Real cartel threat (2)
The evolving situation regarding rice supply in the region may have to be dictated more by external factors that local monopolists will try to exploit to maximize gains.
Forming a cartel among rice producers is expected to be opposed by the United States since such a monopoly would hamper security cooperation within ASEAN.
Also, forming the group would raise global food prices during a time of already high inflation, which could trigger instability.
"To reduce the likelihood of price volatility and improve cooperation with regional partners, the United States could privately implore Thailand and Vietnam to drop their support for a rice cartel. Instead of price fixing, the Thai and Vietnamese governments should implement needed reforms to improve export competitiveness," Washington-based public policy think tank Center for Strategic and International Studies, or CSIS, stated.
Persuading both major grain producers to veer away from forming a cartel is essential since a clear signal from both governments would support food price stability, "which can be disrupted by market panic."
When countries, including India and Vietnam, imposed rice export controls in 2008, anxious importers like the Philippines told their citizens to eat less rice. According to the CSIS analysis, the mere mention of cutting back on consumption of the staple grain created panic, "and many Filipinos bought more rice instead of less."
Within ASEAN, five countries — Brunei, Indonesia, Malaysia, the Philippines, and Singapore — each imports around 50 to 80 percent of their requirements from Thailand and Vietnam.
Elevated rice prices have been linked to political instability, according to CSIS.
When world food prices spiked in 2008, food riots occurred in disparate places, including Guinea, Mauritania, Mexico, Morocco, Senegal, Uzbekistan and Yemen.
In 2011, high food prices were cited as a proximate cause of the Arab Spring.
"A political crisis in a state like the Philippines, a close American ally, would force the US government to expend significant time and financial resources to address the crisis. It also risks a transition of power when the next Filipino president may not be as pro-American as the current one," CSIS pointed out.