COVID-19 has wreaked havoc on many industries. It has also been a boon to others, such as Amazon, Netflix, Zoom, Delivery Services, Grocery Stores, Cleaning Supplies, … (source)
Although perhaps not discussed as much as others, Thailand’s rice exporters have benefited from the recent pandemic, aided by protectionary actions by other countries.
2020 was predicted to be a bad year for Thailand’s rice export market. The worst drought in 40 years hit the country, resulting in decreased production of rice. However, as a result of unexpected increases in demand for rice, along with the decisions of a few countries to halt exports, the industry turned around
Let’s break that down some more and first talk about rice and Thailand import restrictions. Then we’ll discuss COVID-19 related increases in rice demand as well as export restrictions by other major rice-producing countries.
According to the International Rice Research Institute, “More than half of the world’s population, including many of those living in poverty, rely on rice for most of their daily calories because they cannot afford – or do not have access to – nutritious foods such as fruits, vegetables, meat, and dairy.” (source) Indeed, rice, along with corn and wheat, make up over 40% of the world’s consumed calories. (source)
There are many different types of rice used for various purposes, whether it is sushi rice for sushi, arborio rice for risotto, basmati rice for curry, or brown rice for stir-fry. (source) Rice is especially popular in Asian cuisine. It is therefore not surprising to hear that Asian countries produce and consume the majority of rice in the world. The biggest producer of rice is India, followed by China, Indonesia, Bangladesh, and Thailand (source). The world’s largest consumers are China, India, Indonesia, Bangladesh, and Vietnam (source).
In addition to producing and consuming rice, all of these countries (as well as others) also export rice to other countries. India and Thailand have the greatest exports by far (in 2019 around 32% of global rice exports by value were from India and 19% were from Thailand), followed by the US (9%), Vietnam (7%), Pakistan (6%), and China (5%). (source)
Companies export products when the price at which they can sell the product in other countries is higher than the equilibrium domestic price. In other words, they can sell it on the global market for a higher price than if they just sold it internally. On the other hand, products are imported, when they can be bought for less than the domestic equilibrium price (or when the country doesn't produce the product themselves). Rice is a little bit tricky in this context because, as mentioned, there are multiple types of rice, so some countries may produce and export one type and then also produce and import other types of rice. For example, the U.S. exports rough or unmilled rice, parboiled rice, brown rice, and fully milled rice, mainly to Mexico and Central America. However, it imports aromatic rice from Thailand, India, and Pakistan. (source)
Thailand – again, the second largest exporter of rice – also maintains Import Restrictions. These regulations are a mix of bans on imports from some countries, high tariffs on imports from other countries, and lower tariffs from a select group of other countries. (source) A tariff is a tax on imports. In some cases, these tariffs are as high as 50%. So, if the price of something was $1, the tariff would be $0.50 making the price to buy a good from another country $1.50. Effectively, the import restrictions extremely limit the amount of rice that can produced abroad and then sold in Thailand. (For other posts on tariffs, see Banana Bread and Trade Wars and The Impact of Brexit on Oranges)
So now that we have that in mind, let’s return to 2020. Thailand experienced its worst drought in 40 years. (source and source). With low levels of rainfall in Thailand, rice production fell. What happens when production falls? Price rises. Real quick, let’s talk through why: if quantity supplied falls, at the current price more people will want to buy rice than firms are willing to supply – a shortage. Firms will then increase prices, and some consumers may offer to pay higher prices to get rice. Both together puts upward pressure on price until we reach an equilibrium where quantity supplied equals quantity demanded.
The drought not only pushes prices up in the domestic market, it also increases prices in the export market.
Higher export prices will result in fewer people outside of Thailand wanting to buy rice and thus lowering Thailand’s exports. Rather than buying from Thailand, other countries can buy similar, cheaper rice products from India and Vietnam. For example, in early February the USDA reported the following about Thailand’s rice exports: “new inquiries for white rice remain quiet as Thai rice prices are U.S. $60/MT more expensive than Vietnamese and Indian rice, compared to a typical price difference of approximately U.S. $20/MT. (source)
But, then what happened? The Pandemic. People around the world start hoarding food, including rice (source and source). Increased demand means that more people will want to buy rice from Thailand, even if the price is higher than normal.
Additionally, because of COVID-19 movement restrictions, some foreign laborers had to go home. For example, Cambodian workers on Thai fields. (source). This decrease in labor further reduced supply and pushed up prices.
Not only did the pandemic lead to worldwide increase in rice demand and issues with labor, it ALSO led to other countries restricting their own rice exports.
As governments across the world became concerned about food availability for their citizens, the health of their workers, and the labor issues in their fields. That lead to… Export Restrictions by Thailand’s rice competitors. India (the largest exporter of rice) halted new exports on rice for three weeks from the end of March to mid-April (source and source); Vietnam, the third largest exporter of rice, banned rice exports completely in March and then limited exports (i.e., imposed an export quota) in April (source); and Cambodia (the 10th largest exporter) stopped exports through most of April and half of May (source).
Why did these countries impose import restrictions? To increase the domestic supply of rice above what it would otherwise be with international trade. With increased supply, domestic price in countries imposing export restrictions falls relative to what it would be otherwise.
But the export restrictions decrease the global supply of rice, leading to higher global prices. What affect does that have on the remaining global suppliers?
Imagine this: There are three ice cream shops on Main Street in a small town. Two of the ice cream shops have low prices, while the third has high prices. Suddenly, two of them shut down – the two with lower prices. Where is everyone going to go? The remaining, higher-priced ice cream shop.
That is what happening with Thai rice. Demand for rice exports flooded to Thailand. Unable to increase production due to the drought and the absence of foreign labor to meet the unsatisfied global demand, Thai rice prices reached their seven-year high at the beginning of April as their competition dwindled (specifically, 5% broken white rice). To reach that peak, prices rose 12% from the week prior to that (source and source).
Although Thai producers captured higher prices for their rice, Thai consumers were in a sense the victims of these three circumstances because they had to pay higher prices. In particular, Thai consumers (like consumers globally) paid higher prices because of the export restrictions imposed by other countries. Maybe they would have been better off if imports were allowed? (source)
Thai rice prices didn’t remain that high for long. By May, India and Vietnam had begun exporting again. AND there are predictions for rain in Thailand. Lower demand for Thai rice and expectations for higher supply = decreases in prices (source) By mid-May, Thai and Vietnam rice prices had converged. (source)
All in all, in 2020 Thailand had lower supply (drought + labor issues), greater demand (stock piling), lower competition (export restrictions by the other major exporters). Together, this led to a dramatic increase in price. As each of these levers has lifted (expected rain and more competition being the two main ones), the price for Thai rice has begun falling again.
So, what should you do with that rice you stockpiled when shut-downs started? Make rice pudding!
This is a recipe that Nina Perkins used to make for my family. It’s the only rice pudding I’ve ever really enjoyed. After baking, a sweet layer forms on top that is my favorite part. I hope you try this and enjoy it.
Preheat oven to 400
On the stove, heat up:
2 cups long-grain rice (Nina’s note: Adolphus, not Uncle Ben’s)
5 cups of water
pinch of salt
Put on stove until it boils – then put the top on it, then lower the heat but cover it. Cook until the rice is done.
Separately with a mixer:
1 stick butter (soften first)
2 ½ cups sugar
Mix on high and add:
1 large can of evaporated milk
Approx. 2-3 tsp. vanilla
Fold in rice.
Grease one or two casserole dishes. Add the rice pudding.
Sprinkle with nutmeg (optional)
Place casserole dishes into 400 oven
Decrease temperature to 350 when it starts to cook: Approximately 25 min. on 400 and 30 min. on 350-375
Test if done by sticking knife through it to make sure it doesn’t bubble over
*** Fun side story: in Vietnam, businessmen have set up “Rice ATMs” where people who are out of work because of furloughs caused by lockdowns can go get free rice. (source)