Government intervention puts Thai Rice exporters in peril

Thailand's world-class rice industry is in a saddened state, millions of tons of rice that no one wants, huge losses for the state budget, farmers more interested in quantity than quality, exporters exiting the trade.

The government won election a year ago by promising to pay farmers double the market level at the time for their rice, a policy designed to help the poor, but one that has backfired by making grain so expensive that virtually no one is buying it.

As a result Thailand exported just 3.45-M tons in 1-H of Y 2012, down 45% from the same period in Y 2011.

The Thai Rice Exporters' Association is expecting exports of no more than 6.5-M tons for the full year against 8 to 10-M toms normally, and that means Thailand will probably lose its Crown as the world's #1 Rice shipper to India or Vietnam.

Exporters are struggling: the big ones are looking for opportunities in other countries or diversifying into other sectors to stay alive, the smaller ones are exiting the business.

The Thai exporters association had 192 members last year and officials say that just 30 to 40 can survive, because they have the financial means to get into other businesses such as Real Estate and food processing.

"But, the small companies will have to get out of the business," said association president Korbsook Lamsuri, referring to exporters that ship just 500 to 1,000 tons a year.

Twenty companies have already resigned from the association.

Uthai Produce Co Ltd has scaled down its exporting business in Thailand and is getting grain from Cambodia, Vietnam, Pakistan and elsewhere for clients in the United States, Canada and Asia.

"We still have our expertise. We are still keen on the rice exporting business. It's just that we're using our expertise to boost exports for other countries," said Charoen Laothammatas, president of Uthai Produce.

"I could quit the Rice business here in Thailand one day, too, if the government carries on with this policy," he said.

Commerce Minister Boonsong Teriyapirom is unapologetic about the cost of the program. "Our policy is to support farmers. And to do so, we need to accept some losses."

Despite the enormous cost to the state budget, the government has extended the program beyond its initial end date of June and will renew it for the main crop in October.

The government has spent 260-B Baht (US$8.26-B) on the program so far.

For the period from October, it plans to set aside another 300-B Baht, which is equivalent to the total planned budget deficit for F-Y 2012/13.

Not all that money will be lost but the International Monetary Fund estimated in June the program could cost about 1% of GDP annually, even before storage and management costs. That is about US$3.8-B a year.

Even that assumes the government can find buyers for the record 10-M tons of milled rice it has stockpiled.

It sold 240,000 tons to Ivory Coast in July but in general buyers have gone elsewhere, Thailand's reputation for logistical efficiency and reliability is not counting for much in the face of big cost savings brought by Indian and Vietnamese rice.

The Thai government rice costs around $700 per ton by the time it is ready for export, while market prices offered by India and Vietnam stand more than 40% less, at around $430 a ton.

Thailand usually influences world prices but not this year, mainly because India returned to the market last September after a gap of 4 yrs following a food supply panic in F-Y 2007/2008.

At best, Thai Rice has reached $640 per ton this year and is now offered at around $580 by exporters who have managed to buy at about 9,000 Baht a tonne to fill orders, taking advantage of some farmers' need for quick cash.

Many farmers have thrown quality concerns away since they know the government is offering 15,000 Baht (US$480) a ton and has said it will buy every grain of Rice if necessary.

"Who cares about quality, farmers know they will get 15,000 Baht so they just grow more and more, and that's it," said Prasit Boonchuey, head of the Thai Farmers Association. Many farmers have switched to lower-quality, short-grain Rice strains that take less time to grow, he said.

A senior Agriculture Ministry official said that was particularly so in the well-irrigated center of the country, which contributes 50% of annual production of about 30-M tons.

The implications for once premier Thai Rice industry are serious if it loses the high-end market at the same time as it loses market share on common Rice grades to India and Vietnam.

"It would take years to build up Rice quality again, as now we have plenty of low-quality seeds but a lack of high-quality ones," said Vichai Sriprasert, a director at the Thai Rice Exporters Association.

Rice intervention is a dicey affair in Thailand but opposition politicians say the nature and scale of the present scheme leave it open to corruption.

Grain is smuggled from Cambodia, for example, to exploit the higher prices in Thailand. Millers, big landowners and food companies benefit much more than the millions of poor farmers, critics say.

"Civil servants tell me there has been huge growth in the number of warehouses that have been developed to accommodate the rice scheme," former Finance Minister Korn Chatikavanij said. Grain stockpiling fees would pay for the warehouses in 38 months, he said.

"These guys are not just any ordinary entrepreneurs, these are people with connections to make sure that the government uses their facilities to stock their rice ... So you have all kinds of interests riding the rationale for deciding whether this program should continue," Korn said.