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July 29, 2013

Thailand’s Controversial Rice Policy Helps Neighbors’ Exports

by Ron Corben

The Thailand government is pressing ahead with a rice price support scheme despite criticism over financial losses, concerns over rice quality and falling rice export sales.  The scheme is possibly helping rival exporters, especially Vietnam and Burma.
 
The rice program was a keystone of Prime Minister Yingluck Shinawatra’s electoral success in 2011 and was hugely popular among rice growers from rural areas that form the backbone of political support for her party.  
 
Under the program the government buys paddy - or unmilled - rice at $480 a metric ton.  Private sector traders said this translates into export prices for milled rice of up to $750 a ton - well above the market of $400 for similar grades.  
 
That means to sell rice for export, the government needs to take a loss.
 
Thai Rice Exporters Association honorary president, Vichai Sriprasert, estimated the losses from the program may reach some $19 billion, while at the same time curbing the volume of exported rice.
 
“The announced aim of helping to raise the incomes of the poor - that was the announced objective. They tried this for two years - we export less and we get less income. High prices doesn’t mean bigger income it means smaller income. The farmers that benefit a lot from this scheme are the farmers in the central plains who have bigger acreage and bigger incomes already,” said Sriprasert.
 
Despite concerns over the program’s cost and its benefit to mainly larger rice growers, Prime Minister Yingluck recently said the program is helping to alleviate poverty among poorer farmers and it will continue.
 
Credit rating agency Moody’s warned the government the mounting financial losses from the scheme and other policies, are putting Thailand’s credit standing at risk. Critics also claim the scheme is open to rampant corruption.
 
Thailand was the world’s leading rice exporter, but since has fallen behind India and Vietnam. Meanwhile Thai rice stocks, which are now too expensive to be sold, have soared to almost 18 million tons. Rogue traders from neighboring countries have smuggled an estimated one million tons of rice into Thailand to take advantage of the government buying program.
 
Darren Cooper, an economist with the London-based International Grains Council, said Thailand’s policy has led to distortions in the international rice market.
 
“Looking at thing in the totality the pledging scheme per se has caused a pretty strange market in the past couple of years. Certainly with rice out of Thailand trading at more than $150 [a ton] above comparable grade in Vietnam, of course it’s going to be attractive for people to try and smuggle rice from different origins into it. So certainly it’s having a distorting effect,” Cooper said.
 
Cooper said international traders are now concerned over when Thai authorities plan to release their massive rice stocks onto the market. This, he said, will have a “significant downward pressure” on prices.
 
But Sam Mohanty, an economist at the International Rice Research Institute (IRRI), said the program appears to have the unintended effect of helping other exporters boost production.  “I’m arguing that if the Thai program continues for the next few years in fact it’s going to help Myanmar [Burma] to establish themselves as exporters," said Mohanty. "It will give them some of the market sales where Thai is going to lose out. So it’s definitely better for other competing exporters.”

India’s return to the global market pushed global rice prices lower while traditional rice importers such as Indonesia and the Philippines have also enjoyed good crops, further keeping prices low. The cheap prices have meant good news for consumers, but additional challenges for the Thai government, which must figure out a way to unload its growing stockpile of rice before it spoils.