Thailand's rice intervention stance comes at a steep cost

THAILAND'S government promised farmers a huge increase in the price of rice when it came to power last August but it is failing on all fronts: export prices have not held up, the state faces huge losses and many farmers have not benefited.!

Despite the very real prospect of Thailand losing its title as the world's top rice exporter, the government is determined to push on and is set to extend the intervention scheme into the second crop, which starts in March.!

This comes at a steep cost. The government set aside some 400 billion baht (US$13 billion) for the intervention scheme, equivalent to the targeted budget deficit for fiscal 2011/2012.!

The intervention adds to the government's huge bill for strengthening defences after last year's devastating floods, on top of spending on other populist programmes that helped sweep Prime Minister Yingluck Shinawatra's Puea Thai Party to power.!

"We want to drain every single grain into government stocks to have power to control prices in the world market and to support farmers at the same time," said Yanyong Puangrach, the permanent secretary at the Commerce Ministry.!

On Oct 7, the government started buying paddy at 15,000 baht per tonne, well above the market price at the time of around 8,000 baht.

So far, the government purchased 6 million tonnes from farmers, well below the target of 10 million tonnes from the main crop of around 20 million.!

The intervention pushed the price of benchmark 100 percent B grade white rice briefly to US$650 per tonne, the highest in nearly three years, but even that was way below the government's target of US$800.!

The price has since fallen steadily towards US$530 per tonne but demand has evaporated. Logistical problems during flooding played a part, but cheaper grains are the main reason buyers have stayed away: India resumed exports in September after a four-year-ban and is now offering rice at just US$435 per tonne.!

"We told the government our concern about the high intervention price, that it could hurt exports, but the government insisted it wanted this price so we could do nothing," Korbsook Iamsuri, president of the Thai Rice Exporters Association, told Reuters.!

"And if the government goes on with aggressive buying like this, we can see clearly exports would be adversely affected." !

Farmers are disgruntled, too. Many lack the trucks to take their grain to government buying centres and are forced to sell to millers or middlemen at cheaper prices. !

That was particularly the case during the flooding that devastated farmland and industry over several months in the second half of last year, when farmers needed cash urgently.!

Adding to their discontent, farmers that get state compensation worth 2,200 baht per rai (0.16 hectare) for flood damage are not eligible to sell to the intervention programme, forcing them to sell at a discount to millers and exporters.!

Even those farmers able to take advantage of the scheme found it wasn't quite what they had expected.!

"I got only 8,000 baht a tonne because of high moisture in the paddy. My neighbour got even lower than me, around 6,000 baht a tonne," said Nipon Tumsing, 55, a farmer in the Bang-lane district of Nakhon Pathom, a central rice-growing province.!

According to the scheme, farmers get 15,000 baht a tonne only if the moisture in the paddy does not exceed 15 per cent. The greater the moisture, the lower the price.!

"No one can get that price, as the average moisture in paddy is normally 23 per cent," said farmer Pralong Piromyoo.!

Farmers could suffer further if, as expected, world rice prices drop significantly this month due to surplus supply.!

Thailand is expected to produce a record 11.1 million tonnes in the second crop, against an average 7 million tonnes, while Vietnam, the world's second biggest rice exporter, was forecast to produce a second crop of around 11 million. !

Vietnam has already moved to cut its prices to gain an advantage. It also faces competition from Myanmar, which is taking steps to export more rice, as well as Cambodia. Reuters