June 18, 2013 / 4:22 AM / in 4 years

UPDATE 3-Thai government cuts rice intervention price from July

5 Min Read

* Costly intervention scheme causing budget strains

* Farmers may accept changes if broad scheme continues

* PM had earlier said more information was needed for decision (Writes through after decision to cut price)

By Pracha Hariraksapitak and Apornrath Phoonphongphiphat

BANGKOK, June 18 (Reuters) - The Thai government has agreed to cut the intervention price farmers get for their rice by 20 percent from July, the commerce minister said on Tuesday, just hours after the prime minister said a decision had been deferred.

Moody's rating agency warned this month that losses from the scheme threatened the government's goal of a balanced budget and were therefore "credit negative", adding fuel to a political row over a programme that critics say is wasteful and corrupt.

The government will pay 12,000 baht ($390) per tonne for paddy from July 1, down from the 15,000 baht it has been paying since October 2011, Commerce Minister Boonsong Teriyapirom said.

"Not that we don't have enough funding, but we need to keep good fiscal discipline," he told reporters after the rice committee meeting.

Earlier on Tuesday, he had said a regular cabinet meeting would discuss a proposal to cut the buying price from the next crop starting in October, but after that meeting Prime Minister Yingluck Shinawatra said the decision had been postponed.

A government spokesman said Yingluck had now called a special cabinet meeting for Wednesday morning to approve the price cut.

A cut in the intervention price could help revive exports and perhaps allow Thailand to reclaim its position as the world's biggest rice exporter, which it lost to India last year. Vietnam also overtook it.

The current buying price for paddy is estimated by exporters to be as much as 50 percent above the market level. That has forced up export prices, reducing shipments to 6.9 million tonnes in 2012 from a record 10.6 million in 2011.

Boonsong had also said the volume of rice bought by the government could be restricted from October. He did not say if there would be any limits imposed with the July price cut.

In 2011/12 the government said it would buy all the grain offered to it. In the current crop year, it started by offering to buy an unlimited amount but later excluded some low-grade varieties.

"Soft Landing"

Boonsong said farmers could still make a profit from the new intervention price and that the government would look for other ways to support them. He did not elaborate.

The government has had to navigate a tough road as it attempts to retain the support of millions of rural voters while maintaining a programme that may have already cost the budget at least 136 billion baht ($4.4 billion).

That figure was produced by the National Rice Committee on Monday for losses in the 2011/12 crop year. It was the first real estimate from a government body since the present scheme began in October 2011.

It did not give details of the cost of the scheme in the current crop year.

The Bangkok Post daily said on Tuesday the government spent around 352 billion baht on buying 21.7 million tonnes of rice in 2011/12. It sold grain worth around 59.2 billion and the value of remaining stocks, based on Jan. 31 prices, was 156 billion, giving the provisional loss of 136 billion.

Thailand is forecast to produce 27.5 million tonnes of paddy from the 2013/14 crop, up 2.2 percent from the previous year as the high intervention price has encouraged farmers to grow more rice, according to the Agriculture Ministry.

The government has put the amount of rice left in stockpiles at 17 million tonnes, which it will probably have to sell at a big loss before it rots.

Farmers have said they would accept some restrictions on the intervention and even a lower price if that helped the government maintain the scheme and support their income.

"This is the only way for the government to survive as it can't stop the scheme, which brought it to power for sure. It needs a soft landing," said Niphond Wongtra-ngarn, a former head of the Thai Rice Millers Association who is now an adviser to a parliamentary agricultural committee.

$1 = 30.6550 Thai baht Additional reporting by Panarat Thepgumpanat, Orathai Sriring, Viparat Jantraprap and Pairat Temphairojana; Writing by Alan Raybould

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