REFILE-Thai rice deal with China won't help cut into its rice stocks mountain

Wed Nov 21, 2012 5:05am EST

(Removes extraneous word in headline)

* Thailand signs rice export MoU with China

* Exports unlikely on higher Thai rice prices

* China seen buying 2 mln T of rice in 2012/13

By Apornrath Phoonphongphiphat

BANGKOK, Nov 21 (Reuters) - Thailand's pact with China to sell rice looks more political than any real opportunity to cut into the huge stockpiles of subsidised grain that are pricing the Southeast Asian producer out of the international rice market it has long dominated.

Under the memorandum of understanding, signed during Chinese Premier Wen Jiabao's visit to Bangkok on Wednesday, China can import Thai rice if it wants to. But it did not agree any actual sales.

The agreement comes just after a regional summit in Cambodia which Wen attended and appears to be a clear attempt by China to curry favour with Thailand.

"The Thai government wants people to believe something is happening and they also desperately want exports to take place," said a trading manager at Singapore-based international commodities trader. "We are very sceptical."

The government is struggling to offload a record 14 million tonnes of rice and is scouring the country for more storage space after Prime Minister Yingluck Shinawatra extended the rice subsidy scheme - aimed at the small-scale farmers who helped vote her into office last year - into the new season beginning October.

The scheme has made Thai rice nearly a third more expensive than grain from rivals Vietnam and India and threatens to take away its status as the world's biggest rice exporter.

A Thai official said the cabinet had approved a framework to sell up to 5 million tonnes of rice within 3 years if China wanted to buy.

"The MOU with China is not a contract to sell," said Thikamporn Nartvoratat, deputy director general of the Foreign Trade Department. "We need to negotiate prices and quantity again if China wants to buy."

Thailand is paying farmers 15,000 baht ($490) a tonne for paddy, far above the estimated market price of around 9,000 baht.

Thai exporters said the agreement with China could have more to do with their government's attempts to counter a planned parliamentary censure debate over the issue by showing it is managing the problem well.

"It's just a political move," said a Bangkok-based trader. "The government wants to show it can handle the stocks even though it can't sell any rice via government deals."

The Democrat Party will open a censure debate this weekend against the government when its rice policy is expected to come under sharp attack.

Though the government is unlikely to lose the debate because of its big majority, the opposition is expected to make damaging accusations about corruption and waste. The debate will be aired on television and it could be embarrassing for the government.

China, the world's biggest producer and consumer of rice, is forecast to import 2 million tonnes in the year to September 2013, according to the China National Grain and Oils Information Center. The bulk of that is expected to come from neighbouring Vietnam.

"It will be cross-border trade between China and Vietnam as it has been in the past for whatever rice China needs," said another Singapore-trader.

Vietnamese rice prices softened this week on lack of demand, traders said. The 5-percent broken rice slid to $445-$455 a tonne, free-on-board Saigon Port, from $450-$460 last Wednesday. This compares Thai 5 percent broken rice quoted at $550 a tonne.

Thai officials have made claims in the past of selling rice to top buyers but importers have denied making any such deals.

The government has sold only small lots. The Ivory Coast bought 240,000 tonnes, while the results of a tender to sell 586,000 tonnes have yet to be announced.

In September, Thailand's commerce minister, Boonsong Teriyapirom, said the nation had signed contracts to sell 7.3 million tonnes of the stockpiled grain which were promptly denied by Indonesia and the Philippines. (Reporting by Niu Shuping in BEIJING, Writing and additional reporting by Naveen Thukral in SINGAPORE, Editing by Jonathan Thatcher)

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