Indonesia to boost rice stocks amid global food fears

Feb 11, 2011 12:00 AM

Author: Neil Chatterjee

Indonesia ordered hefty rice imports to boost stocks by a third in the latest sign that governments concerned about rising food prices and dwindling supplies are rushing into the market and could drive inflation even higher. Global food prices have climbed to record highs on shrinking supplies of wheat, corn, soy-bean and oilseeds. While rice has been less of a worry thanks to ample supplies in the top two exporters, Thailand and Vietnam, traders said other Asian governments may soon seek to boost rice stocks too. Adding to gathering nervousness among governments over food supplies, China plans subsidies to boost grain output over 2011, state radio said in a report on its website.
"Maintaining a stable grain output increase has a very important meaning to managing inflation expectations, stabilizing general consumer prices, and realizing rapid and stable economic growth as well as social harmony and stability," the report said, citing a regular state council meeting held by Premier Wen Jiabao recently.

The impact of Cyclone Yasi in Australia has exacerbated food worries. The chairman of Australia's main sugar industry group Canegrowers said up to a quarter of the sugar cane crop in the state of Queensland may have been lost.
"Given there has been such a wide area of impact from this cyclone, we are looking at losses on the outer edges of 5 to 10 percent and close to the centre of the cyclone up to 50 % of the crop could be lost," Alf Cristaudo told Reuters in an interview.
The latest monthly grains report from the US government threatened to further stoke concerns over crops being increasingly used for fuel. The US Department of Agriculture slashed its forecast for corn stockpiles 9 %, projecting the tightest supply since the Great Depression as a record amount of the crop is used to make ethanol. Problems with Australia's wheat crop as well as lingering effects of last summer's drought in the Black Sea region have boosted the role of the US on the export market.

In January, global food prices tracked by the UN Food and Agriculture Organization hit their highest level on record. The FAO said last week its Food Price Index rose for the seventh month in a row to reach 231 in January, the highest level since records began in 1990. The rising prices have raised concerns over inflation, protectionism and social unrest, factors behind the 2008 food crisis, and prodded the G20 to promise action.

Will rice prices surge too?
Indonesia's government met to discuss food security on Wednesday. Chief Economic Minister Hatta Rajasa asked state procurement agency Bulog to secure imports to gradually boost rice stockpiles to 2 mm tn from the current 1.5 mm tn, underlining fears shortages could cause price spikes. Traders said other governments may also look to increase stocks despite ample supplies in Thailand and Vietnam. Bangladesh said it was buying 200,000 tn of parboiled rice from Thailand in their first government-to-government deal for the grain. The Philippines, however, held back on importing more despite a recommendation by a government panel to build stocks above a 1 million ton target.

Traders also warned of a remote chance the top 2 exporters, facing food inflation pressures as well, may choose to keep more supplies at home.
"Rising supply from the world's top two exporters is likely to weigh prices down. However, there could be steady demand from traditional buyers such as the Middle East, African countries and demand elsewhere in Asia that could help support prices," said Kiattisak Kallayasirivat of trading firm Novel Agritrade.
Indonesia surprised markets recently by buying nearly 5 times as much rice as expected, then suspended rice import duties, signalling it could look to stockpile more. Its import plans are a turnaround from minimal purchases in 2010 and show efforts by Southeast Asia's biggest economy to be self-sufficient in rice have not succeeded. Indonesian President Susilo Bambang Yudhoyono has called on people to start planting food at home, and told the World Economic Forum in Davos the next economic war could be over the race for scarce resources, due to growing populations.

Food price inflation led the central bank to hike interest rates for the first time in 2 years, and protests over food prices were seen as a major factor in the ousting of Indonesia's autocratic President Suharto in 1998. By contrast in the Philippines, policy makers appear not to be overly worried about rising food costs. The central bank is expected to leave policy rates unchanged at a record low, and has said there is no evidence that commodity prices are spilling over into the broader economy.

The country may buy less than 1 mm tn of rice on 2011 despite a government panel recommendation for a higher purchase volume, with forecasts of a good first quarter crop, a government official said. Early rains have helped rice crops and along with hefty stockpiles from previous years' imports, gives Manila -- the world's biggest buyer in recent years -- room to buy less than the record 2.45 mm tn it purchased the previous year.
"We are preventing over-importation because our farmers will be disadvantaged," said agriculture secretary Proceso Alcala.
Thai rice rose to $545 per ton from a week before of $540 per ton on the back of loading demand after exporters committed last month to sell 820,000 tn of rice to Indonesia. Benchmark Thai 100 % B-grade white rice prices are likely to rise to $550 a ton by the end of February 2011 and $567.5 a ton in March from around $540 a ton now, given expectations of additional orders from Indonesia, Bangladesh and Sri Lanka, a Reuters poll shows.

Rice lagged other staple grains in 2010 , falling 13 % while corn and wheat surged around 50 %. Rice prices have only gained 2 % this year and are far below a record $1,050 a ton hit in 2008. Still, Reuters technical analyst Wang Tao sees Thai white rice rising into a range of $630-$673 per ton over the next three months based on chart indicators. Some traders say rice prices could drop in the following weeks on increased supply because Vietnam is due to start harvesting its major winter-spring rice crop by end-February 2011.
"Prices will fall in March as there are no more government deals while the Philippines has not detailed its importing plan but it may buy less than last year," . Thailand is also about to start harvesting its second crop, expected to be around 9.5 mm tn, the highest ever and well above 8.8 in 2010mm tn last year.

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