El Niño Weather Events Affect Southeast Asia’s Rice Surplus

El Niño events in Southeast Asia are 1- or 2-year weather patterns that can sharply constrict the region’s rice
surplus, with major implications for global prices and trade levels.

El Niño droughts are not
a new phenomenon, and the island countries of Southeast Asia usually suffer more from them than other parts of
the region. In 1996/97 and 1997/98, El Niño-related drought affected rice harvests in Indonesia and the Philippines.
The absence of normal rainfall damaged Indonesia’s summer crop and delayed planting of the main 1997/98 crop,
causing a production shortfall of nearly 1 million tons. The Philippines also experienced a severe drought, with
production there declining by 11 percent (box fi g. 1). These crop shortfalls led Indonesia to increase its imports in
1998 to a record 5.8 million tons—the largest quantity of rice ever imported by a single nation—and the Philippines
imported another 2.2 million tons. Total 1998 Southeast Asian rice imports were almost 9 million tons—more than
three times the 1997 level.

These imports affected the global
rice market. Global rice trade soared
more than 50 percent in 1998 to
a record 26.7 million tons, with
Southeast Asia accounting for 34
percent of global imports. Thailand
and Vietnam accommodated most
of the additional regional import
demand; however, India, China, and
the United States also shipped rice
to the region. Although increased
import demand occurred during the
1997-98 Asian fi nancial crisis—a
time when the depreciated Thai baht
made its exports cheaper in U.S.
dollar terms—global rice prices still increased nearly 30 percent from November 1997 to late June 1998. With
regional import demand soaring, Southeast Asia’s net exports fell nearly 80 percent in 1998. East Asia (principally
China), South Asia (principally Pakistan and India), and the United States all overtook Southeast Asia as larger net
exporters in that year. Indonesia and the Philippines also made large imports in 1999 (box fi g. 2). By 2000, however,
regional and global trade had returned to previous volumes and patterns. The El Niño weather event was a short-term
shock, not a long-term change in market structure or behavior.

The El Niño phenomenon recurs,
but with varying severity and market
impacts. The 2010 El Niño event
decreased production in Indonesia
by almost 2 million tons and in the
Philippines by almost 1 million tons.
Prior to the 2010 event, both the
Philippines and Indonesian stock
levels were higher than before the
1997-98 El Niño, and imports did
not rise as much as in the earlier
episode. El Niño-related drought
could strike Southeast Asia in the
future. Although Southeast Asia’s
rice trade balance would likely be
restored within 2 years, a future occurrence of such a phenomenon could put short-term pressure on global rice
supplies and likely cause an increase in rice prices.

January 2013