08/08/2012
By Apornrath Phoonphongphiphat
By Apornrath Phoonphongphiphat
BANGKOK (Reuters) – Millions of
tonnes of rice that no one wants; huge losses for the state budget;
farmers more interested in quantity than quality; exporters throwing in
the towel. Thailand’s world-beating rice industry is in a sorry state.
The government won election a year ago by promising to pay farmers
double the market level at the time for their rice — a policy to help
the poor, ostensibly, but one that has backfired by making grain so expensive that hardly anyone is buying it.
As a result Thailand exported just 3.45 million tonnes in the first half, down 45 percent from the same 2011 period.
The Thai Rice Exporters’ Association is expecting exports of no more
than 6.5 million tonnes for the full year against 8 million to 10
million normally, and that means Thailand will probably lose its crown
as the world’s top rice shipper to India or Vietnam.
Exporters are struggling: the bigger ones are looking for
opportunities in other countries or diversifying into other sectors to
stay afloat, while the smaller ones are getting out.
The exporters association had 192 members last year and officials
reckon only 30 to 40 can be certain of surviving, because they have the
financial means to get into other businesses such as real estate and
food processing.
“But small companies will have to get out of the business,” said
association president Korbsook Iamsuri, referring to exporters that ship
just 500 to 1,000 tonnes a year.
Twenty companies have already resigned.
Among the bigger names, number two exporter Asia Golden Rice Co Ltd
is investing in milling and exporting in neighbouring Cambodia as costs
rise at home.
Uthai Produce Co Ltd has scaled down its exporting business in
Thailand and is getting grain from Cambodia, Vietnam, Pakistan and
elsewhere for clients in the United States, Canada and Asia.
“We still have our expertise. We are still keen on the rice exporting
business. It’s just that we’re using our expertise to boost exports for
other countries,” said Charoen Laothammatas, president of Uthai
Produce.
“I could quit the rice business here in Thailand one day, too, if the government carries on with this policy,” he said.
PLOUGHING ON REGARDLESS
Commerce Minister Boonsong Teriyapirom is unapologetic about the cost
of the scheme. “Our policy is to support farmers. And to do so, we need
to accept some losses.”
Despite the enormous cost to the state budget, the government has
extended the scheme beyond its initial end date of June and will renew
it for the main crop in October.
The government has spent 260 billion baht ($8.26 billion) on the
scheme so far. For the period from October, it plans to set aside
another 300 billion baht, which is equivalent to the total planned
budget deficit for fiscal 2012/13.
Not all that money will be lost but the International Monetary Fund
estimated in June the programme could cost about 1 percent of GDP
annually, even before storage and management costs. That is about $3.8
billion a year.
Even that assumes the government can find buyers for the record 10 million tonnes of milled rice it has stockpiled.
It sold 240,000 tonnes to Ivory Coast in July but in general buyers
have gone elsewhere, Thailand’s reputation for logistical efficiency and
reliability not counting for much in the face of big cost savings
brought by Indian and Vietnamese rice.
The Thai government rice costs around $700 per tonne by the time it
is ready for export, while market prices offered by India and Vietnam
stand more than 40 percent less, at around $430 a tonne.
Thailand usually influences world prices but not this year, mainly
because India returned to the market last September after a gap of four
years following a food supply panic in 2007/2008.
At best, Thai rice has reached $640 per tonne this year and is now
offered at around $580 by exporters who have managed to buy at perhaps
9,000 baht a tonne to fill orders, taking advantage of some farmers’
need for quick cash.
Many farmers are throwing quality concerns to the wind since they
know the government is offering 15,000 baht ($480) a tonne and has said
it will buy every grain of rice if necessary.
“Who cares about quality? Farmers know they’ll get 15,000 baht so
they just grow more and more, and that’s it,” said Prasit Boonchuey,
head of the Thai Farmers Association.
Many farmers had switched to lower-quality, short-grain rice strains that take less time to grow, he said.
A senior Agriculture Ministry official said that was particularly so
in the well-irrigated centre of the country, which contributes half of
annual production of about 30 million tonnes.
The implications for the Thai rice industry are serious if it loses
the high-end market at the same time as it loses market share on common
rice grades to India and Vietnam.
“It would take years to build up rice quality again, as now we have
plenty of low-quality seeds but a lack of high-quality ones,” said
Vichai Sriprasert, a director at the Thai Rice Exporters Association.
CORRUPTION
The IMF report called the intervention scheme cumbersome and said
small farmers often found it simpler to sell to middlemen, even at lower
prices. “Hence, the programme could end up mainly benefiting
large-scale producers and middlemen,” it said.
The previous government tried to introduce a scheme that paid farmers
the difference between what they got for their rice on the market and a
guaranteed minimum price. This was resisted by many farmers and in the
end the scheme ran side by side with the more traditional programme.
Rice intervention is always a murky affair in Thailand but opposition
politicians say the nature and scale of the present scheme leave it
open to corruption.
Grain is smuggled from Cambodia, for example, to exploit the higher
prices in Thailand. Millers, big landowners and food companies benefit
much more than the millions of poor farmers, critics say.
“Civil servants tell me there has been huge growth in the number of
warehouses that have been developed to accommodate the rice scheme,”
former Finance Minister Korn Chatikavanij said.
Grain stockpiling fees would pay for the warehouses in 38 months, he said.
“These guys are not just any ordinary entrepreneurs, these are people
with connections to make sure that the government uses their facilities
to stock their rice … So you have all kinds of interests riding the
rationale for deciding whether this programme should continue,” he
added.
($=31.50 Thai baht)
(Additional reporting by Amy Sawitta Lefevre; Writing by Alan Raybould; Editing by Clarence Fernandez)
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