Agricultural commodity prices are characterized by extraordinary volatility, which regularly threatens food security in developing countries. In 2008, the soaring prices of rice hit Southeast Asia hard, leading various nations in the region to commit to building-up reserves, not only to protect against eventual supply crises but also to stabilize agricultural commodity prices.1
The initiative falls within an institution that was established over thirty years ago––the East Asia Emergency Rice Reserve. Its history has been retraced by the Center for Studies and Strategic Foresight in the recent paper shown below and published on the website of the French Ministry of Agriculture.2
In spite of the political consensus between the 13 countries involved, the implementation of such reserve proves to be difficult, particularly due to the hurdles in coordinating national stockpiling policies and in sharing the costs involved with such approach.
momagri Editorial Board
For thirty years, several East Asian nations have been operating an organization dedicated to building up stocks in order to respond to eventual rice supply emergencies. The dual purpose of the East Asia Emergency Rice Reserve is ensuring food security in case of crisis, while contributing to price stability in the regional rice market. In spite of the commitment made by the 13 member countries, the system has never been used and the organization still remains at the pilot project stage. While rice still seems to be relatively spared by renewed grain price hikes, two lessons can be learned from the project. On one hand, a dialogue between very different nations is possible; on the other, coordinating national reserve policies is a challenging task, in spite of a strong political consensus.
As early as 1979, the countries of the Association of Southeast Asian Nations (ASEAN) established the ASEAN Emergency Rice Reserve (AERR). Its objective was to build up physical rice reserves that could be used if a member nation is unable to meet the needs of its people through its own production or through rice purchases in international markets. The system was never used and the reserves were too undersized to cope with an actual emergency situation.
Starting in 2001, the ASEAN countries, augmented by three members (China, South Korea and Japan), initiated a consultation and cooperation process to form an emergency rice reserve at the regional level. A pilot project of the East Asia Emergency Rice Reserve (EAERR) was created at the end of 2003 with the political support of the 13 Asian nations involved. The purpose of the EAERR is twofold: maintaining food security in case of crisis and contributing toward price stability in the regional rice market. To reach this goal, the Bangkok-based EAERR’s secretariat aims to both provide food aid to households facing food insecurity and manage regional rice reserves in a sustainable and efficient manner. It operates independently to facilitate rice trade between countries facing an emergency food requirement and countries holding reserves. Each intervention concerning reserves results in an implementation report that is forwarded to representatives of the project steering committee members. Thanks to the sound management of its rice reserves, the EAERR guarantees availability on the regional market by safeguarding valuable transparency on stocks and acting as last resort seller, as would be done by a central bank for currency. In addition, all countries participating in the system are included in the ASEAN’s Food Security Information System (AFSIS) that was set up by the FAO to exchange data and coordinate information on the region’s agricultural and food production.
In 2008, the soaring rice prices––in line with the sharp global rise of agricultural commodity prices observed since 2007––led East Asian governments to strengthen the financial and stockpiling abilities of the EAERR and move beyond the pilot phase of the system. Hence, Japan remained the only financial contributor until 2009, with a $4.5 million investment in the project since 2002. At the end of 2009, the country also stated its willingness to provide up to 250,000 tons of rice to boost the stabilizing role of the EAERR. Likewise, other member nations announced voluntary contributions to the system. Some made donations in kind to the EAERR, such as 300,000 tons by China and 87,000 by ASEAN countries.
Operating procedures of the reserve
To allow for a rapid transfer in case of emergency, the physical rice reserves set up by the EAERR should be held on the territory of East Asia’s large rice exporters (Thailand and Vietnam), in countries that are rice self-sufficient (China and Japan among others), as well as in countries that are traditional purchasers (Brunei, The Philippines and Singapore). These physical stocks can be part of the national reserve of contributing nations, which commit to keep promised volumes available in case of need and to assume stockpiling costs. The regional consensus on the project and the allocation commitments by nations with rice surpluses demonstrate the strength of the links built by the Far East countries with the ASEAN geopolitical arena.
However, the system would operate mostly on financial stocks, since rice remains a costly commodity to stockpile over long periods in a humid tropical climate. The largest part of member states’ contributions would be earmarked to pay for the warehousing of physical products, purchase rice on free markets in case of emergency, ensure the packaging and transportation of rice to areas where emergency aid is required, and lastly to service the EAERR operating costs.
Should an urgent need arise in a member state, the EAERR could take action. The secretariat of the Reserve would be in charge to analyze the rice supply and demand in countries with surpluses and shortages, to assess the degree of emergency in the country asking for assistance, to act as an intermediary between two nations in order to finalize a rice sales contract, and to organize transportation toward the buying country.
Some courses of action for a still current project
Nevertheless, the EAERR has yet to be operative. Member states have never used it, whether in its initial configuration––responding to an emergency food demand––or as a mechanism to stabilize prices on regional rice markets.
This past February, a workshop sponsored by the FAO and the Agriculture and Food Marketing Association (AFMA) brought together representatives of the relevant public and private sectors, with the purpose of examining regulatory tools for the Asian rice production and markets, and in particular the strength and weakness of the EAERR. ASEAN members seem to be in favor of a system such as the EAERR, while recognizing that budget allocations must be significant to stockpile the reserves required to meet emergencies. For instance every year, Japan spends the equivalent of €90 per ton of rice in air-conditioned warehousing costs. Over €57 million would thus be required each year to stock the 637,000 tons committed by participating countries, Sharing the operating expenses between industrialized, emerging and developing countries in the region remains a thorny issue.
In fact, food emergencies remain highly confined to East Asia and all countries think they may have sufficient national reserves to cope with these situations. In contrast, market stabilization is the function that seems to be in need of strengthening. The reserve operating procedures as market-stabilizing agent were barely covered during the recent workshop. A course of action would be to link the physical stocks of the reserve to a trade platform for a regional rice market. But rice traders pointed out to the attendance that the great diversity of rice types restricted the value of such a market, thus shelving the idea.
The lesson to be learned from the EAERR unfinished story is that both a timespan and a most advanced cooperation between participating nations are required for its implementation. With a thirty-year gestation period, this institutional system gathering unanimous political support still remains in its pilot stage.