Who Is Making All The Money On The Rice Crop

[Nickthegreek]

This may seem like a stupid question,but the more i read the more I see how we as westerner seem to think..The poor farmer makes no money and the middleman and exporter seem to make it all.I am being niave?

I ask only because I am about to start a little bit of rice farming,purley to see if it will produce the returns my Father in Law Boasts!!!

However I saw on this site last week that I think it was one tonne of rice exports for 1000 Dollars..

I have been toid that we will receive about 7000 baht per tonne,by my calculations someone is getting very rich..!!!

Therefore does anyone cut out the middleman and take it direct to the exporter? or is this not worth the hassle..

Any feedback appreciated

Nick

Edited March 31, 2008 by Nickthegreek

[billd766]

This may seem like a stupid question,but the more i read the more I see how we as westerner seem to think..The poor farmer makes no money and the middleman and exporter seem to make it all.I am being niave?

I ask only because I am about to start a little bit of rice farming,purley to see if it will produce the returns my Father in Law Boasts!!!

However I saw on this site last week that I think it was one tonne of rice exports for 1000 Dollars..

I have been toid that we will receive about 7000 baht per tonne,by my calculations someone is getting very rich..!!!

Therefore does anyone cut out the middleman and take it direct to the exporter? or is this not worth the hassle..

Any feedback appreciated

Nick

Yes you are pretty much correct in what you say about the middleman and the exporter.

I suspect that you could cut out the middleman and go direct IF you can guarantee at least 500 or 1,000 tons at a time, and if you are prepared to meet all the costs associated with the middleman including bagging, transport, storage, quality control etc.

There are a lot of people now who are out at night stealing rice from the paddies thus cutting down their own work and costs. There have been a couple of threads about that and farmers are up all night guarding their rice crops.

One farmer down Ayutthaya way killed himself as 90% of his crop was diseased and the profit he expected to get him out of debt wasted in front of his eyes.

Very few farmers in Thailand make money after paying back their debts as they need to invest in the next batch of crops and live for the years as well.

The cost at the farm gate may be very high compared to the last few years but the cost of seed, fertilizers, diesel etc has gone sky high too.

[Nepal4me]

This may seem like a stupid question,but the more i read the more I see how we as westerner seem to think..The poor farmer makes no money and the middleman and exporter seem to make it all.I am being niave?

I ask only because I am about to start a little bit of rice farming,purley to see if it will produce the returns my Father in Law Boasts!!!

However I saw on this site last week that I think it was one tonne of rice exports for 1000 Dollars..

I have been toid that we will receive about 7000 baht per tonne,by my calculations someone is getting very rich..!!!

Therefore does anyone cut out the middleman and take it direct to the exporter? or is this not worth the hassle..

Any feedback appreciated

Nick

Hi Nick,

I think you are on the mark here. I'm currently looking at the costs to set up Cassava plant (not to fully convert to Bio ethanol but at least to the next step after harvesting the crops). The farmers like you said, don't make the real money. I have a couple of hundred rai and can make good money on the Cassava but I think I can more than double it by building a factory so I can be the middle man too and be the middleman for neighbouring farmers too. Note: building the factory/being the middleman isn't easy. That's why there aren't more middlemen :-)

[jayenram]

That's why there aren't more middlemen :-)

Not sure about the rest of Thailand but the Chinese Mafiosa in Isaan has got it sewn up tight. (As with the money lending).

You could make them an offer that they can't refuse.

[Maizefarmer]

A good observation Nick, you are right - there is a vast differance in FGT (farmgate) prices and FOB (Free On Board) prices.

This is not unique to rice, but in respect of just about every farm crop/product one can think of, and it is also not unique to Thailand. But there is also a significant differance in the costs that have to be bourne by farmers and traders respectively, and in respect of rice the differance can be partly broken down as follows:

- logistics

- admin

- grading

- trade garuntees

- LOC costs (letters of credit)

- insurance

None of the above are bourne by the farmers - they are carried by the middle man in Thailand

But this differance in pricing is not unique to rice - it exists with respect to maize, beef, milk and a dozen other farm products

Take the FGT of raw milk: I get +/-Baht 12 per kilogram (a kg of milk is a little more than 1 litre). The Co-op bulks that to Foremost at +/- Baht 13 - 14 per/kg. What does the stuff cost at your local 7/11? Well, depending where you are anything from Baht 32 - 45. So where is the differance going to?

- processing energy costs 13%

- processing plant admin 9%

- logistics - 27%

- processor margin (what the factory makes) - 24 - 32%

- the balance is the retailers margin.

The analogy is somewhat different as far as rice is concerned in that this is FGT to retail differance - but now take the FGT of rice and compare it to what a 1kg bag of rice costs in the shop. One of Thaksins "promises" to the rural community was that the FGT of rice would rise about 15%, and for milk we'd get at least Baht16. Like much else of what Thaksin promised it didn't materialise.

The differances in FGT and retail is a universal problem.

[torrenova]

Which is why many small farmers in the USA, Oz and Europe are now operating out of farmers markets in order to achieve a greater slice of the retail cake.

[slapout]

The middle man and his perceived excess profit is what gave rise to farmer coops in what I call the real world. Setting this system up is probably one of the very few things the majority of farmers did agree on. With the Thai family farm members eating most of what they produce I dont seen grain coops in the near future. The grain middle men have a huge advantage as in addition to buying from the farmer, processing, sacking, transporting etc (each step at a Profit) They can also store grain, and be paid to do so. I did read in the paper in last day or so that some of the exporters are contacting the farmers direct to purchase rice. In the interview he said he was traveling 700 cliks from Bangkok to do this to insure a supply for export. This should help those farmers with enough rice planted to attract these fellows attention. Next logical step in Thailand will be for government to ban export of rice and set a lower price to keep natives stomach full.

[Zeid]

I will not mention chicken then

[MrPaddy]

The article in the paper mentioned 70% profit margins for the millers (middlepersons) to be PC.

But the millers are holding onto stored grains for the higher prices. Apparently the millers do not have contracts with the exporters and the exporters are running out of grain. Even losing money as they have contracts and quota to meet, whereas the millers have no contracts to be forced to deliver anything.

Why don't the millers become exporters and vice versa the exporters become millers, then they can satisfy their own needs.

I guess this is where the mafia controlled areas step in.

[OxfordWill]

The ministry of agriculture is a license to print money. From the beginning of its existence the officials involved have purchased/sold rice at $x and reported doing so at a different price, pocketing the difference on each KG. Its one of the most sought after ministerial positions and not because its great fun

[Nickthegreek]

Many Thanks to everyone for replying,the more time I spend asking for constructive advice,the more respect I have for the members of this site..!!! There are some that are just full of obsenities and dia tribe...Thank you Thai visa...

Does anyone currently grow rice and cut out the middleman? and does anyone have a contact for the exporters directly in Bangkok?

I see no reaosn why I could not store my rice, bag it deliver it if the cost savings are worthwhile,I can also only assume that to freight the product by train must be less expensive? as long as you stay with your product...Just a thought!!!

Nick

[ozzydom]

Many Thanks to everyone for replying,the more time I spend asking for constructive advice,the more respect I have for the members of this site..!!! There are some that are just full of obsenities and dia tribe...Thank you Thai visa...

Does anyone currently grow rice and cut out the middleman? and does anyone have a contact for the exporters directly in Bangkok?

I see no reaosn why I could not store my rice, bag it deliver it if the cost savings are worthwhile,I can also only assume that to freight the product by train must be less expensive? as long as you stay with your product...Just a thought!!!

Nick

Nick, the keyword with regard to your reasoning is MARKET, I assume you are talking about plain harvested rice. To sell this you still have to go through the system because most middlemen semi process the rice they buy from farmers, some of this is then sold bulk and some goes to export merchants or final processors where it may be polished and bagged (in small packages for the retail market.

So sadly the middle man will end up with your rice anyway because they are the market for harvested rice and the added costs you are likely to incurr through storeage ,wastage,damage may even see you out of pocket.

Dont forget rice is perishable and Asians demand freshness,just watch the buyers sniffing rice in bulk bags prior top purchase.

The only possibility is to find a market for husked rice and put in your own husking machines, the husking which villagers do for either 3 baht a bag or free and they keep the ram, so that in itself is not a big earner , to find a market for husked rice would be extremely difficult as the system is dominated by the Chinese and you could find the door firmly closed as it is virtually a closed industry.

Pooling your crop with other farmers may be a way to squeeze a few extra baht ,having quantity to sell means you can virtually tender the sale to the highest bidder which at times of shortage can be to the sellers advantage.

I learnt the lesson of trying to buck the Asian marketting system many years ago.

As a lobster fisherman in Oz we were getting $4 odd a kg beach price (same as farm gate price)

while the same lobster were retailing in Japan for $50 kg , we decided we were not getting a fair deal so we formed a Co-op ,hired a top notch marketing firm to try and cut through the middle agents and commission sharks etc only to find the system,(which is really a culture) was unassailable .

[Loom]

At the end of March the Bangkok branch of the US Foreign Agriculture Service put the price of Thai premium white rice for export at $720 per ton. That's some Bt22,000 per ton.

According to the same source, the farm gate price averaged around 60% of the wholesale (export) price in 2005 and 2006.

If that's still the case, the farmgate price should be currently running about Bt13,000. I understand farmgate prices in the field are around Bt10,000 per ton currently, up from Bt4,500 to Bt5,000 last year. Last year was an abberation (low prices), I've heard, because the government wasn't participating (buying) in the market the way it had in previous years.

I've looked at the financials for a milling/export company and it hasn't been a good business over the years. Maybe things are looking better now, but in my opinion, there are better places to be invested.

The farmers in my Thai family's village have put together a cooperative of sorts, but it doesn't appear to be helping much. Farmgate prices reached four year lows last year.

[Nickthegreek]

I am grateful to all for the replys,this has not really opened my eyes and by that I mean It has clarified what I thought would be case.It has become very clear that many of you have tried and considered the thoughts that I am currently having and I know realise that it would be hard, if not impposible, to try and squeeze a few more baht.

My real plan is to just use the rice farming as a sort of retirement project and if I can get it to producing 10,000 baht per tonne and lets hope that the farmgate prices stay there,that in ten years from now when the big 50 creeps up upon me,I will have enough spare cash to laze around the farm and take it easy..

I do some times wonder if that day will ever be possible....Only time will tell..!!

Again Many Thanks to All....

[MrPaddy]

Being a rice unexpert, what does the miller do to the rice once bought at the farm gate and then he sells after his 'process' for a 70% gain ? What is the process exactly ?

My thoughts would be, that if you have enough land, or if not but you are able to get a group of other farmers together. Then grow something different and process it yourself if this can be done and bag it with your own label and sell it at boutique venues.

As an example I mean find the most popular rice which is higher priced and sells well to the middle and upper class. Grow it organically, get it certified and sell it to the shops direct.

Don't know if this is actually worthwhile, depends on the 'process' and its costs and getting enough quantity to be able to supply your market all year round.

[ozzydom]

Nick, To my mind the better way to higher income is through attaining higher yields, although Thailand is called the rice bowl of the world and produces some of the best jasmine rice ,it is also one of the lowest yield producers among the recognised rice growing nations.

For instance yield statistics for 2006 show that Vietnam produced 4.5 tonne per hectare wet season and 6.7 tonne per hectare off season (irrigated )crop.

Thailand by comparison had a yield of 2.24 tonne/hectare wet season and 4.31 tonne/hectare off season crop yield.

These figures show that there is much improvement to had from higher yields.

The Government along with overseas agricultural advisers have on many occasions tried to implement changes in Thai farming practices with view to them attaining higher yields but on the whole it has been unsuccessful ,I think mainly due to the fact that most Thai farmers are aged and very set in their ways and thinking and of course lack of education plays a large part.

I believe there have been success stories where younger folk with some education have been involved in the farm ventures and have embraced modern better farming practices.

Therefore IMHO ,there is more to be gained by better utilisation of the land available than in trying to buck an established marketing system.

[ozzydom]

Being a rice unexpert, what does the miller do to the rice once bought at the farm gate and then he sells after his 'process' for a 70% gain ? What is the process exactly ?

My thoughts would be, that if you have enough land, or if not but you are able to get a group of other farmers together. Then grow something different and process it yourself if this can be done and bag it with your own label and sell it at boutique venues.

As an example I mean find the most popular rice which is higher priced and sells well to the middle and upper class. Grow it organically, get it certified and sell it to the shops direct.

Don't know if this is actually worthwhile, depends on the 'process' and its costs and getting enough quantity to be able to supply your market all year round.

When you take into account the large investment in factory, machinery,staff,wastage in processing etc,etc 70% is not a huge margin (many industries work on margins of cost +300% ).The cost of paying cash for the raw product,storage,marketing can eat big holes in a 70% margin.

Asians (apart from the Japanese) have little interest in organically grown products and to try to grow any crop in the tropics without chemical aid in combating pests and disease usually means low yields and pretty sad looking product for which you would have to get a very high price to make it worth while and this is unlikely.

To look at grub eaten veggies etc in a Western health food shop where people pay a premium for such product because it is marked "Organically Grown" is a far cry the way things are in Asia.

[Nickthegreek]

Nick, To my mind the better way to higher income is through attaining higher yields, although Thailand is called the rice bowl of the world and produces some of the best jasmine rice ,it is also one of the lowest yield producers among the recognised rice growing nations.

For instance yield statistics for 2006 show that Vietnam produced 4.5 tonne per hectare wet season and 6.7 tonne per hectare off season (irrigated )crop.

Thailand by comparison had a yield of 2.24 tonne/hectare wet season and 4.31 tonne/hectare off season crop yield.

These figures show that there is much improvement to had from higher yields.

Ozzydom,

I have read a document that one of the other members kindly added which was the SRI process and this seems to make a lot of sense..

I have discussed this with my Wife and at this stage we need to discuss it futher with her father,albeit I sort of own the land,but dont if you know what i mean...

From what i can gather the seed is thrown onto the land and this has to be a hap hazzard way of getting best yeilds,however I do not know what the cost and time is per rai if we need to utilise more labour,this is up for discussion,as well as needming to grow the seedlings prior to farming..

My father in law tells me the land will produce 1 tonne per rai,using this method,I have yet to work out your figures using hectares vs Rai..!! maybe you could be kind enough to tell me the size differences?

Nick

Sorry the quote function did not seem to work..

Edited April 2, 2008 by Nickthegreek

[ozzydom]

Nick, heres a ready reckoner for you.

1 sq. wah = 4 sq. m. 1 acre = 2.471 rai or 43,560 sq. ft.

1 ngan = 100 wah (or 400 sq. m.) 1 hectare = 6.25 rai or 10,000 sq. m.

1 Rai = 4 Ngan (or 1600 sq. m.)

I also read that paper and a lot of what it says makes sense,the only proviso I would make is that SRI is based on irrigation, where you have full control of the water situation.

Many Thai paddies rely on rainfall so their outlets are set high to hold as much water as possible in case follow up rain is not forthcoming, that means that a lot of the time the water level is to the detriment of the crop

If you dont have access to a water source then installing ponds or dams is a must to give the farmer control over his growing conditions.

Thais are extremely hard to convince that there may be another way to grow rice,so instead of putting all your eggs in one basket, put in a water storage and allot a couple of rai to the SRI method ,if the family are fully involved and the yield is good they will be as proud as punch, but if you force change onto them they will never give you credit, no matter what the outcome.

[Nickthegreek]

Ozzydom,

Many Thanks for that,I can now set about trying to convince them they may be better ways,however you must have read my mind,I talked with the wife only last night and said I would like to test just one rai with SRI to see if its viable....At this point I dont know the water flows or storage system,I am fairly sure they are reliant on rain,however they have 80 rai of land that sits next to the river,so my thoughts on moving water as required my be a possibilty..not sure of the leagalities,if any...

Dont want to be the Ferrang with egg on his face having never been a farmer,however there will be much to gain on the respect front if it works well..!!!!

Nick

[ozzydom]

Ozzydom,

Many Thanks for that,I can now set about trying to convince them they may be better ways,however you must have read my mind,I talked with the wife only last night and said I would like to test just one rai with SRI to see if its viable....At this point I dont know the water flows or storage system,I am fairly sure they are reliant on rain,however they have 80 rai of land that sits next to the river,so my thoughts on moving water as required my be a possibilty..not sure of the leagalities,if any...

Dont want to be the Ferrang with egg on his face having never been a farmer,however there will be much to gain on the respect front if it works well..!!!!

Nick

Its like a sales pitch Nick, get the wife to explain the concept ,pointing out the possible profit gains in such a way as they think that it is their idea and I feel sure you will get their support and co-operation.

By the way, which general area is the farm located?

[Nickthegreek]

Hi Ozzydom,

The farm is in Si Thep , which is about 1 hour north of Lopburi.

Nick

[slapout]

Nick; catch the Bangkok post for 4/4/08 it has a couple articles on middleman, millers etc in rice business. After you take all the finger pointing out of the equation it makes for a informative article on the business in Thailand. What caught my eye was the buyers for millers who could make 10,000 baht per day buying rice.

[Nickthegreek]

Thanks for the tip,but missed the paper..!!

However I think it just goes to show that Thais will take what is offered..

I am lead to belive though that most Thai farmers owe money to the miller and take the price offered so it is offset against outstanding loans..

I am hoping that the more research that I do the more this will open up and become more profitable..

I intend to get my wife to cdall the packaging plants and discuss this in further detail..

[slapout]

Nick; I think your starting to see how some of the business men tie up the farm produce. The farmers, in our area seem to borrow from local (not bank) people who also are the same people who buy the rice, garlic, oranges etc. This comments the farmer to the lender for his crop and price is set by lender. The locals seem to see this as normal business. Debt collection can be a bit violent at times but its all part of the local way of life. This may be one of the reasons the young people are getting out of farming. I was told local banks did not have much intrest in loans for future crop to farmers, thus the money lenders have a good business.

[Gary A]

Nick; catch the Bangkok post for 4/4/08 it has a couple articles on middleman, millers etc in rice business. After you take all the finger pointing out of the equation it makes for a informative article on the business in Thailand. What caught my eye was the buyers for millers who could make 10,000 baht per day buying rice.

The rice millers in our small village charge nothing for milling the rice. They keep what is milled off and sell it to the animal feed makers. The milled rice that is not kept by the family growers is taken to the local markets and sold to the local people. The surplus is sold to some of the bigger dealers. I don't think anyone is getting rich with maybe the exception of the exporters.