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Cablegate: Food Prices in Laos: Sticky Rice Prices Remain

VZCZCXRO6392
PP RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHVN #0240/01 1150453
ZNR UUUUU ZZH
P 240453Z APR 08
FM AMEMBASSY VIENTIANE
TO RUEHC/SECSTATE WASHDC PRIORITY 1971
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 2292
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHHMUNA/CDR USPACOM HONOLULU HI PRIORITY

UNCLAS SECTION 01 OF 03 VIENTIANE 000240

SIPDIS

SIPDIS

STATE FOR EAP/MLS BESTIC
STATE FOR EAP/EP
STATE FOR EEB/TPP/ABT/ATP JANET SPECK
COMMERCE FOR HP PHO
TREASURY FOR SUSAN CHUN
PACOM FOR POLAD
HANOI FOR WADE

E.O. 12958: N/A
TAGS: EAGR EAID ETRD ECON PGOV PREL EPET LA
SUBJECT: FOOD PRICES IN LAOS: STICKY RICE PRICES REMAIN
FAIRLY STICKY

1. Summary: Despite rising world prices for white rice,
sticky (glutinous) rice, the primary rice variety eaten in
Laos, has seen only moderate price rises this year. One
notable aspect of Lao sticky rice prices has been their
stability over the past several years despite inflation
averaging 7.2% in Laos since 2004. Lao white rice prices,
however, have gone up significantly versus last year, as Lao
farmers planting white rice generally use the same Jasmine
variety as those undergoing large price increases in
Thailand. The Lao central government has imposed no controls
over the export of rice; the power to ban exports is
delegated to the provinces, only one of which has announced a
difficult to enforce export ban. Weak border controls make
it difficult to keep the determined farmer away from a
potentially lucrative market in neighboring countries. While
few people in Laos enjoy paying more for rice, the Embassy
does not foresee current price movements leading to social
unrest or political instability. End Summary.

2. Despite rising international prices and media headlines,
the central Government of Laos has not imposed any bans on
the export of rice. Econoff met April 9 with Dr. Laohua
Cheuching, Deputy Director General of the Department of
Import and Export at the Ministry of Commerce. Dr. Laohua
prepares government import-export policies and is a member of
the Lao WTO negotiating team. He was eager to discuss the
role of the central government in regulating rice exports.
According to Dr. Laohua, the right to impose export bans
rests at the provincial level. An April 7 Vientiane Times
article stated that Champassak province in southern Laos had
banned export of rice to neighboring countries. Champassak,
which shares borders with Thailand and Cambodia, also
reportedly banned the export of unmilled rice (often called
"paddy rice" in Laos) to other provinces to "protect farmers
from receiving low prices."

3. According to Dr. Laohua, rice is deemed by the government
as a "sensitive" commodity subject to trade regulation.
However, the provinces do not/not have the right to ban trade
within Laos, and he noted he would look into the newspaper
claim of an interprovincial ban. According to unofficial
inquires with local Lao, even if price controls exist in
theory, they do not operate in reality. Prices at the market
are determined by market forces, even for "sensitive" goods,
not government diktat. However, governmental officials and
local village chiefs are known to try and use moral suasion
to try to "talk down" prices during periods of heavy demand.
(Note: Petroleum prices are a notable exception and are
regulated. However, if the government fails to increase the
price local providers are allowed to charge, as happened
recently in Vientiane, the providers will simply not import
additional supplies until they have a guaranteed profit
margin. A number of gas stations reportedly ran out of
diesel fuel April 22 as the government dithered over allowing
a retail price rise. Unsurprisingly, the government agreed
to a price rise the afternoon of April 22. End note.)

4. An international expert on rice cultivation also
dismissed the Lao government's ability to regulate rice
exports. Laos border controls are weak and subject to easy
manipulation via bribery and evasion. According to the
expert, the only people likely to need (and seek) export
permits would be large scale exporters using containerized
shipping. Even then Lao customs is known for its willingness
to look the other way for a modest fee.

6. Dr. Gary Jahn of the International Rice Research
Institute provided a wealth of information on Lao and
regional rice prices, noting that prices at the farmgate for
sticky rice in Savannakhet province (a major producer) in
April are 2,000 kip/kilogram, 200 kip less expensive than in
March. (Note: $1 U.S. is currently worth approximately
8,700 kip. End note.) Dr. Jahn expects prices in May to
rise, as the price in Thailand for sticky rice has recently
risen and it is the Thai price driving the Lao price. For
white rice, primarily Jasmine, farmgate prices are currently
2,500 kip/kilogram, about 300 kip higher per kilo than in
January and about 500 kip per kilogram higher than last year

VIENTIANE 00000240 002 OF 003


and representing a 25% increase. Jahn said that Lao and Thai
white rice farmers generally grow the same variety of Thai
Jasmine rice called KDLM 105. He noted that Lao Jasmine
tends to be cheaper than Thai as it generally is grown from
older seeds and the mill quality in Laos is lower than in
Thailand. However, he did note that in Laos purchasing white
rice at a market means purchasing 100% Jasmine, while
purchasing "Jasmine" rice over the border in Thailand often
means only 50% Jasmine rice content, with the other 50% a
mixture of cheaper varieties.

7. Post queried the Lao government for its official Consumer
Price Index figures on rice prices and econ staff also made a
number of unofficial market visits (April 10 and April 21) to
assess the price of rice in Vientiane. The Lao Ministry of
Commerce, Department of Domestic Trade provided the following
information:

Rice price in kip per kilogram ($1=8,700 kip)/Thon Kam Market
Vientiane (As of April 1)

2008 2007 2006 2005 2004

Sticky Rice 6,500 6,000 5,000 5,000 5,000
1st Quality

Sticky Rice 5,500 5,000 4,000 4,000 4,000
2nd Quality

White Rice 9,000 6,000 5,000 4,500 4,500
1st Quality

White Rice 7,000 5,000 4,000 4,000 4,000
2nd Quality

Thai White 11,000 7,000 7,000 6,000 6,000
Rice 1st
Quality

8. Lao official government prices tracked closely with
prices econ staff saw at the market, although a check April
21 showed Thai white rice had jumped to 14,000 kip/kilo and
prices Post saw for Lao sticky rice were generally about 1000
kip/kilo higher for first quality sticky rice than the CPI
table. Thus average price increases since 2007 for first
quality sticky rice in Vientiane are about 8% according to
the CPI table and about 16% higher than our market visits,
which indicate a price of 7,500 kip/kilogram. According to
local experts, the rise in sticky rice prices at the market
is primarily a function of higher transport costs (gasoline).
In contrast, prices in Savannakhet for milled sticky rice,
for example, are approximately 5,000 kip/kilo, 1,500-2,500
kip below Vientiane prices. As the international market for
sticky rice is small--estimated at around 300,000 tons a year
and primarily composed of Thai sticky rice -- price
variations in Laos barring large crop failures are more
dependent on overall inflation in Laos than international
demand. According to Dr. Jahn, Lao farmgate prices for
sticky rice this year are actually about 500 kip/kilo lower
than last year's price, which was inflated because the
Chinese crop had been largely wiped out by disease and
flooding.

9. Perhaps the most interesting aspect of rice prices in
Laos has been their relative stability from 2004-2006, years
in which domestic inflation averaged about 8.14%. Current
inflation figures in Laos are near 8% annualized, with the
government publicly stating a goal of 6% for 2008. Inflation
in Laos is currently being driven primarily by rising
transport/gasoline costs and the large influx of dollars from
sales of minerals and tourism. As additional large mines and
large hydropower plants begin to come on line in Laos and
pour money into government budgets, inflation will likely
continue to be a reality unless the government finds a way
(such as a trust fund) to actively manage the foreign
currency influx. The IMF resident representative recently
gave the GOL high marks for managing the foreign currency
influx to date, but also noted the need for future active

VIENTIANE 00000240 003 OF 003


management to lower inflation risks.

10. Comment: The nature of the rice market in Laos, which
is much smaller than its neighbors with a population of only
six million people, helps insulate it from international
price gyrations. Laos is largely self-sufficient in rice
production, and its people generally consume sticky rice, a
variety of rice that is not widely traded or eaten.
Distribution difficulties, an incomplete road network, and
poverty do lead to shortages, notably in upland ethnic
minority areas where it is common for people to face rice
shortage for 6 months a year. But these are "normal" food
security issues in Laos; the current rise in world rice
prices is not yet having a material effect on Laos, and the
Embassy does not expect political instability to arise from
higher rice prices. Political protest is almost unheard of
in this Communist country, and quickly quelled when it does
occur. The Lao public has weathered worse crisis, such as
high inflation following the Asian financial crisis, without
any sign of instability. Eighty percent of the Lao are
subsistence farmers. Many urban residents either have their
own rice paddies close to the city or relatives who farm
family land. The consumption of more expensive white rice
varieties is largely an urban phenomenon, and sticky rice is
easily substituted if price rises become an issue.
HUSO

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