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Asian Tribune is published by E-LANKA MEDIA(PVT)Ltd. Vol. 20 No. 81

Malaysia's Rice Diplomacy

By Dr.Abdul Ruff Colachal

Kuala Lumpur has been hard put these days on account of scarcity in essential commodities, particularly rice. As a result, Asian commodity and currency markets could be plunged into chaos after the Malaysian government threatened to abandon standard trading channels in favor of bartering palm oil for rice.

Annoyed with the alarming situation in the country, Peter Chin, Malaysia’s minister for plantation industries and commodities, said that Malaysia would swap palm oil for rice with any nation willing to make the trade, as it struggles to shelter its people from record rice prices as well as expand its diminished “buffer” stockpile.

The Malaysian proposal emerged yesterday, as the price of Thai 100 per cent B grade white rice — used as one of the benchmarks for global prices — surged back to its record high of $1,000 per tonne after Malaysia bought 200,000 tonnes of rice. Commodity traders in Tokyo said that Malaysia’s decision to opt for off-market barter was a clear sign that food as an asset class is in crisis.

Recent volatility in food prices, and the emergence of rice as an asset now thought by some to be on a strategic par with crude oil, have shaken many countries’ faith in the ability of global markets to properly price food. A commodities analyst said: “What is worrying is that these barter deals, which should only be for truly terrible situations like the Iraq oil-for-food program, are only going to increase in size and number from here. We are now seeing all the hidden mistrust in the markets being expressed through barter.” The unusual offer — apparently open to every rice-producing nation on earth — marks a vote of no-confidence in commodity markets by a country that owes more than a quarter of its GDP to crude oil and palm oil exports.

Currently Thailand is Malaysia's main supplier of rice. Kuala Lumpur is now ready to offer palm oil to any exporting country that is ready to give us rice of suitable quality. As the crisis has deepened, and several large rice-producers have curbed exports for the sake of domestic calm, various barter deals are thought to have been struck behind the scenes. But none have been as open as Malaysia’s offer, which analysts warn could trigger a spate of copy-cat exchanges. At a bare minimum Malaysia’s decision is going to affect the issue of regional rice diplomacy at a sensitive time.

Malaysia is both a major world producer of palm oil and reliant on imports for about a third of its annual rice consumption; palm oil is itself in demand and prices have rocketed amid increased demand from China and India. But commodities experts say it would be highly unsettling to orderly markets if other raw materials like rubber, rare metals or even energy were suddenly moved around in a series of large off-market deals with no formal pricing.

Malaysia grows 65 percent to 70 percent of the rice its people consume, while the rest is imported, mainly from Thailand. With the price of Thai rice nearly tripling in the last five months, the government expects consumers to switch to local rice. The surge in rice prices has come amid poor weather in some rice-producing nations and demand that has outstripped supply. Some Asian countries, including India and Vietnam, have contributed to the problem by curbing rice exports to guarantee their own supplies. Widespread discontentment among Malaysians will occur if the government does not make plans to guarantee a supply of food with prices steadily rising over the last year, Abdullah said, adding that the reluctance of some countries to export rice to Malaysia was causing problems. But the government says it is planning to subsidize locally grown rice to keep its price steady.

The Malaysian government, meanwhile, delays nonessential public projects and use the money instead to build up food stockpiles amid a global food crisis. Prime Minister Abdullah Ahmad Badawi said if measures are not taken now "it will be difficult later". He said a $1.3 billion plan announced recently to guarantee food supplies can be funded adequately only if money is diverted from non-urgent public projects. "We cannot wait for it (shortages) to happen first. Then there will be chaos."

Malaysia also announced plans recently to boost domestic food security by growing rice on a massive scale in a state on Borneo Island. Abdullah also urged land owners to use it for agriculture. "The land must be utilized. Neglected (rice) paddy land should be planted with fruit trees, vegetables," Abdullah said. The government has also decided to create a buffer stock not only for rice but also other essential goods needed by the people regardless of whether they are poor, rich, from the urban or rural areas.

The measures being undertaken by Malaysian government to face the current rice crisis worth the trouble and are expected resolve the bottleneck and ensure future regular supply of rice and other essential items in the market.

- Asian Tribune -

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