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Cablegate: Food Prices: It All Hinges On Rice

VZCZCXYZ0002
PP RUEHWEB

DE RUEHJA #0762/01 1070631
ZNR UUUUU ZZH
P 160631Z APR 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 8711
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
INFO RUEHML/AMEMBASSY MANILA 3204
RUEHNE/AMEMBASSY NEW DELHI 1762
RUEHHI/AMEMBASSY HANOI 0593
RUEHBK/AMEMBASSY BANGKOK 8397
RUEHBJ/AMEMBASSY BEIJING 4947
RUEHKO/AMEMBASSY TOKYO 1831

UNCLAS JAKARTA 000762

SIPDIS

SIPDIS
SENSITIVE

USDA U/S KEENUM
FAS/OA YOST, MILLER, JAKCSON
FAS/OCRA/CRIKER, HIGGISTON, RADLER
FAS/OGA/CHAUDRY, DWYER
FAS/OFSO/DEVER
MANILA FOR AG COUNSELOR PURDY, ATO VOBRIL
NEW DELHI FOR AG COUNSELOR HIGGINS
BANGKOK FOR AGCOUNSELOR MEYER
HANOI FOR AG COUNSELOR WADE
BEIJING FOR AG MIN COUNSELOR WESTMAN
TOKYO FOR AG MIN COUNSELOR BERMAN

E.O. 12958: N/A
TAGS: ETRD EAGR ECON ID
SUBJECT: Food Prices: It All Hinges on Rice

REF: (A) Jakarta 000088; (B) Jakarta 000264; (C) Jakarta 000286

1. (SBU) Summary. Government of Indonesia (GOI) concern about the
impact of rising rice prices continues to grow as world rice prices
soar. Coordinating Minister for the Economy Boediono has requested
World Bank (WB) assistance in determining the outlook for rice
prices in Indonesia and outlining policy options to maintain
affordable rice for Indonesian consumers. Emboffs met with the WB's
US-based consultant 11 April and 15 April to obtain preliminary
details of likely GOI actions and to gain insight on the dynamics of
international rice prices. For the time being, the GOI is
attempting to minimize rice exports and smuggling, while hoping for
confirmation of an ample harvest. It is not clear how long the GOI
can maintain these policies, given the $400 per ton spread between
Indonesian and world rice prices. End Summary.

Rice Prices Worry GOI
---------------------

2. (SBU) Government of Indonesia (GOI) concern about the impact of
rising rice prices continues to grow as world rice prices soar. The
poor and near poor (roughly half the population) spend up to one
third of their income on rice, underscoring the impact of price
increases on the average Indonesian. In recent months rice prices
in Indonesia have remained steady, but international rice prices
continue to soar. The wholesale price of rice per ton rose $180 in
early April alone, and now stands at $900 per ton. The wholesale
rice price in Indonesia is roughly $500 per ton. In response to
these trends, Coordinating Minister for the Economy Boediono has
requested World Bank (WB) assistance in determining the outlook for
rice prices in Indonesia and outlining policy options to maintain
affordable rice for Indonesian consumers.

India, Vietnam and China Restrict Exports
-----------------------------------------

3. (SBU) On April 11, Tom Slayton, a well respected global rice
analyst working on the GOI-sponsored WB project, provided Emboffs
with a candid assessment of the current world rice situation.
According to Slayton, the surge in global rice prices is directly
related to actions to restrict exports by several countries, and
panic issuance of tenders by the Philippine Government, rather than
an absolute supply shortfall. Export bans in India, export
restrictions in Vietnam and export taxes in China have created a 4.0
million metric ton (MMT) hole in the current international trade
regime for rice. The result is the most precipitous rise in rice
prices in 35 years. Although a reversal of these polices or the
sale of large Japanese and/or Chinese rice stocks would alleviate
rice price pressure, Slayton was not hopeful that these policies
would materialize in the near term. That leaves Thailand as the
principal origin for global trade in rice for the near term. Yet the
Thais are over committed from Slayton's perspective, and will be
unable to meet international demand. At its current pace, Thailand
would export 13 MMT this season, but the Thai crop will probably
only allow 9 MMT of exports. If additional stocks are not released,
Slayton believes rice price could rise as high as $1200 per MMT
before the end of the year.

The Indonesian Situation
------------------------

4. (SBU) Indonesian rice production is up, but the wide margin
between Indonesian and international prices will be difficult to
maintain. Indonesian rice harvest prospects, while not as rosy as
those announced by the Ministry of Agriculture, are nevertheless
better than last year. The main harvest on Java is currently in
full swing, and FAS/Jakarta estimate production at 35.5 MMT (milled
basis), 200,000 MT above the 2007 level. The real question for
Indonesia is how long the GOI can constrain exports and limit
smuggling given a $400/MT spread between the Indonesian and world
prices. According to Slayton, the GOI is preparing to restrict
private sector trade, with any exports should conditions warrant to
BULOG, the national logistics agency, in an effort to maintain price
levels. Slayton views the GOI's proposed actions as constructive in
the short term. However, GOI targets for BULOG rice purchases are
in the 2.4 - 3.0 MMT range, with perhaps 650,000 MT already in
store. While the lower range of BULOG purchases may be possible if
harvests are strong, the high-end of that range is unrealistic.
Should the harvest fail to meet current projections, Indonesia would
need to import rice later this year at prices that could be roughly
double the local price, or higher.

Hume

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