COLUMN-Thai government continues rice business as unusual: Clyde Russell

Mon Jan 14, 2013 12:59am EST

--Clyde Russell is a Reuters market analyst. The views expressed are his own.--

By Clyde Russell

LAUNCESTON, Australia, Jan 14 (Reuters) - Thailand starts the new year having surrendered its crown as the world's top rice exporter, and saddled with an ever-growing stockpile of the grain as the costs of its subsidy scheme mount.

However, one thing appears increasingly certain about the programme to pay farmers above-market prices for their rice: it will continue as long as it secures votes for Prime Minister Yingluck Shinawatra and government coffers hold out.

Thailand is estimated to have exported about 6.8 million tonnes of rice in 2012, down about 35 percent from the prior year, as the costs of the intervention scheme made Thai prices uncompetitive.

This figure is based on forecasts by traders as the government removed data from its website last October and officials will no longer divulge data.

This is classic head-in-the-sand behaviour, but Thailand's rice problems won't disappear just because the government tries to conceal what is happening.

India is the new number one rice exporter, taking the title for the first time since 1983, with exports likely to be about 8.5 million tonnes in the fiscal year to the end of March 2013.

In second spot is Vietnam with 2012 exports of about 7.7 million tonnes.

It is no surprise that Thailand's rice exports slumped, since its prices are about 37 percent above those of Vietnam and India.

Thailand now has more than 12 million tonnes of stockpiled rice, about a fifth more than the most it has ever exported in a year.

The authorities are maintaining they will sell 7 million tonnes in government-to-government deals in 2013, but to say the market is sceptical would be putting it mildly.

Commerce Minister Boonsong Teriyapirom claimed in September that Bangkok had contracts to sell 7.3 million tonnes in 2012 to countries including Indonesia and the Philippines.

The problem was that those countries denied any deals had been signed and traders didn't see any cargoes leaving Thai ports.

The government did sign a memorandum of understanding with China to allowing rice exports to Beijing, but so far there is no sign of any additional cargoes.

In fact, quite the opposite is true, with Thai rice exports to China falling 52 percent in the first 11 months of 2012 from the prior year, according to Chinese customs data.

In contrast, Vietnam's exports to China were up 568 percent, and the Southeast Asia nation's total of 1.495 million tonnes was almost three-quarters of China's total imports of 2.129 million tonnes in the first 11 months of 2012.

The Chinese figures show the real problem for Thailand, namely that its share of exports is being taken away by competitors and the overall rice market has adapted remarkably well to lower supplies from the southeast Asian nation.

CHINA ONE OF THE FEW IMPORTERS

China has been importing considerably more rice than normal, with total inbound shipments up 311 percent in the first 11 months of 2012 from the prior year.

This is probably because domestic prices are higher than current import prices, meaning imports may remain elevated as Asian rice prices remain subdued thanks to plentiful supply.

But China may be one of the few buyers importing more this year.

Indonesia, which normally buys between 1 million and 2 million tonnes a year, currently has more than its target of 2 million tonnes in stockpiles and is forecasting a domestic crop big enough to meet demand.

The Philippines may also import less in 2013 on rising domestic output, and with India likely to have more available for export, the likelihood is that too many cargoes will be chasing too few buyers.

This means that if the Thai government is serious about selling down its record stockpile, it will have to accept lower prices.

Of course, selling at lower prices crystallises the losses on the programme, which was budgeted at 80 billion baht ($2.64 billion) for the fiscal and crop year that started October 2011.

Currently the government pays 15,000 baht a tonne for paddy, which works out to about $742 a tonne for milled rice, a premium of about 33 percent to the current price for Thai rice, and 81 percent above the cost of Vietnamese rice.

Assuming the government could only move large quantities of rice at the lower, Vietnamese price, each tonne would yield a loss of about $330, meaning selling even the targeted 7 million tonnes would result in a deficit of $2.3 billion.

But money isn't the real issue here, it's votes. And so long as the Thai government doesn't go bankrupt, it will continue to pay out the subsidies and build stockpiles.

And so long as the global rice market remains in surplus, the loss of several million tonnes a year of Thai exports won't really make that much difference. (Editing by Clarence Fernandez)

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