Trade

A Commentary by Maximo Torero

Thailand’s rice exporters are warning that the country’s 2012 rice exports could drop by as much as 30-40 percent as the result of a proposed government policy that would guarantee fixed prices for both plain white rice and jasmine rice. The Pheu Thai Party, which was elected into power in July, has promised farmers fixed prices of 15,000 baht ($US 500) per ton for plain white rice and 20,000 baht (US$ 667) per ton for jasmine rice.

G20 leaders at their summit meeting in November 2010 requested FAO, IFAD, IMF, OECD, UNCTAD, WFP, the World Bank, and the WTO to work with key stakeholders “to develop options for G20 consideration on how to better mitigate and manage the risks associated with the price volatility of food and other agriculture commodities, without distorting market behaviour, ultimately to protect the most vulnerable.”

When the World Trade Organization (WTO) was created in 1995, its members committed themselves to a set of disciplines for domestic support, market access, and export competition for agriculture. The Agreement on Agriculture paved the way for the pursuit of progressive reductions in world agricultural market distortions.

With an estimated 44 million people falling into poverty since June 2010, rising food prices and increasing agricultural price volatility is at the forefront of global attention. Commodity exchanges have long been touted as a way to mitigate the effects of price volatility and increase economic efficiency in a liberalized market environment. As with other aspects of global agricultural markets, however, exchange markets are facing increasing global interdependence as traders draw on information generated both domestically and internationally.

Successful global agricultural trade hinges on open, secure agricultural markets. Such markets provide risk management by allowing for inter-regional diversification of crops and food products and by reducing price differences through market integration. In other words, secure, well-functioning markets can balance one country’s food deficit with another’s surplus, and vice versa. In this way, global trade can support global price stability and food security.