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COLUMN-Thailand's rice scheme cutback doesn't go far enough: Clyde Russell
June 19, 2013 / 6:47 AM / 4 years ago

COLUMN-Thailand's rice scheme cutback doesn't go far enough: Clyde Russell

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

By Clyde Russell

LAUNCESTON, Australia, June 19 (Reuters) - The Thai government has finally done something sensible with its rice intervention scheme by trimming the amount of money it pays farmers for their crops.

But don’t for a minute believe the massive problems the scheme has created for Asia’s rice markets have been solved.

While cutting the cash paid to farmers will go some way to alleviate pressure on the Thai budget and make the programme more sustainable, the latest move does nothing to lower the existing mountain of rice that threatens market stability.

Thailand has piled up about 17 million tonnes of milled rice since the scheme started in October 2011, and with warehouses filled to brim it’s running out of space for the next crop that will start arriving in November this year.

To put that figure into context, Thailand exported a record 10.6 million tonnes in 2011, the last year prior to the start of the intervention - a populist measure launched by the government of Prime Minister Yingluck Shinawatra shortly after it won power in July that year.

Since then Thailand has surrendered its position as top rice exporter, being overtaken last year by both India and Vietnam, with its exports dropping to 6.9 million tonnes in 2012 as the scheme rendered Thai rice uncompetitive.

Exports were 1.56 million tonnes in the first quarter, which puts Thailand on track to export about 6.24 million tonnes in 2013, well short of the government’s target of 8.5 million.

The target may well still be met, but only if Thailand is prepared to sell at whatever price it can get.

The risk is that prices in the region may drop more than they already have this year when Thailand offloads its stocks, further dislocating the rice market and threatening the viability of production in other countries.

Benchmark Vietnamese 5 percent broken rice RI-VNBKN5-P1 was at $370 a tonne on June 18, its lowest since October 2010 and about 37 percent below a $585 peak reached in October 2011.

The same grade of Thai rice RI-THBKN5-P1 is still priced at $540 a tonne, a 46 percent premium to Vietnamese rice, which explains why the Thais are struggling to sell much.

If the Thai government really wants to export 8.5 million tonnes this year, their price will have to fall to be much closer to Vietnamese rice.


The question remains as to whether Thailand is prepared to accept the losses that will be the inevitable result of selling at market prices.

The decision to cut the amount paid for rice by 20 percent to 12,000 baht ($390) a tonne was probably difficult enough, apart from being badly handled much like the scheme as a whole.

Notwithstanding the apparent confusion caused by initial comments from the prime minister that the decision had been deferred, it’s still far from clear that the move to pay farmers less will save the government much money, especially if it has to accept market prices for its massive stockpile.

One tonne of paddy is roughly equal to 650 kilograms of milled rice, meaning the new subsidised price for paddy is roughly $597 a tonne once milled.

This is a level above the prevailing, uncompetitive price for Thai rice and well above the price for Vietnamese supplies.

Thailand’s National Rice Committee estimated on June 17 that the intervention cost the government at least 136 billion baht ($4.4 billion) for the 2011/12 crop year. It didn’t give an estimate for the current 2012/13 year.

The Bangkok Post daily estimates the government spent around 352 billion baht on buying 21.7 million tonnes of paddy 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.

However, the loss is likely far bigger, given that it’s extremely unlikely the stockpile can be sold at the prevailing Thai rice price.

Rice can be easily stored for about 2 years before it starts to spoil, which means the government already runs the risk of having to throw away some grain if it doesn’t sell it.

By cutting the money paid to farmers, Shinawatra’s government has already made what for it must be an unpalatable decision. Now it must make another and start to accept market prices for its stockpiles. (Editing by Himani Sarkar)

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