandledbytheMinistryofCommerce

in international markets. Profits or losses incurred by this operation are borne by the

government.

International/Multilateralstockpiles

Regionalfoodreserves

Probablythemostcitedandwellknownexampleofaregionalfoodreservemechanism,as

mentionedearlier, is theASEANPlusThreeEmergencyRiceReserve (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 theSouthAsianAssociation forRegionalCooperation (SAARC)FoodBank inSouth

Asia18andtheEconomicCommunityofWestAfricanStates(ECOWAS)regionalhumanitarian

reserve.19,20

17PersonalinterviewwithManagerofAPTERRSecretariat,Bangkok,13September2014.SeealsoAPTERRhttp://www.apterr.org/images/pdf_apterr/APTERR-Leaflet.pdf18TheSAARCfoodbankhasyettobeoperationalised.

Singapore,April2016

13

General implications of public stockpil ing 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 effectivenessmay lead to governments’ dependence on

theprogrammeasa long-termsolution to foodandagriculturalproblems insteadof 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.A lackoftransparencyandaccountabilityoftenleadstoagreater likelihood

ofsuchpoliticisation.22

19TheECOWASRegionalFoodSecurityReservehasalsonotbeenrealisedyet.CurrentlywiththehelpoftheEU,theprogrammeisstartingtobesetup.20Op.cit.,Gilbert,FoodReservesinDevelopingCountries21WorldBank.UsingPublicFoodgrainStockstoEnhanceFoodSecurity.WashingtonD.C.:TheWorldBank,2012.22Anexampleofhowfoodandstockpilingprogrammescanbepoliticisediswhengovernmentsusestockstointerveneinlocalmarketstosupressfoodprices(andinflation)toreappoliticalbenefits.Otherexamplesarewhenincumbentgovernmentsdistributecheap(orfree)foodinfavouredconstituenciesorinsomecasesprocuringfromlocalproducersathighpricestoappeasefarmersandrelatedvotingblocks.

Singapore,April2016

14

• 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.Chancesof lossesduringstorageandstockpilingoperationsare

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’spopulation. This fact isoftennotaccepted forpolitical reasons. Somecountries

whichmaintainlargevolumesofpublicfoodstockpilescontinuetosufferfromchronicfood

insecuritydue toavarietyof reasons suchasdistributionproblems,and the lackof clear

operationalguidelinesandmechanisms.

Internationalimplications

Therearetwodifferentdimensionstotheinternationalimplicationsofadoptingstockpilingpolicies.

Thefirstandmoredirect implication is intermsof international trade.Thesecond,morenuanced

implicationdealswiththepsychologicalimpactofstockpiling.

Singapore,April2016

15

• Internationaltradeandeconomics

Thedecisiontopursuestockpilingbyanimportingorexportingcountryautomaticallyleads

toanincreaseddemandforthestockpiledcommodity.Thiswoulddirectlyaffectthesupply

ofand/ordemandforthecommodity inthe internationalmarket.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

Anotherpotentialproblemofbuildinguplargestocksandreservesisthattheremightbea

need to periodically off-load excess stocks as part of either storage rotation or due to

sustainedhigh levelsofproduction. Insuch instances,particularly forexportingcountries,

stocks may be dumped onto the international market, which would lead to an artificial

suppressionofprices.Whilethiscouldbeseenasaboonforconsumers, itcouldcomeat

veryhighcoststoproducersandthelong-termviabilityofaparticularcommodity.

• Psychologicaleffects

Higherdemand

forcommodity

Increaseinprices

Greaterpotenmalofmarketvolamlity

Threatofnotsecuringsufficient

stocksonmme

Decisiontostockpile

Singapore,April2016

16

The practice of stockpiling by importing countries is often a reaction to counter the

perceived (or real) inefficiencies and failuresof the internationalmarket toprovide 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’sdemandforaparticularfoodcommodity is largeenoughtocreateshocks inthe

supply-demandequilibrium, there ishighpotential fora cascadingeffect inworldmarket

psyche. This impactwouldbe relativelygreater fromcountrieswith largerpopulationsas

wellasthosethatrelyheavilyonimports,comparedtocountrieswithsmallerpopulations

andlessimportdependence.

Thefirstnegativeimpactwouldbetheperceptionofgreatercompetition(duetodemand

pressure).Suchperceived threatsandriskscan lead topanic in theworld foodmarketas

wasobservedduringthe2007-2008foodpricecrisis.Secondly,negativeperceptionshave

thepotentialtostarta“stocksrace”especiallyamongcountriesrelianton imports. Inthe

medium- to long term, this would erode trust in the international trading systemwhich

would be detrimental to all countries that rely on international markets for their

population’sfoodsecurity.

Lastly,mostpublic food stockpilingprogrammesandpolicies tend tobeguardedas 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 considerationwith a

proper cost-benefit analysis prior to the decision to pursue or change a public food stockpiling

strategy.

Singapore,April2016

17

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 forNon-Traditional

SecurityStudies.The researchwascarriedoutbetweenNovember2013and July2015.Beloware

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

reportsof concernedpublic/private institutions, changes innational foodpolicieswhich

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 transparencyminimises chances of panic and extreme

pricevolatilityininternationalmarkets.

• Exploreoptionstowardstherealisationofmaintainingactualphysicalstocks inregional

stockpiling mechanisms to deal with disasters and emergencies (such as APTERR).

Currently,suchmechanismsdonothaveasuccessful trackrecordandsomepointtothe

virtualnatureof stocksasa critical factor. Therearealso issues surroundinggovernance

andprotocols.Anyregionalmechanismthatdealswithemergenciesshouldthereforelook

intoexploringthepossibilityofmaintainingatleastsomephysicalstockstobeeffective.

23Foramoreextensivediscussionsee,Caballero-Anthonyetal.PublicStockpilingandFoodSecurity.Singapore:RSIS,2015.

Singapore,April2016

18

• Establishclarityintermsofstockpilinggoalsandobjectivesandinstituteclearoperational

guidelines in terms of procurement, storage, release mechanisms. Often stockpiling

policies have failed or have a bad track record when toomany 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

popularpolicybymanygovernments.Experiencehas shown thatpublic stockpiles canhelp shield

domesticmarkets in timesofproduction shortfallsor globalpricehikes in the short-term.History

hasalsoshownthattherearenumerouschallengesandimplicationsofthepublicstockpilingofrice.

Inpursuingpublic ricestockpilingpolicies,governmentshavetobeawareof thesechallengesand

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.

Singapore,April2016

19

Country Profi les

Thefollowingsectionwilllookatthepracticeofmaintainingricereservesandpublicricestockpiling

policiesofsixcountries intheAsiaPacific region.This is largelybasedonthefindingsof fieldwork

conductedinIndia,Indonesia,Malaysia,ThePhilippines,Thailand,andVietnam.Thesectionaimsto

provideanoverviewandsnapshotofpublicstockpilingofriceintherespectivecountries.

Singapore,April2016

20

India Table3:PublicStockpilingofRiceSnapshot

TotalPopulation 1.28billion(2014,estimate)

Quantity of public rice

stockpiles

Total(in‘000mt),2014

Production Imports Exports Consumption PublicStockpile

106,650 0 11,500 99,251 17,000

Public Stockpiling

Authority/Institution

FoodCorporationofIndia(FCI)

Purposeofpublicstockpile • Farmersubsidy/income

• Legalobligation(NationalFoodSecurityAct2013)

• Foodsafetynet/foodsubsidy

• Market/pricestabilisation

• Domesticsupplystability

Governanceofstockpile Control NameofInstitution/Organisation

Public FCI,MinistryofAgriculture,CACP

Dedicated infrastructure

forstockpiles

Facility Numbers Capacity(mmt)

Warehouses(Covered)

CoverandPlinth(CAP)

(not publicly

available)

FCIowned:15.65

Rented:21.5

Introduction

NotonlydoesIndiahavealonghistoryofagriculturedatingbackatleast6000years,itconsistently

hasoneofthehighestagriculturaloutputsintheworldandisthebiggestproducerofvariouscrops

andfruits.AlthoughthecontributionofagriculturetoGDPhasbeendecliningsteadilyovertheyears

itstillaccounts forcloseto18percent.24Thesectoralsostill reportscloseto50percentof total

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-

24WorldBankData,2014.http://data.worldbank.org/country/india(lastaccessedDecember2015).25Ibid,2013

Singapore,April2016

21

usewhichhaveresultedingreateryieldperunitareaof land.Boththesefactorshavecontributed

significantlytoproduction.26

India’sdominantpositioninriceproductionandtrademeansfoodpolicyinIndiahasimplicationsfor

otherpartsoftheworld.The2007-2008pricecrisisrevealedasmuchIndia’sdecisiontostopexports

ofriceandwheatduetodomesticfoodsecurityconcerns,tosomeextent,contributedsignificantly

totheinternationalpanicwhichfollowed.

Indiahaspublicly stockpiled rice (andothergrains) forover fivedecadesnow. India is the second

largestproducerof riceafterChinawithslightlyover159milliontonnesproduced in2013.27 India

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.

Figure2:IndiaRice-AnnualYieldandProductionPerCapita

Source:FAOSTATandUSDA,2014

26InterviewwithofficerfromMinistryofAgriculture,India,18thOct2014,NewDelhi27FAOData,FAOSTAT,2014.http://faostat3.fao.org/home/E(lastaccessedDecember2015)28RiceStatisticsData,IRRI,2014.http://ricestat.irri.org:8080/wrs2/entrypoint.htm(lastaccessedDecember2015).

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

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

Consum

p]on

Kg/pe

rcap

ita/year

Yield-t/ha

Yieldt/ha Riceconsumpmonpercapitakg/yr

Singapore,April2016

22

HistoricalOverview

Food self-sufficiency has been the cornerstoneof India’s foodpolicy since independence in 1947.

Howeverthedeficitbetweentheminimumrequiredfoodandsupplyremaineduntilthe1960s.Up

until then India importedboth rice andwheat in varying amounts almost annually to supplement

their production shortfall. This gapbetweendemandand supplywas successfully closedafter 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 beenboostedby and is part of a numberof policies.

These include regulationof traders fromexploitativemarketingpractices through theuseof legal

andregulatorymeasuressuchaslicensing,levies,stockinglimitsandmovementrestrictionsaswell

asfixingofminimumsupportprices(MSPs).30Itisarguedthatallofthesepolicieshavecontributed

significantly to the increase ingrainproductionwhichhasmanaged tokeeppacewithpopulation

growthuntilthepresent.

Asafederationof28stategovernmentsandsevenunionterritories,India’sfoodpolicy,particularly

its stockpilinganddistributionactivities,arepredominantlyhandledat thestate level.Thecentral

government’sroleisinfederalguidanceonMSPs,distributionprices,administrationmechanismand

amountspereligiblepersons.Therearedifferences inmechanismsbetweenstateshowever,given

thevaryingincomesandfoodsituationatstatelevel.

29Pangotra,Prem."PublicDistributionSysteminIndia."PhDdiss.,IndianInstituteOfManagement,Ahmedabad,2010.30Acharya,ShabdS."FoodSecurityandIndianAgriculture:Policies,ProductionPerformanceandMarketingEnvironment",AgriculturalEconomicsResearchReview22,no.1(2009):1-19.

Singapore,April2016

23

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

• Distributionof 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 domesticmarket prices through intervention when necessary (market

pricestabilisation).

Presentstockpilingpolicyandpractices

Thesizeoftheminimumpublicstockstobemaintainedisdeterminedeveryfiveyearsbyanexpert

group32 taking into account yearly fluctuations in production and government’s commitment in

providingsubsidised food.The totalamountofactual stocksatanygivenpoint in timemaydiffer

fromthenorm.Thishaslargelybeenthecase,forvariousreasons,suchasmarketpricesvis-à-visthe

MSP,whichinfluencehowmuchthegovernmentwouldprocureastheofficialbuyeroflastresort.

Procurement

TheCACPannounces theMSP for riceprior toplanting seasons. Theoretically theMSPsare tobe

announcedayearinadvanceoftheharvests.TheMSPiscalculatedtakingintoaccountthecostof

production (inputs), demand and supply in local markets, international and domestic prices and

31FoodCorporationIndia,www.fci.gov.in(lastaccessedDecember2015).32SomeofthemembersoftheExpertGroupincludeofficialsfromMinistryofAgriculture,theNationalFoodSecurityMission,CommissionforAgricultureCostsandPrices,FoodCorporationIndia,andtheMinistryofSocialJusticeandEmpowerment.

Singapore,April2016

24

impactofpricesonconsumers.Oncetheharvesting iscomplete thereare twomechanismsunder

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

percentageof theiroutput to therespectivestategovernmentsatastatutoryprice.Thestatutory

price,alsoknownasthelevyprice,iscalculatedbyfactoringinmillingcostsandamodestmarginon

topoftheMSP.Thepercentageofgrainsprocuredfromthislevysystemfluctuates,atpresentitis

estimatedtobebetween30-40percent.

Governmentprocurementasa shareof totalproduction isanother figurewhich 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

33InterviewwithofficerfromMinistryofAgriculture,India,18thOct2014,NewDelhi34Ibid.35Ibid.36Ibid.

Singapore,April2016

25

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.38TheNFSAcoversapproximately twothirdsof India’s totalpopulationof1.2billion.

Thismeans the government of Indiawill 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

foodpricecrisisof2007-2008,FCInowalsomaintainsa separatestrategic reserveof 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-

37Kubo,Kensuke."India:Theburdenofdomesticfoodpolicy."Shigetomi,S.,Kubo,K.,Tsukada,K.,&Shigetomi,S.(2011).TheworldfoodcrisisandthestrategiesofAsianriceexporters.Chiba-Shi,Japón,InstituteofDevelopingEconomies,IDE-Jetro(2011).38InterviewwithofficerfromFoodSecuritymission,MinistryofAgriculture,India,21stOct2014,NewDelhi39FoodCorporationIndia,www.fci.gov.in(lastaccessedDecember2015).40InterviewwithofficerfromFoodSecurityMisson,MinistryofAgriculture,India,21stOct2014,NewDelhi41Ibid.

Singapore,April2016

26

proofsheets(alsoknownasCoverandPlinthorCAP).Itwasestimatedthatsomefourmilliontonnes

offoodwasstoredinthismannerin2011/12.42

Table4:Bufferstockingnorms(inmmt)

Rice Wheat Total(Wheat+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

w.e.f.

20.04.200511.8 12.2 9.8 5.2 8.2 4 17.1 11 20 16.2 26.9 16.2

w.e.f.

22.01.20155.61 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 dowith accessibility and affordability of food for the vastmajority of the populationwho live

belowthepovertyline.

ThegovernmentofIndiaisstronglycommittedtomaintaininglargestocksonanannualbasisasway

to combat chronic food insecurity in the country. The passing of the National Food Security

legislationhassetthelegalbasisforcontinuationofstockpilinginIndia.44Therearealreadyahostof

issuesfacingIndiawithregardstoitsstockpilingpolicy.Someofthesearesummarisedbelow.

42McCreary,Ian."FoodreservesinIndia."ReportfortheCanadianFoodgrainsBank.Winnipeg,Canada(2012).43InterviewwithofficerfromFoodSecuritymission,MinistryofAgriculture,India,22ndOct2014,NewDelhi44TheNationalFoodSecurityAct,2013(alsoRighttoFoodAct)isanActoftheParliamentofIndiawhichaimstoprovidesubsidisedfoodgrainstoapproximatelytwothirdsofIndia's1.2billionpeople.

Singapore,April2016

27

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

tostabilisemarketpricesandfood inflation.Thepotential forsuchscenarios justifiestheneedfor

holdinglargeramountsofstocksthannecessary.

45FoodCorporationIndia,AnnualReport2013-14.http://dfpd.nic.in/writereaddata/images/pdf/ann-2013-14.pdf(lastaccessedDecember2015).46GovernmentofIndiaStatistics,2014.http://www.indiastat.com/agriculture/2/stats.aspx(lastaccessedDecember2015).47FoodCorporationIndia,AnnualReport2013-14,op.cit.

Singapore,April2016

28

Indonesia Table5:PublicStockpilingofRiceSnapshot

TotalPopulation 253million(2014,estimated)

Quantity of public rice

stockpiles

Total(in‘000mt),2014

Prod Imports Exports Consumption PublicStockpile

36,300 1,250 0 38,600 Approx3,000

PublicStockpilingAuthority BadanUrusanLogistik/BureauofLogistics(BULOG)

MinistryofAgriculture(MoA)

Purposeofpublicstockpile • Emergency/disasterreserve

• Farmersubsidy


• Domesticmarketsupplystability

• Safetynet

PresentStockpileMechanism EmergencyStockpile 300,000mt(BULOG)

56,000mt(MoA)

BufferStock 300,000mt

RASKIN 3 million tonnes (average since 2008-

2013)

Dedicated infrastructure for

stockpiles

Facility Numbers Capacity

Warehouses 1,500

Approx. 4 million

tonnes

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(privatesectorandstate-

owned)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

Singapore,April2016

29

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 isa shortfall in localproduction.BULOG intervenes in thedomesticmarketby releasing rice

whenpricesaretoohigh, throughwholesalersand localmarkets.Directsellinganddistributionof

stockbyBULOGonlyhappensthroughtheRASKINprogrammewhichisreservedforthe“mostpoor”

asdefinedbythecriteriaoftheNationalWelfareMinistryandtheVicePresident’sOffice.

Figure3:IndonesiaRiceStockpileTrend(in‘000mt)

Source:BULOGData,TN2PK2014andUSDA,2014

0

1000

2000

3000

4000

5000

6000

7000

8000

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

IndonesiaBeginningStock(total) IndonesiaEndingStock(total)

EndofFiscalYearStock(government) TotalRiceforthepoor(Raskinsince2005)

Endingprivatestock

Singapore,April2016

30

HistoricalOverview

Rice has been an extremely important commodity for Indonesia since colonial times. The Dutch

administrationexertedtightcontrolonthedistributionofricefromsurplustodeficitregionsduring

their rule inorder tomanage localpricesandensuresupply stability.48This trendcontinuedpost-

independenceandricepolicyhasremainedcentraltoIndonesia’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

48Timmer,C.Peter,T.W.Mew,D.S.Brar,S.Peng,D.Dawe,andB.Hardy."FoodsecurityandricepricepolicyinIndonesia:theeconomicsandpoliticsofthefoodpricedilemma."InRicescience:innovationsandimpactforlivelihood.ProceedingsoftheInternationalRiceResearchConference,Beijing,China,16-19September2002.,pp.777-788.InternationalRiceResearchInstitute(IRRI),2003.49Ibid.p.78150Ibid.51Dawe,David."MacroeconomicBenefitsofFoodPriceStabilization."IndonesianFoodJournal6(1995):pp.43-64.52Ibid.

Singapore,April2016

31

designamoremarket-orientedpricepolicy.53 Thisdirectionwas furtherbolsteredafter the1997-

1998financialcrisisintheregion.

During the 1997-1998 crisis, Indonesiawas hit hard both economically and politically. During this

difficultperiodBULOGlostcontrolofdomesticricepricesinmid-1998.Intheaftermathofthecrisis,

as a result of pressures from domestic politicians and foreign donors, BULOGwas stripped of its

monopolyoverriceimportationaswellasitsmandatetostabilisericeprices.

PresentFoodReservePolicyandPractices

In the years following the Asian financial crisis, BULOG, stripped of its mandate, changed to an

agency inchargeofprocurementanddistributionofhighly subsidised food to thepoorunder the

“rice forpoor”orRASKINprogrammestarted in2005.54Sincethe international foodpricecrisisof

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 3million tonnes per year

since 2008. In 2013, the government stockpiled and distributed at least 3.3million tonnes to the

poor (comparedto3.2milliontonnes in2008).Thetotalnumberofhouseholdsbeingtargetedby

theprogrammewas15.5millionin2013.Thisisareductionfromthe19.1millionin2008.

53Timmer,C.Peter."Buildingefficiencyinagriculturalmarketing:thelong-runroleofBULOGintheIndonesianfoodeconomy."JournalofInternationalDevelopment9(1997):133-146.54InterviewwithFormerDeputyHeadofBulog-Solo,8thSept2014,Jakarta.55BULOGPresentationdeliveredattheASEANRegionalWorkshopontheRoleofRiceReserveAgencyinStrengtheningNationalandRegionalFoodSecurity,8May2009,Jakarta,Indonesia.

Singapore,April2016

32

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

Oneof the recentdevelopments in rice reservepolicyhasbeen theMinistryofAgriculture (MoA)

directive2012,whichwasdraftedtogetherwithMinistryof InternalAffairsandMinistryofTrade.

Accordingtothisdirective,localgovernmentsarenowencouragedtoprocureandmaintainreserve

stocksthroughtheirownmeansandattheirowncosts.Thisisseenasbeinginlinewiththeexisting

Food Law (18/2012) which emphasises the concept of shared responsibility between local and

nationalgovernmentsinensuringnationalfoodsecurity.

Aspercurrentpractice, thecentralgovernment through theMoAprovidesheadsof localdistricts

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, aswell as (iv) procure andbuild upof their own reserve rice stocks.57 This

directivewasdraftedinconsultationwithlocalgovernmentsacrossIndonesia.

Thisricefromthelocalreservecanbe“borrowed”byanymemberofthecommunityasandwhenin

need.Asimilaramountwillhavetobereturnedwithanadditionalamountdesignatedasaservice

chargeorasinterest.Theactualamountofthe“servicecharge”willbedecidedbythecommunity.

56InterviewwithFormerDeputyHeadofBulog–Solo,8Sept2014,Jakarta.57InterviewwithFormerDeputyofMinistryofAgriculture,Indonesia,11Sept2014,Bogor.

Singapore,April2016

33

GovernanceofStockpilechallenges

BULOGhasexperiencedhigh levelsof corruptionat thenational level in thepast. Thedecision in

terms procurement for BULOG is under the directive ofMinistry of Trade. BULOG needs to seek

approval from theministry 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

thereareconcernsthat itscurrentstockpilingpoliciesare inefficientandthusshouldbereviewed.

On theother, thereareopinions that the stockpilingpoliciesdonotgo farenoughandshouldbe

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.

Singapore,April2016

34

Malaysia Table6:PublicStockpilingofRiceSnapshot

TotalPopulation 30million(2014)estimated

Quantityofpublicstockpiles Total(in‘000mt),2014

Production Imports Exports Consumption Public

Stockpile

1,800 950 0 2,750 292

Public Stockpiling


PadiberasNasionalBerhad/NationalRiceCorporation(BERNAS)


• Farmersubsidy



Governanceofstockpile Control NameofInstitution

Public/Private BERNAS, Ministry of Agriculture and

Agro-BasedIndustries(MoAAI)


ricestockpiles


(in‘000mt)

Warehouses 44

(not publicly

available)

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 happeneddespite reductions in cultivated land

overtheyearsasaresultofdevelopmentandpressureforalternativeuses.

At present, rice is grown on 400,000 hectares of land inMalaysia. There is however an average

annual short fallofapproximately0.8–1.4million tonnesof rice.Thisdeficit thereforehas tobe

58Daño,ElenitaC.,andErnaD.Samonte."PublicsectorinterventioninthericeindustryinMalaysia."Stateinterventioninthericesectorinselectedcountries:ImplicationsforthePhilippines(2005):pp.187-216.59Ibid.

Singapore,April2016

35

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.

Figure4:Malaysiariceproduction,importsandstocks(in‘000mt)

Source:FAOandUSDA2014.

60InterviewwithofficialfromStrategicPlanningandInternationalDivision,MoAAI,24thSept2014,KualaLumpur

0200400600800100012001400160018002000

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

BeginningStock(1000t) EndingStock(1000t) Producmon(1000t)FAO

Import(1000t)USDA Producmon(1000t)(USDA)

Singapore,April2016

36

Historicaloverview

Though rice has been the staple crop of theMalay people throughout history, with the onset of

colonialismitwasperceivedthatMalaysia(thenMalaya)didnothaveacomparativeadvantage in

termsofgrowingfoodcropsandcommodities.Attentionwasthusdivertedtowardsthecultivation

and production of commercial crops. To some extent intentions to invest in and cultivate

commercialcropsratherthanfoodcropspersistedevenafterindependence.

Ricehasnonethelessbeenconsistentlyregardedasastrategicsectorandhasbeenaccordedspecial

treatmentby thegovernment.61The formationofdedicated institutions tooverseethericesector

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 ofMalaysia has always consideredmaintaining

some levelof self-sufficiencyasamatterof securitydespite theeconomiccosts for thecountry.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 internationalmarkets. It has

oftendedicatedvastamountsofpubliccapitaloninfrastructuredevelopmentaswellasinsubsidies

inattemptstoboostproductionandincreaselevelsofself-sufficiency.

TheEl-NinoeventaffectingSoutheastAsiaaswellasNorthAmerica in1973which led toaglobal

foodcrisis65isseenasamajorturningpointinMalaysia’sfoodpolicy.Duetopricevolatility,overall

high prices, and difficulty in obtaining stocks in international markets, private importers stopped

importingrice.Asaresponseandlastmeasure,thegovernmenthadtointerveneinthemarket,with

61Daño,ElenitaC.,andErnaD.Samonte.2005.op.cit.62Ibid.63Ibid64InterviewwithStrategicPlanningandInternationalDivision,MoA,op.cit.65Formoredetailsonthis,refertoDaño,ElenitaC.,andErnaD.Samonte.2005.op.cit.

Singapore,April2016

37

theLembagaPadidanBerasNegara(LPN)givenagreaterrolebybeingtaskedtolookintosecuring

thenecessaryrice.66

LPNwasgiventhesolerighttoimportriceinMalaysiain1974.Priorto1974,importationofriceinto

Malaysiawasconductedona“quotabasis”throughprivate importers.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 inMalaysia 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 internationalmarkets is always denominated in US dollars). BERNASwas able to keep the

domesticpricesrelativelystablebyabsorbingmostofthepriceincrease.

In 2008, despite the costs of imported rice reaching recordhighs, BERNASmanaged to shield the

domesticmarketbykeepingpricesofbothlocalandimportedriceconstantat2007prices.Priceof

ricespiralledupwardsinMalaysiainearly2008,howeverBERNASreactedquicklywithmeasureslike

adoptingaceilingpriceforconsumers,increasingguaranteedminimumprice(GMP)forfarmersand

sacrificing its 2008 profits to keepprices stable in domesticmarkets.68 This resulted in rice prices

comingdownandstabilisingbysecondhalfof2008,eventhoughitremainedhigherthanpre-crisis

levels.

66InterviewwithProfessorfromInstituteofAgricultural&FoodPolicyStudies,UPM,23Sept2014,KualaLumpur67Daño,ElenitaC.,andErnaD.Samonte.2005.op.cit.68Ibid

Singapore,April2016

38


Sincethemid-90sBERNAShasbeeninchargeofMalaysia’sricestockpilingprogramme.Aspartof

the privatisation and subsequent corporatisation deal, it currently undertakes a number of non-

commercial activities in the interestof consumers. These include stabilisationof riceprices in the

market,ensuringsufficiencyof ricestocks,andmaintaining thequalityandstandardof 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 theoperationcostsare itsownanddoesnothaveanallocationof 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 fromboth domesticmarket 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-January2008 itwasannouncedthatBERNAS’stock levels

wouldbeincreasedfrom92,000mtto550,000mtwhichintheoryextendeditsreservestocksfrom

14daysto90daysofconsumption.However,afterfurtherreviewandconsideration,andoncethe

crisissubsided,itwasreviseddownto292,000tonnes(estimated45daysupply)ofrice.

69Daño,ElenitaC.,andErnaD.Samonte.2005.op.cit.

Singapore,April2016

39

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 procurementmeets the deficit of domestic production.Most of the rice is sourced

fromThailand,VietnamandPakistan.Therehavebeenattemptstodiversifysourcessince2008to

mitigateagainst (i)weather relatedproductionriskand (ii)highdependenceonasinglesource. It

wasabitterandharshexperiencein2008whenThailand’spricesforriceexportsincreasedbyclose

to300percent.Thisunderscoredtheimportanceoftheneedtodiversify.75

70InterviewwithOfficialfromMinistryofAgriculture,24thSept2014,KualaLumpur

71Ibid.72Wong,LarryCY,SurayaA.Emrus,BashirahMdBashir,andJohnYSTey."MalaysianPadi&RiceIndustry:ApplicationsofSupplyChainManagementApproach."InNationalRiceConferenceSwissGardenGolfResortLumut,pp.28-30.2010.73BERNAS,2015.http://www.bernas.com.my/index.php/2014-06-27-15-49-00/2014-06-27-15-49-1(lastaccessedDecember2015).74Ibid75InterviewwithOfficialfromMinistryofAgriculture,24thSept2014,KualaLumpur

Singapore,April2016

40

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.

Onaverage, it isestimatedtocostapproximatelyRM2,400 (approximatelySGD810) toplantone

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

76InterviewwithofficialfromStrategicPlanningandInternationalDivision,MoA24thSept2014,KualaLumpur77InterviewwithProfessorfromInstituteofAgricultural&FoodPolicyStudies,UPM,23Sept2014,KualaLumpur

Singapore,April2016

41

The Phil ippines Table7:PublicStockpilingofRiceSnapshot

TotalPopulation 100million(2014estimated)


Production Imports Exports Consumption PublicStockpile

11,880 1,800 0 13,200 550

Public Stockpiling


NationalFoodAuthority(NFA)


• Farmersubsidy



• Safetynet

Governanceofstockpile Control Commodity NameofInstitution

Public Rice NFA

PresentStockpileMechanism EmergencyStockpile 15 days national demand = approx.

475,000mt

Buffer Stock Strategic

RiceReserve(SRR)

30 days national demand = approx.

950,000 mt [inclusive of 15 days

emergencystockpile]


stockpiles


(in‘000mt)

Warehouses 366

Approx.2,200

Introduction

TheagriculturesectorrepresentsamajorpartofthePhilippineseconomy.Itaccountsforcloseto12

percentofthenationalGDPandemploysapproximately47percentofthenationalworkforce.Rice,

corn,sugar,coconuts,andfruitsconstitutesomeofitsmainfoodandcommercialcrops.

Singapore,April2016

42

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 away to ensure stability in supply in general aswell as inmaking sure

sufficientstocksareavailableduringtheleanmonths(July-September)78andintheeventofnatural

calamitiesanddisasters,towhichthecountryisparticularlysusceptibleto.Ithasalsobeenobserved

thatproductivity in rice in thePhilippinesdropsduring El-Nino years (almost -1tonne/ha in 1997-

1998),whichrequiresadditionalimportstooffsettheshortfall.

Figure5a:PhilippinesRiceYieldandProductivity

78Leanmonthsrefertomonthsintheyearwhenriceproductionandharvestsareminimalduetoseasons.

-

0.05

0.10

0.15

0.20

-0.501.001.502.002.503.003.504.004.50

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

Prod

uc]v

ity(t/person)

Yield(t/ha)

Yield(t/ha) Producmvity(t/person)

Singapore,April2016

43

Figure5b:TrendinRiceMilledProductionandImports

Sourceforbothfigures:FAOandUSDA2014

HistoricalOverview

Tolentino and de la Pena (2011) summarised the evolution of institutional transformation

concerning food security in thePhilippines (Table8).During thePhilippineCommonwealthperiod

(1935–1946),theNationalRiceandCornAdministration(NARIC)wasinoperation.In1952,theRice

EconomicBoard (REB)wascreatedto formulateandoverseethe implementationofan 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 riceandcorn industry toFilipinos.Then, in1962, theRiceandCornAdministration (RCA)was

createdtostabilisethepriceofthegrains.80

President FerdinandMarcos (1965-1986) began hismartial 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)79Tolentino,V.,J.Bruce,andB.DeLaPena."StymiedreformsinricemarketinginthePhilippines,1980-2009."BuiltonDreams,GroundedinReality:EconomicPolicyReforminthePhilippines,AsiaFoundation,MakatiCity,Philippines(2011).80Ibid

0%5%10%15%20%25%30%35%40%45%

0

2000

4000

6000

8000

10000

120001961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

%ofR

iceIm

ports

Ricein'000to

nnes

ProducmonRiceMilled(FAO)('000ton) RiceImport(FAO)('000ton) PercentageofRiceImport(%)

Singapore,April2016

44

expanded the scope and powers of theNGA, and renamed it theNational Food Authority (NFA).

However,aspartofreformsintheclosingyearsofmartiallaw,theNFA’sscopewasreducedtorice

andcornbyExecutiveOrder(EO)No.1028(orEO1028,s.1985).

Table8.InstitutionalEvolutionofFoodBufferStockPolicyinthePhilippines

Period Name of Food

Authority

Governmental

Regime

KeyPolicyMeasures

1935 -

1946

National Rice and Corn

Administration(NARIC)

Philippine

Commonwealth

Local control of corn and rice industry - floor and

ceilingpricesforpalayandforrice

1952 Rice Economic Board

(REB)

1955 National Rice and Corn

Production Program

(NRCPP)

Rice and Corn

Coordinating Council

(RCCC)

Ramon Magsaysay

(1953-1957)

Other commodities were also regulated: feed

grains,sorghum,mango,peanut

1960 Rice and Corn Board

(RICOB)

Republic Act No.

3018 President

Ferdinand Marcos

(1965-1986)

limitingthericeandcornindustrytoFilipinos

1962 Rice and Corn

Administration(RCA)

stabilisethepriceofgrains

1972 National Grains

Authority(NGA)81

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

Authority(NFA)82

PD1770(1981) SupplystabilisationandPricecontrol

1985, Executive Order No. 1028 was issued and

provided for thederegulationofNFA’snon-grains

marketingactivities.

81RCAandRICoBandtransferredtheirfunctionsintoanew,muchmorepowerfulNationalGrainsAuthority(NGA)82Aspartofreformsintheclosingyearsofmartiallaw,theNFA’sfocuswasreducedtoriceandcornbyExecutiveOrder(EO)No.1028(orEO1028,s.1985)

Singapore,April2016

45

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

whichcomprisesofmostly imported (approximately95percent)andsomedomesticallyprocured

(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.


TheNFAfallsundertheauspicesoftheofficeofthePresident.Thereishoweverothergovernment

agencies that sit on the NFA council like the Department of Agriculture (DoA), Department of

Finance,DepartmentofTradeand Industry,NationalEconomicDevelopmentAuthority (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)

83InterviewwithOfficialsfromNationalFoodAuthority(NFA),14Nov2014,QuezonCity,Manila

Singapore,April2016

46

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

anticipationof leanmonths and reach its highest levels in September/October after the harvests.

FebruarytoAprilusuallymarksthelowpointofstocksinmostyears.88

84InterviewwithNFA.Opcit.85Ibid86Ibid87Ibid88NFAdata.2014.http://nfa.gov.ph/about-us/nfa-council?id=101(lastaccessedDecember2015).

Singapore,April2016

47

Figure6:MonthlystockpileofriceinPhilippines

Source:NFAData,2014

Recentstockpilingtrends

ThePhilippinesfoodreservedatashowsasuddenriseinricestockpilingafterthefoodcrisisin2007-

2008.Itrosesignificantlyin2009andpeakedin2010(seeFigures8and9).Since2010theNFAhas

reduceditspublicstocklevelssignificantly.EvenintheaftermathoftheHaiyan/YolandaTyphoonin

2013, which affected the country and its agriculture production severely, there was no sign of

significantincreasesinpublicstocks.

0

500

1000

1500

2000

2500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

in'000m

etric

tonn

es

PhilippinesPublicStockpileofRice(NFA)

January February March April

May June July August

September October November December

MonthlyAverage

Singapore,April2016

48

Figure7:TrendinPhilippinesPublicRiceStockpile(in’000tonnes)

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 ofNFA 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,National IrrigationAgencyandCivilSocietyOrganisation(CSO)representatives.

89Balisacan,ArsenioM.,MerceditaSombilla,andRowellDikitanan.""RicecrisisinthePhilippines:Whydiditoccurandwhatareitspolicyimplications?"Thericecrisis:Markets,policiesandfoodsecurity(2010):123-142.90Sombilla,M.A.,F.A.Lantican,andJ.C.Beltran."RiceMarketingandDistributioninthePhilippines."EnsuringRiceSecurityforAll:Issues,Constraints,andPolicyDirections,SEARCA,PhilRiceandDA-BAR(2006).

0

500

1000

1500

2000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

RiceStockpileTrend(in'000mt)

MonthlyAverage

Singapore,April2016

49

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.Timingofprocurement isanother importantdimensionwhichhasnotalways

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)asof2012-

2013.92 Theestimated losspresumablyarises fromveryexpensivehandling cost inboth transport

andstorage,waste,storagelosesduetoinefficientmanagementandsometoincidencesofleakage

andsmuggling.93Theproblemofover-importationandcorruption isalsowell knownandseemto

happenonafairlyregularbasis.94

Futuredirectionofstockpilingprogramme

The future of stockpiling in the Philippines is going to be highly dependent on the results of the

currentlyon-goingNFA internal reviewandaudit.95 There seems tobewide consensus that some

formofemergencystockpileisneededforthecountrygiventhegrowingnumberofweather-related

andclimatechangeimpacts.

91InterviewwithDrLantican,18September2014,LosBanos92InterviewwithofficialsfromNEDA,19Nov2014,Manila93Mehta,Aashish,andShikhaJha."Corruption,foodsubsidies,andopacity:EvidencefromthePhilippines."

EconomicsLetters117,no.3(2012):pp.708-711.94Ibid95InterviewwithofficialsfromNFA,14Nov2014,QuezonCity,Manila

Singapore,April2016

50

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, ofwhich rice constitutes the bulk, a stockpiling programme for farmer income

and subsidypurposes is likely to remainpolitically important. Currently incomes from rice remain

relativelylowinthePhilippinesduetothehighcostofseedsandotherinputs.96

Theotherpotentialdriver forstockpiling inthePhilippinescouldbe increased importation.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.

96InterviewwithDrLantican,18Nov2014,LosBanos

Singapore,April2016

51

ThailandTable9:PublicStockpilingofRiceSnapshot

TotalPopulation 67.2million(2015,projected)

Quantityofpublicricestockpiles Total(in‘000mt),2014


Stockpile

18,750 300 9,000 11,700 18,000

Public Stockpiling


• Public Warehouse Organisation (PWO)

MinistryofCommerce

Purposeofpublicstockpile • Farmersubsidy

• Exportstability

Governanceofstockpile Control Commodity NameofInstitution

Public Rice PWO

PresentStockpileMechanism Stockpilesforexport No fixed mechanism to determine

minimumquantity.


stockpiles


(in‘000mt)

Warehouses 1800

(Not publicly

available)

Silos 137 (Not publicly

available)

Introduction

Thailand is one of the largest exporters of rice in the world. It has in fact been one of the top

exporters inthe lastdecadeandahalf followedandoccasionallyovertakenby IndiaandVietnam.

Thebuildingupofstockpileshowever,issomethingofarecentphenomenonforThailand.

Themainpurposeforstockpilingof rice inThailand is forexportsupplystability.Thisusuallydoes

notrequirelargevolumesandquantities.Therecenttrendisthusarelativelyneweventasaresult

ofinterventionistpoliciesputinplacebyparticularadministrations.

Otherthangovernmentstockpiles, therearealsoprivatestocks.Privatestocksareheldbytraders

andmillers.Combined,thetradersandmillersholdapproximately2milliontonnesofrice.

Singapore,April2016

52

WiththeincumbentjuntagovernmentinThailandtakingpower,thestockpilingprogrammeinitiated

undertheYingluckShinawatraadministrationhasbeenhalted.TheThaigovernmentisnotprocuring

anymorestocks.Afullauditofgovernmentheldstocks(inJuly2014)hasalsobeenorderedsoasto

evaluate thequality andalso to get theexactquantityof thegovernment rice reservewhichwas

accumulatedsince2011.97


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

challengeofthericeeconomyinThailandhasbeeninensuringsuitablepricesfor itsfarmersfrom

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

governmentswhichrunstockpilingprogrammestoguaranteefarmer incomesalsopubliclyrelease

anddefendminimumsupportprices (MSP)or a guaranteedminimumprice (GMP). In the caseof

Thailand theminimumpricewas setmuch higher than international prices. The governmentwas

nowcommitted toprocureandstockall the rice fromthe farmersat thepromisedprice,butwas

unabletosellthericeintheinternationalmarketswhereitwasintendedwithoutsufferingamajor

lossoneverytonnesold.Thisledtomassivestockbuild-upingovernmentwarehouses.Thericewas

stored inhopesof salewhen internationalprices goupandbeyond thepledgedpriceof 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

97InterviewwithmemberofThailandRiceTrader’sAssociation,11Feb2015,Bangkok98Interview,op.cit.99InterviewwithofficialfromAFSIS,10Feb2015,Bangkok

Singapore,April2016

53

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

farmersoverperiodswhenpricesare low, so theycanhold stocksandsellundermoreprofitable

conditions. Thissystem(ofbeingabletotakeout loansusingtheirstocksascollateral)continued

until2000.Theprogrammechangeditsobjectives in2001–2002. 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

storetheirrice instead.ThegovernmentofThailandprovided interestsubsidyforthefarmersand

paidthefullinterestrateontheBAACloans(about6.0–7.0percent)forfarmerswhochosethefirst

optionofstoringricethemselves.IncaseofthesecondoptionwhenthericeisstoredbyPWO,they

wouldneedtopaythreepercentinterestandthedifferencewouldbecoveredbythegovernment.

100InterviewwithmemberofThailandRiceTrader’sAssociation.Opcit.101InterviewwithDrNiphon,13Nov2014,Manila102Softloansareloansatlowerinterestratesandmorefavourabletermsfortheborrowerascomparedto

marketnorm.

Singapore,April2016

54

Figure8:Totalpaddyproductionvs.totalpaddyprocuredthroughpledging(inmmt)

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 internationalmarket as it could not afford to sell its

stocksbelowitspledgedlocalprices.

CostsofStockpiling

Other than the direct fiscal costs associatedwith the pledging programme, therewere also large

lossesincurredintermsofphysicalstock.Itisestimatedthatcloseto2milliontonneswaslostdue

103Poapongsakorn,Nipon,andD.Dawe."ThepoliticaleconomyofThairicepriceandexportpoliciesin2007-2008."Ricecrisis:Markets,policiesandfoodsecurity(2010):pp.191-217.

0

5

10

15

20

25

30

35

Totalproducmonpaddywetanddry Totalpledgewetanddryseasons(mmt)

Singapore,April2016

55

toapoor rotationsystem.Anothercoupleof tonnes isnowsaid tobeof significantlybadquality,

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 sectorhasalwaysbeenan importantplayer for ricebothdomesticallyand 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-

termwill likelypursue similaroutof control stockpilingpolicies.Public rice stockpilesare likely to

dropandremainatmore“acceptable”levelsofuptosixmilliontonnes(levelsbeforeYingluck’srice

policyrevision).108

104InterviewwithmemberofThailandRiceTrader’sAssociation.Opcit.105Ibid106InterviewwithofficialfromAFSIS.Opcit.107InterviewwithmemberofThailandRiceTrader’sAssociation.Opcit.108Ibid

Singapore,April2016

56

VietnamTable10:PublicStockpilingofRiceSnapshot

TotalPopulation 90.7million(2014,estimated)



Stockpile

28,074 400 6,200 22,100 2,000

Public Stockpiling


• VietnamFoodAssociation

• VINAFOOD1(RedRiverDeltaProduction)andVINAFOOD2

(MekongRiverDeltaProduction)

Purposeofpublicstockpile • Farmersubsidy/income

• Exportstability


Governanceofstockpile Control NameofInstitution/Organisation

Public VINAFOOD1andVINFOOD2


stockpiles

Facility Numbers Capacity(in‘000mt)

Warehouses

(Covered)

(not publicly

available)

Approx.2,000

Silos

None

Under

construction

(numbers

unspecified)

VINAFOOD 1 and 2 plans to

constructsilosforatotalof4

million tonnes of storing

capacity.

Introduction

Vietnam, throughVINAFOOD1and2, havemostlybeen stockpiling two commodities. First is rice

whichservesastheprimegrainthatdominatesVietnam’sfoodproduction.Secondiscoffeeasithas

beenan increasingly importantagriculturalexport commodity forVietnam.Stockpilingof riceand

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.

Singapore,April2016

57

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 2mmt to 4

mmt.Thismeansthatby2020,itislikelythattheVietnamesegovernmentmayhavestocksofabout

4mmtatanygivenpointintime(orbetween15-20percentoftotalannualdomesticconsumption).

The rationaleof thegovernmentasexpressedand justifiedby theVFAandVFAmembers, is that

such an increase in stockpilingwill 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 stockpilingpolicy thus feel thatwhat is needed is topromoteVietnamese rice in

morecountriesandregionsso itcanreapthebenefits fromthe internationalmarket. Thecostof

stock rotation is also going to be significantly higher – as the governmentwill need to rotate its

entirestocksevery2-4yearstomaintainthequalityofstockpiledrice.

One of the most controversial policies on stockpiling is the Vietnamese Government Decree

109/2011whichregulatesminimumstockamounts for riceexports.Thedecreestates 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

109InterviewwithDirectorofResearchDepartmentforPublicServicePoliciesCentralInstituteforEconomicManagement(CIEM),Sept2014.110NguyenTrongThua,headoftheAgro-ForestryProcessingandSaltIndustryDepartment,MinistryofAgricultureandRuralDevelopment.SeeRicestockpilepolicyharvestsall-roundgains[May2013]25/05/2013http://english.vietnamnet.vn/fms/business/74990/rice-stockpile-policy-harvests-all-round-gains.html[LastaccessedSeptember2014]

Singapore,April2016

58

commodityanddoesnot recognise theexistenceofnichemarkets forspecific ricevarietieswhich

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 asVietnamese aromatic rice and glutinous rice,whichhave

seenanincreaseintermsofmarketsharerecently.113Thissteadyincrementinstockpileshasbeen

possibleduetoboththe increases inyieldaswellas inproductionsince1990s.Vietnamcurrently

produces three cropsofpaddyevery year– Spring,Winter andAutumn.Mostof theharvest and

stockpilingoccursduringtheWinter-SpringandSummer-Autumnperiods.

Figure9:TrendofpaddyyieldinVietnam1970s-2012

Source:USDAandFAOdata,2014

Governanceofricestocks

VINAFOOD1inHanoilooksaftersupplyandavailabilityofricefortheNorthernregionsofVietnam.

VINAFOOD2inHoChiMinhCitymanagesriceproductionintheMekongDelta(Southernregions).

While VINAFOOD 1 has rice as its core business, it also functions as a general trading company

111SeestatementbyTruongThanhPhong,chairmanofVietNamFoodAssociation(VFA),VietnamNews25/05/2013.http://english.vietnamnet.vn/fms/business/74990/rice-stockpile-policy-harvests-all-round-gains.html[LastaccessedSeptember2014]112ExportReadinessCenter2011:Vietnam’sExportReadinessWashingtonStateUniversity,30April2011.http://export.wsbdc.org/assets/uploads/4fa8635086bf9Vietnam_Country_Report_V5_63011.pdf[LastaccessedNovember2014].113SeericeinformationattheVinafood2.http://www.vinafood2.com.vn/EN/Pages/SanPham.aspx

0

20

40

60

80

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

YieldofCrops:Paddyaverage YieldofCrops:Paddy:SpringPaddy

YieldofCrops:Paddy:AutumnPaddy YieldofCrops:Paddy:WinterPaddy

Singapore,April2016

59

dealingwithothergrains.114ThroughVINAFOOD1and2,thegovernmentofVietnamhasbeenable

toexport6-7milliontonnesofriceannually.

Thispriceof rice tends to slumpduring theWinter-Springharvests (aroundMarch).115 Inorder to

mitigate the sudden shock to farmers' incomes, the governmentoften 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,processingandtrading includingdealingwithprocessedfood.TheVFAhas

beenmandatedtodeterminethequantityandquotaofgovernment's food(rice)procurementfor

stockpiling. Since theheadof VFA should come from itsmembers, there are issues regarding the

fairness and the legitimacy of quota policy for each province. There are also issues around non-

memberfirmsthatcanalsoplayarolegiventhefactthatexistingstoringcapacityofVFAmembers

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

withoutproper local consultations.117Asa result somequotasarenotproportional to the levelof

localproduction.

114InterviewwithMr.QuachManhDung,DeputyMarketingManager.(HewrotehisMScthesisonfoodcrisis2007-2008).115VoThanhDo[DeputyheadoftheAgro-ForestryandFisheriesProcessingandSaltIndustryDepartment],VietNamNet,Stockpilinghelpstoboostricefarmers'profits[12June2014]116Dr.NguyenMihnHai,PhoneInterviewon2October2014.SeealsoPhamHoangNgan(2010)117HuynhVanGanh,DirectoroftheKienGiangDepartmentofIndustryandTrade.SeeVietnamNews-June,172013http://vietnamnews.vn/economy/240851/delta-hit-by-low-rice-prices.html.

Singapore,April2016

60

ConclusionGiventhefindingsfromthefieldaswellastheliteratureandsecondarysourcesavailable,itseems

clear that stockpilingof rice is likely to continue, if not expand, in theAsiaPacific 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.

• Reviewsandauditsareon-going inanumberof thecountries for institutionswhichhave

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

internationalmarketsand long termstabilityof internationalprices forkeycommodities.

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’ NFA-

runsubsidisedfoodprogrammesallattesttothis.

Singapore,April2016

61

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 isoftentimesunderstoodandconstrued indifferent/varyingways.Howevergiven

theimplicationsofstockpilingpolicies,bothonthedomesticfrontaswellasinternationally,whatis

likelytobethenewnormalofgrowingandlargenational/publicreservesiscertainlygoingtobean

importantfacettobeawareof,monitor,andconsiderwhendiscussingAsia’sfoodsecuritymoving

forward.

Public Stockpiling of Rice in Asia Pacific - rsis.edu.sg · Public stockpiling of rice ... Recent...

Documents

Transcript of Public Stockpiling of Rice in Asia Pacific - rsis.edu.sg · Public stockpiling of rice ... Recent...