The ten countries of the Association of Southeast Asian Nations (ASEAN) plus Japan, China and the Republic of Korea are developing plans for a 700,000-800,000 metric ton humanitarian rice reserve to provide “food security in an emergency caused by temporary and large scale calamity.” The final plans for the ASEAN Plus Three Emergency Rice Reserve (APTERR) are to be approved when the 13 Ministers of Agriculture and Forestry meet in Cambodia in October.

 

The ten members of ASEAN include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. According to data from the Foreign Agriculture Service (FAS) of USDA, this year the 13 countries include seven of the world’s top ten rice producing countries, seven of the top ten rice consumers, four of the top ten rice exporters and three of the top ten rice importers. They also include six of the eight largest holders of end-of-year stocks with 76 percent of the world’s 97.9 million metric tons (MMT). ASEAN plus three is a unique group of countries in accounting for such a large share of the world’s production, consumption and carryover stocks of a single commodity.

The current high commodity prices following so closely after the 2008 experiences have rightly raised concerns about emergency food assistance. Rice is the primary starch staple for over half the world’s population. Before milling, world rice production volume is about the same as wheat. This year Southeast Asian countries (not including China, Japan and Korea) will produce 114.0 MMT, 25 percent of the world crop, and consumption will be 103 MMT, 23 percent of world consumption. Consumption is continuing to increase in Southeast Asia, particularly in Indonesia and the Philippines.

An emergency rice reserve for the region was first established by ASEAN in 1979 and given serious attention beginning in 2001. The region had its own crisis in early 2008 when Vietnam, the world’s second largest exporter at 6.4 MMT, suddenly limited rice exports as stocks dwindled and prices increased sharply. The Philippines, the world’s largest buyer at 2.2 MMT this year and a major customer of Vietnam, was caught short on supplies and had to pay sharply higher prices on world markets. The Philippines is the world’s seventh largest producer at 10.8 MMT and is expected to consume 13.4 MMT. Carryover stocks are estimated 1.4 MMT, 10 percent of consumption.

In addition to the Philippines, other major rice buyers in ASEAN plus three include Indonesia at 1.4 MMT, fourth largest in the world, and Malaysia at 1.13 MMT, the sixth largest. Japan buys 0.7 MMT per year as required under WTO agreements and South Korea buys 0.35 MMT. Indonesia is the third largest producer at 37.3 MMT, but is expected to consume 39.6 MMT for 246 million people. Their carryover stocks are projected at 6.0 MMT, 15 percent of consumption. Malaysia produces 1.6 MMT, consumes 2.8 MMT, and is expected to have carryover supplies of 0.7 MMT, 25 percent of consumption.

The latest reported plans for APTERR call for 0.72 MMT, down from an earlier expectation of 0.78 MMT. Japan would supply 0.22 MMT followed by China and South Korea with each at 0.2 MMT. The remaining 0.1 MMT would come from ASEAN members, with indications that Thailand would supply 15,000 MT and Indonesia 14,000 MT. Japan’s contribution would be about 7 percent of its carryover of 2.8 MMT. China’s contribution would be an inconsequential 0.5 percent of its expected carryover stocks of 44.0 MMT. China’s stocks are 32 percent of Chinese consumption and 45 percent of total world rice stocks. Korea’s portion would be 18 percent of its expected carryover stocks of 1.1 MMT.

These amounts are to be earmarked, physical stocks and would be stored in both donor countries and in major importers – Philippines, Indonesia and Malaysia. The stocks would be owned by the APTERR. Countries requesting supplies would assess their needs, pay transportation and operating costs and explain the conditions and time of payment for the rice. Given APTERR size, it would likely be effective in helping the Philippines and Malaysia overcome a domestic emergency, but less likely to meet the larger needs of Indonesia.

The main defense against domestic supply shortfalls continues to be free trade in commodities like rice. Dr. Shenggen Fan, Director General of the International Food Policy Research Institute (IFPRI) in Washington, DC and a supporter of humanitarian aid reserves, noted in introducing Secretary of State Hillary Clinton last week at a meeting on humanitarian assistance for Africa, “In the medium term, policymakers must ensure that trade stays open. National governments should eliminate export bans in Ethiopia and Tanzania and refrain from imposing new ones. These restrictions lead to tighter markets and exacerbate crisis.”

Managing a humanitarian reserve is a challenge. Storage costs can grow quickly as stocks need to be rotated so they remain useable for human consumption. These costs would be the responsibility of the donating country. Getting supplies to the right people on time is even more difficult. As Dr. Shenggen Fan of IFPRI said last week, “Clear channels to trigger the release of these reserves during emergencies are necessary, as are ways to ensure the food actually reaches the poor.”

According to the APTERR’s website, part of the strategy of the reserve is to “smooth-out erratic rice price fluctuation in the region” and “improve farmers’ income and welfare.” Those tasks are well beyond on providing emergency food assistance of the size of the current effort and require substantial supply manipulation by the government agency running the APTERR.

Preparation in advance is generally preferable to waiting for a crisis to occur. Local reserves designed to quickly feed people can have an important role to play to respond to emergencies. After the immediate need is met, free trade will meet the medium term needs. Using APTERR to manipulate prices will cause more market distortions when participants need clear signals from market fundamentals.

Ross Korves is the Economic Policy Analyst for Truth About Trade & Technology.