Rice Cartels and the U.S. Diplomatic Response

Thailand and Vietnam, the world’s second and third largest rice exporters, reportedly held talks in October 2022 to discuss a proposed rice cartel. The two nations jointly control 26 percent of exports and the idea has gained traction in the past. While it remains unclear how the cartel would function, it would likely involve restricting rice production to raise prices and give suppliers a monopolistic premium. 

If adopted, it is far from certain that a rice cartel would work. Rice production, unlike oil, is difficult to control because production is highly fragmented, determined months in advance by planting, and depends on variables like weather, rotting, and disease. For these reasons, industry organizations in Thailand and Vietnam have criticized the proposal, arguing that controlling global prices is not feasible with India’s 41 percent market share excluded. In response to backlash from export groups, Vietnam’s agricultural minister denied that the two countries are jointly cooperating to raise rice prices.  

Nonetheless, the possibility remains that a rice cartel will form and at least partially achieve its goals. In the short term, a rice cartel would enjoy market power, albeit not monopoly power. While basmati rice originates in India, jasmine rice originates in Thailand and is a staple of Southeast Asian diets. The exclusion of India, therefore, would not be fatal to the cartel’s implementation.  The price of certain rice varieties could rise up to 20 percent as it would be difficult for consumers to adjust dietary patterns that have persisted for centuries.  

China, which is predicted to remain self-sufficient in domestic rice production for the foreseeable future, could also throw its support behind a cartel. Because a rice cartel might factionalize Association of Southeast Asian Nations (ASEAN) countries, China could deal with these countries individually instead of as a bloc. This, in turn, would enable China to use its superior economic and military might in resolving disputes over territory and trade.  

Finally, support for a rice cartel has persisted despite opposition. During the 2008 financial crisis, Thailand proposed a rice cartel including Vietnam, Cambodia, Myanmar, and Laos called the Organization of Rice Exporting Countries (OREC). The Thai government also floated the idea in 2001 and 2012. While these efforts were unsuccessful, current export restrictions in India may create a window of opportunity. Indian export restrictions on jasmine rice are likely to persist due to El Niño conditions and may create a “multiplier effect” of restrictions elsewhere. In response to higher prices caused by restrictions, other exporting countries usually reduce exports to preserve rice for domestic consumption, causing a supply decrease. Simultaneously, importing countries tend to subsidize rice imports so consumers are not hit by the price increase, causing global demand to rise. India’s export restrictions could spill over to Thailand and Vietnam, and if the two were to restrict exports, other countries would likely follow. 

The role of the United States remains unclear. The United States is the world’s 3rd largest importer of rice, and nearly 60 percent of U.S. imports come from Thailand. Were jasmine rice prices to increase, American consumers of this popular variety would be hurt. However, the United States is also the 5th largest exporter of rice. Insofar as rice varieties can be substituted in the long run, American rice producers would benefit from a rice cartel just as domestic oil producers benefit from OPEC+ production cuts. Domestic rice exporters could apply political pressure for the United States to support, or at least not oppose, a rice cartel.  

While a rice cartel faces uncertain prospects, it is in America’s overall interest to block the proposal now. If a rice cartel were to form, it would hamper security cooperation within ASEAN as the organization’s importance continues to grow. A rice cartel would also raise global food prices during a time of already-high inflation, which could trigger instability. To reduce the likelihood of price volatility and improve cooperation with regional partners, the United States could privately implore Thailand and Vietnam to drop support for a rice cartel. Instead of price fixing, the Thai and Vietnamese governments should implement needed reforms to improve export competitiveness.  

A clear signal from both governments is essential for food price stability, which can be disrupted by market panics. Current flip-flopping on the rice cartel leaves vulnerable consumers uncertain, and some may engage in excessive buying and hoarding if the cartel proposal appears feasible. When countries including India and Vietnam imposed rice export controls in 2008, anxious importers like the Philippines told citizens to eat less rice. That created a panic, and many Filipinos bought more rice instead of less. It is in America’s interest to quash the rice cartel proposal now, before it progresses enough to unsettle rice consumers.  

There are two general consequences of a rice cartel that should raise the alarm for American policymakers.  

(1) It creates security challenges. Within ASEAN, five countries – Brunei, Indonesia, Malaysia, the Philippines, and Singapore – are net importers of rice, as the chart below demonstrates. Each of them imports around 50 to 80 percent of their rice from Thailand and Vietnam. Should a rice cartel come to fruition, these consumers would face elevated prices for a staple good.  

Elevated rice prices have been linked to political instability. When world food prices spiked in 2008, food riots occurred in disparate places including Guinea, Mauritania, Mexico, Morocco, Senegal, Uzbekistan, and Yemen. In 2011, high food prices were cited as a proximate cause of the Arab Spring. A political crisis in a state like the Philippines, a close American ally, would force the U.S. government to expend significant time and financial resources to address the crisis. It also risks a transition of power when the next Filipino president may not be as pro-American as the current one.  

A rice cartel would also limit cooperation in response to Chinese interference in Southeast Asia. The cartel functions as a beggar-thy-neighbor system, where Thailand and Vietnam gain wealth at the expense of their neighbors. For this reason, the cartel proposal has previously been regarded by countries in the region as a “disturbing” threat to cooperation. Political and economic leaders from the Philippines and Indonesia reacted especially strongly to the proposal, with one Filipino senator calling for an ASEAN summit on rice and food security. An official from the ASEAN Secretariat summarized these concerns, arguing that the proposal’s failure demonstrated the importance of “ASEAN cohesion.”  

Reviving such a contentious issue would encourage China’s continued disruption in the region. Chinese behavior suggests that “a weak and splintered ASEAN is in its best interests,” because Beijing can manage countries one by one instead of negotiating with a stronger bloc. With a loose structure and members like Cambodia that prefer to side with China, ASEAN suffers from clear deficiencies as a foreign policy tool. Nonetheless, the organization can impose meaningful costs on Chinese behavior. After the 2012 Scarborough Shoal standoff, a concerted declaration from member states inflicted reputational damage on China and helped deter additional land seizures. Were ASEAN to become riled in a rice cartel dispute, additional states would be susceptible to Chinese influence and coordinating responses would become more difficult.  

The United States, which recently elevated relations with ASEAN to a “comprehensive strategic partnership” in response to China, should be sensitive to these risks when responding to the cartel proposal. A rice cartel would undermine internal stability within the region, and it would divide an organization that President Biden regards as “at the heart” of his administration’s Indo-Pacific strategy. 

(2) It increases food insecurity. Nine countries in sub-Saharan Africa, most of which are food insecure, depend on Thailand and Vietnam for at least 25 percent of their rice imports. Economist Impact’s Global Food Security Index evaluates the food security of 113 countries in terms of affordability, availability, quality and safety, and sustainability and adaptation. As supported by the chart below, eight of the nine major importers rank in the world’s bottom quartile for food security; only Ghana is not classified as at risk.  

Because famines are primarily caused by an inability to afford food, rather than scarcity itself, price increases would compound the problems faced by consumers. As sub-Saharan Africa is now the world’s leader in rice imports, rice has become a staple food in countries like Nigeria and Cote d’Ivoire. Should prices rise, poor consumers in these already food insecure states would be hit hard. While buyers would eventually switch to other leading exporters like India, Pakistan, the United States, and China, there may be short-term search and switching costs including identifying new suppliers, breaking possible contracts, higher tariffs, and increased shipping costs. These costs would be exacerbated if a multiplier effect caused additional trade distortions and possibly a market panic.  

Beyond moral considerations, widespread hunger increases the likelihood of instability that would require sustained American attention. With the drop in food production from the war in Ukraine, armed violence, and failing harvests from droughts, 346 million in sub-Saharan Africa already face severe food insecurity. As in Southeast Asia, food related grievances in sub-Saharan Africa could escalate into violence. Overall, there are humanitarian and strategic reasons to prevent matters from becoming worse.  

Faced with these dangers, the United States has two policy response options.  

(1) The United States could privately communicate to Thailand and Vietnam that a rice cartel is unacceptable.  

Emphasizing the effect on U.S. consumers and the importance of regional cooperation, American diplomats could communicate to Thailand and Vietnam that a rice cartel would not be seen favorably. Because Thailand has been the most vocal advocate of a rice cartel and exports considerably more to the United States, the U.S. Embassy in Bangkok could be particularly vocal behind the scenes in pressing the Thai government to drop its support for the proposal. A strong statement from the Thai government would reduce the chances of a market panic and smooth relations with Thailand’s regional partners, both of which are in the American interest. If Thailand remains intransigent, then the United States could heed past efforts within the Philippines and call a summit. Another U.S.-ASEAN Special Summit would strengthen regional ties and provide opportunities to discuss the cartel plan on the sidelines.  

(2) The United States could offer financial and technical assistance to Thailand and Vietnam to reform their rice sectors.  

The stick of American pressure could be coupled with the carrot of assistance, including a few technical advisors and a modest financial contribution. This assistance should be geared towards structural reform in the rice sector.  

Thailand is desperate for a rice cartel because its rice sector suffers from stagnant productivity, an aging workforce, and dependence on subsidies. Thailand produced just 2.91 tons of rice per hectare in 2020, contrasting with regional competitors India (3.96), Vietnam (5.92), Myanmar (3.77), Cambodia (3.76), and Laos (4.49). Productivity has risen by less than 12 percent in Thailand since 2000, significantly less than India (35 percent), Vietnam (40 percent), Cambodia (77 percent), and Laos (47 percent). Even Myanmar, with its significant political turmoil, has seen faster productivity growth.  

Instead of implementing reforms, the Thai government has continually bailed out farmers to no avail. The government has purchased rice at above market prices since the 1970s, and Thailand lost its once leading share of world rice exports in 2011. This culminated in a disastrous rice pledging policy, where the Thai government bought rice at least 30 percent above market prices from 2011 to 2014. Rice pledging cost government budgets 3.5 percent of gross domestic product, disincentivized productivity gains, and left millions of tons rotting or stolen. Poor farmers gained little because they produce for subsistence rather than for the market. Around 40 percent of Thai farming households remain in poverty despite decades of subsidies.  

Vietnam’s rice industry is considerably more competitive, yet it too suffers from challenges. To diversify crops, rice farmers must receive permission from local authorities. This prevents farmers from adapting to changes in the global food market, such as a decline in the price of rice or a price rise for another good. The Vietnamese rice sector is also subsidized generously, disincentivizing further productivity growth.  

Current policies in Thailand and Vietnam are desirable because they do not require challenging entrenched rent-seekers. Instead, the Thai government should fund rice research and development, expand direct income payments for the poor while heavily reducing subsidies, and invest in training and education to provide alternatives to farming. Vietnam should similarly reduce subsidies; general income assistance will support poor farmers without disincentivizing productivity gains. Vietnam’s rice industry should be more decentralized, providing farmers with market flexibility. Where possible, the United States could offer assistance to nudge reforms forward. Ultimately, doing so is in the interest of Thailand, Vietnam, and the world. 


Ty Rossow