Weather forecasts for an El Nio effect beginning by July of this year have caught the attention of government officials in Asian rice producing countries that account for 90 percent of global rice production. The warming of the tropical Pacific Ocean water temperatures is generally associated with drier growing conditions in major Asian rice producing areas. International rice markets are already unsettled by Thailands rice export policies which have led to a large accumulation of stocks and loss of export markets.

The Australian Bureau of Meteorology, a government agency, recently suggested there is a 70 percent likelihood of an El Nio event. These events occur every two to seven years. It may delay the start of the rainy season in Thailand. The Philippines has already started cloud seeding. India’s Meteorological Department forecasts that summer rains are likely to be below normal. In 2009 India’s monsoon rains were 23% below normal and rice production declined 10 percent. Chinas rice growing regions are usually not significantly impacted by El Nio.

Thailand has been traditionally the worlds largest exporter of rice at 9-10 million metric tons (MMT) per year, 30 percent of global trade. World trade accounts for only 7 percent of world rice production. For the 2011 crop, the new government of Prime MinisterYingluck Shinawatra began a rice purchasing program at $550 per MT, about 50 percent higher than the market price. That was low compared to the 2008 price peak of $1,000 per MT, but high compared to $300 per MT in 2006. The market settled at about $400 per MT. The results were exports declined to 7.0 MMT per year, domestic stock accumulated and the government quickly ran short of money to pay farmers for rice with losses of $4.0 billion per year. Some estimates of total costs top $9.0 billion per year, over 2.0 percent of national GDP.

Thailands rice policy quickly collided with the Indian governments decision to reduce its stockpiles of rice that had accumulated after several good crops. According to estimates by the Foreign Agricultural Service of USDA (FAS), in calendar year 2012 India was the leading exporter at 10.3 MMT. Vietnam was number two at 7.7 MMT and Thailand fell to number three at 6.8 MMT. India was again the leading exporter at 10.5 MMT in 2013 and is projected at 10.0 MMT for 2014. Vietnam and Thailand both had a decline in exports to 6.7 MMT in 2013. Vietnam is projected to decline again to 6.5 MMT for 2014, but FAS projects Thailand exports to increase to 9.0 MMT in 2014 as the government has begun to sell its accumulated stocks to fund payments to farmers. Actual exports for 2014 were 1.2 MMT through late April, down 11 percent from the same time last year.

FAS world carryover stocks estimates by crop marketing year are at a recent years high at 111.2 MMT, up from 99.6 MMT before Thailand switched policies for the 2011 crop. Thailands end-of-year stocks as estimated by FAS have increased from 5.6 MMT to a projected 14.1 MMT for the 2013/14 marketing year, about 75 percent of the global carryover stocks increase. The next largest stocks increase is expected to be held by China, which is a net importer this year of about 3.0 MMT of rice. Global stocks are much higher than the 2004/05, 2005/06 and 2006/07 marketing years of about 75 MMT, but well short of the burdensome supplies of 1998/99- 2001/02 marketing years when carryovers were 135-145 MMT.

There is some concern about the quality and age of the Thai stocks. Some of the stocks are old, about three years by this fall. The governments buying program does not encourage farmers to sell good quality rice for storage and new crop rice may be less than the traditionally high quality. Iraq has reportedly said it would not buy rice from Thailand due to quality concerns.

Thai government stocks are estimated at 10-15 MMT. Depending on how much of the current government stocks are moved into the market and the ability of private buyers to discern good stocks from bad, half or more of Thailands carryover could be government stocks of questionable quality.

There is also a question of how India will respond to an El Nio year. Indias expected end of year carryover is 24.4 MMT, near the high levels for the previous three years and production has been at 105 MMT for each of the past three years. In the last El Nio year, 2009/10, production was reduced 10 percent. That would result in a crop for 2014/15 of 94.5 MMT, below this years estimated domestic consumption of 96.0 MMT. Indias exports in 2009/10 were only 2.2 MMT. India has a history of limiting exports in short crop years, and this is especially true for rice.

Even if India were to pull back rice exports by 8 MMT and 5 MMT of the Thai rice in storage was only good for livestock feed, carryover world stocks should be able to cushion any supply shortfall. If production problems in other countries added to the production shortfall, the outcome would be more uncertain.

Rice is not Thailands only commodity problem. It is part of a three-country Southeast Asian cartel, the International Rubber Consortium with Indonesia and Malaysia, which dominates the natural rubber industry and put a floor under prices. Thailand normally supplies a third of the market and has a 220,000 MT stockpile. It wants to sell the supply before the new production season starts in June. The stocks need to be sold as soon as possible because quality deteriorates with time.

When Thailand wanted to pursue these policies they should have read some U.S. and EU books on agricultural policies. They tried these policies repeatedly and all programs ended with high government costs, high market prices for consumers and other countries taking export market share with competitive prices. There literally is nothing new under the sun for agricultural policy. The International Monetary Fund (IMF) and the Food and Agriculture Organization (FAO) of the UN have correctly criticized Thailands policy choices.

In developed countries, rarely has farm policy become part of a larger effort to force out a government, but that has happened in Thailand. Allegations of corruption surrounding recent rice tenders helped to produce a general election outcome with no clear winners. Thailands Constitutional Court has removed the Prime Minister from power. A new election is planned for July 20.

Ross Korves is a Trade and Economic Policy Analyst with Truth About Trade &Technology ( us: @TruthAboutTrade onTwitter|Truth About Trade & Technology onFacebook.