Thai rice exports set to plunge

January 17, 2012
By Gwen Robinson
Financial Times

Thailand’s rice exporters have warned that rice exports may plunge as much as 38 per cent this year, the lowest level in more than a decade, due to India’s re-entry into the rice exporting market and a new Thai government subsidy scheme that is inflating prices.

The projected fall in export volumes would see Vietnam replace Thailand, which accounts for 7 per cent of global rice production and more than 30 per cent of the global rice market, as the world’s biggest rice exporter.

The Thai rice industry expects an abundant rice harvest in 2012, close to the 30m-32m tonnes of paddy harvested in 2011. Yet, Thai rice exports are likely to fall to between 6.5m and 8m tonnes from last year’s 10.5m tonnes, according to the Thai Rice Exporters Association (TREA). Key rice-growing regions of Thailand emerged relatively unscathed from massive flooding in the country’s central and northern regions last year, and are likely to benefit from the effect flooding has on soil fertility, said local exporters.

The US Department of Agriculture also predicted a big fall in Thai rice exports, estimating last week that Thai rice shipments would drop 33 per cent to 7m, the lowest level since 2000. On those figures, Thailand’s share of the global rice market would shrink to 20-25 per cent from 30.2 per cent in 2011, said the USDA.

Korbsook Iamsuri, president of the TREA, which represents two-thirds of Thailand’s 300 or so rice exporters, said a key factor was India’s resumption of rice exports late last year after a three-year hiatus and Vietnam’s plan to double jasmine rice exports to 800,000 tonnes this year. In addition, a growing number of countries have begun exporting or increasing rice exports including Brazil, Uruguay, Pakistan, Cambodia and Myanmar.

Thai prices reached a three-year high of $663 a ton in November, even as the Asian benchmark price fell more than 15 per cent from a year ago, after the government launched a subsidy programme to buy paddy from farmers at above-market prices. In a country where the rural vote is crucial for political parties, the move replaces a price-guarantee scheme for rice farmers under the previous government, and various price-support schemes before then.

However, take-up of the new scheme, under which farmers “pledge” to sell their paddy to the government at a set price, has been much slower than expected. About 4.7m tons of unmilled rice was purchased from farmers under the scheme in the three months to January 4, lower than the initial target of 15m tons, and far below the expected harvest level of 19m tonnes, according to Thai government figures.

According to TREA and UK-based commodities broker Jackson Son & Co, some farmers prefer to sell to rice millers or exporters at lower prices rather than meeting the complicated criteria of the government scheme and waiting for payment.

Ms Korbsook said Thailand was “shooting itself in the foot” and urged the government to review its price-support policy. The association has proposed an alternative, “hybrid” scheme to give price subsidies to smaller rice farmers and allow bigger ones to sell to the government through the “pledging” system. Or else, said Ms Korbsook, the government should just go back to the old, income subsidy scheme. So far, she added, the government has “refused to listen”.

“No one objects to helping poor farmers but in the process they are destroying our exports and industry...This policy is unsustainable in the long term, but it seems they are worrying more about short-term popularity than long-term sustainability”.

Thai officials however insisted there was continuing demand for superior-quality Thai rice and said the government would not review its rice policy. “Thailand will eventually sell rice at an appropriate level,” said Kittiratt Na-Ranong, deputy prime minister.

The issue, said one rice market analyst, is that the Thai government believes rice is being sold too cheaply in the world market. The idea of aggregating supply to try to set a price level however is limited by Thailand’s ability to influence market prices, or compete with cheaper producers. “The larger concern is that Thailand gradually gets displaced from its traditional markets, as aggressive players like Vietnam take market share, and increase their rice productivity”.