Rice Pledging Scheme Drives Out Thai Businesses

[webfact]

RICE

Pledging scheme drives out Thai businesses

ACHARA PONGVUTITHAM,

PETCHANET PRATRUANGKRAI

THE NATION

BANGKOK: -- The distortion of prices in the rice business in Thailand has driven a number of leading exporters to set up not only plantations but also mills and trading companies outside the Kingdom to ensure their future competitiveness rather than remaining here in the world's biggest rice-exporting nation.

Neighbouring countries in line for the new investment are mainly Cambodia, for plantations and mills, and Vietnam, which would host trading firms. In addition, Myanmar, which once was the world's biggest rice exporter, has great potential for plantations and processing facilities but potential investors are waiting for more political stability there.

Leading Thai rice exporters looking overseas include the country's biggest, Asia Golden Rice, and the second-biggest, Capital Rice, both of which plan to invest in Cambodia. Others are Huay Chuan Group, Uthai Produce and Bangsue Chia Meng Rice Mill.

These exporters complain that the Thai government's price-subsidy policy has created market distortions, particularly local rice prices. The policy is also undermining the Kingdom's rice-export history that has been developed for more than half of century, they claim.

The change in strategy came about under Prime Minister Yingluck Shinawatra, whose government insisted on proceeding with a price-pledging programme as one of its populist policies by doubling paddy prices of white rice to Bt15,000 and of jasmine rice to Bt20,000 per tonne.

Exporters say that if the government continues this policy, Thailand will lose its prestigious No 1 exporter status within five years, or as little as two years. Thai rice is not in the same demand as before as consumers now are familiar with rice from other exporting countries as being of almost the same quality but with lower prices.

If the pledging prices remain unchanged, they will cause difficulties for Thai rice exporters. Currently, even if they only get a margin of 50 US cents to $1 a tonne, they have to take the order.

The world rice market now is facing tougher competition after India lifted its export ban. India's rice stocks have hit a historic high of 32 million tonnes, although it targeted exports of only 18 million to 19 million tonnes. Vietnam's target is 7 million tonnes of rice for export.

In addition, the subsidy policy has shaped a new business culture in Thailand, with the government completely monopolising the market, aiming for all rice seeds to come under the subsidy programme. The result has been a more powerful role for millers, as farmers flock to sell their rice to them while exporters race to them to buy.

It has been noted that rice millers with close connections with politicians are expanding their businesses, particularly warehouses.

In the past, the biggest players in the Thai rice market were exporters, whose high bargaining power restrained prices. But now, exporters have to compete with the government to buy rice from farmers and millers.

It is expected that government rice stocks will grow to 10 million tonnes this year. It is widely questioned how the government can release such a huge stockpile without a marketing arm.

There are reports that the stockpile has already reached about 8 million tonnes, including this year's second crop.

A major downside of this stockpiling is the erosion of the quality of Thailand's premium rice strains, particularly the prestigious Hom Mali, or jasmine rice. The lure of jasmine rice comes mainly from its fragrant smell and glutinous quality. However, these unique qualities deteriorate during long storage in a warehouse. Fresh harvests of jasmine rice have the highest quality, and newly harvested crops account for 80 per cent of the market demand.

"Within two years, the Thai rice-export business will have collapsed," said Charoen Laothamatas, president of Uthai Produce, one of the country's leading rice exporters. It has already set up a trading unit in Vietnam to facilitate its exports to China.

Charoen said the government was weakening exporters but providing bargaining power to millers.

"Thai rice is losing its competitiveness, as we quote prices $50-60 higher than rivals for the same type of rice," he said.

Chookiat Ophaswongse, managing director of the Huay Chuan Group, said rice exporters had been forced to set up business outside Thailand because of market distortions here. The price subsidy has resulted in high production costs from farm to table.

"No government can bring down rice prices or it will lose votes. In addition, production [costs] have been increased in line with the high subsidy prices. What will be the future of Thai rice?" said Chookiat, who is also honorary president of the Thai Rice Exporters Association.

If Thailand cannot export rice to the same extent as in the past, the government will have to deal with increasing stockpiles, which could reach 10 million tonnes this year, the highest ever. What will happen to the rice business next year?

Thai rice exporters are preparing to invest in neighbouring countries.

THAI-JAPAN JV

Toyota Tsusho, the trading arm of Japan's Toyota Motor Corporation, has teamed up with Thailand's Huay Chuan Rice Co and Uthai Produce to cash in on Cambodia's growing rice industry. The Thai-Japan joint venture is looking to lease 60,000 rai (9,600 hectares) in Battambang province, which borders Thailand on the west, for plantation. In addition, the investment comprises a rice mill and processing plant for export with an investment of $100 million (Bt3 billion).

Chookiat plans to talk with the Japanese partner on setting up a rice mill in the first phase in preparation for exports in the future. If the partner agrees, the mill would be operational by next year. It would be a medium-size mill.

Cambodia's rice industry has grown rapidly in recent years under the government's policy of promoting exports once production is sufficient for local consumption.

"The Cambodian government has opened the market wider to foreign investors, especially those bringing in new technology and research and development to improve the local rice industry," he said.

RICE MILL IN CAMBODIA

Asia Golden Rice, Thailand's biggest rice exporter, said it was setting up a rice mill in Cambodia. Construction is in progress in the southern province of Kampot. It is expected that operations will start next year.

The group will maintain its focus on expanding overseas - particularly in Cambodia - this year, even though prices might tumble, as the pledging scheme has created artificially high costs.

"With or without the government's price-pledging scheme, the group is going ahead with investment in Cambodia as it foresees business opportunity not only from rich rice production but also the fact that its government has promoted exports," said Sombat Chalermwutinan, president of the group.

Asia Golden Rice has been venturing abroad for years, mainly in Asia. It is establishing a presence in Cambodia with a rice mill, planned to be completed within a year and a half, at a cost of more than Bt1 billion. The company operates in Cambodia under a joint venture with a leading local partner, with businesses covering the local market.

Sombat said the group wanted to raise rice prices not only in Thailand but overall among rice-exporting nations.

"Today, rice prices are very low, and if we focus on high-quality rice, we will gain additional value. In particular, if the price of Cambodian rice is high, that of Thai rice will also be high, and we [Thailand and Cambodia] need not compete with each other," he said.

The global rice trade this year will experience fierce competition after India lifted its export ban last year. That country's overwhelming stockpile will allow Indian rice to dominate the market, particularly parboiled rice. The surge in India's export volume will affect the Thai rice share in the world market.

Sombat said the Thai government could not halt the price-pledging scheme at this time but would have to consider whether to maintain the high pledging price through the next harvest season.

The investment in Cambodia is aimed not only at ensuring production but also at maintaining price stability in the rice market in the future. Asia Golden Rice sees Myanmar as another country with investment potential.

FEASIBILITY STUDY

As the Kingdom's second-biggest rice exporter, Capital Rice plans to set up new business in Cambodia this year to ensure export competitiveness in the future while reducing business risk in Thailand.

Deputy managing director Wanlop Pichpongsa said the company was conducting a feasibility study on investment and looking for local partners to set up business there. Under the initial investment plan, the firm will form a joint venture with a local partner in Cambodia to set up a warehouse, rice mills, and a trading firm.

He said Cambodia had one of the highest potential as a new trading centre for Thai rice exporters thanks to the plentiful supply and good quality of its rice, particularly jasmine rice.

Rice export from Cambodia to the European Union enjoys an import tariff exemption of €142. As a result, Cambodian jasmine rice price is cheaper than Thailand's, quoted at about $900 per tonne while Thai jasmine rice is quoted at $1,100.

EYEING VIETNAM, MYANMAR

Vallop Manathanya, chairman of Bangsue Chia Meng Rice Mill, said the company was looking at starting a new business in Vietnam or Myanmar to serve as trading and production centre. He said the rising price of Thai rice had forced many large enterprises to explore business opportunities in neighbouring countries, including his company.

"The bigger the rice exporter, the more impact from the government's price-subsidy policy, which does not reflect the real costs. This is the important factor lowering Thailand's export volume. Thus many local rice traders, mainly large enterprises, need to shift to neighbouring countries to maintain business growth."

Bangsue Chia Meng is considering investing in Vietnam. If the pledging policy continues for another year, the company will push forward with the investment plan next year. The plan would call for a Bt100-million capital investment to set up a warehouse, rice mill and trading unit. He said that in the near future, not only would the quantity of Thai rice exports shrink greatly, but rice quality would also drop. The government has paid little attention to rice quality under the pledging project and has no plan to support quality development, he said.

DROP IN EXPORTS

Sompong Kittirienglarp, president of Ponglarb, one of the country's top-five rice exporters, said it had no plan to invest in other countries. However, it has to adjust its management to ensure income if the pledging scheme is prolonged.

The company's exports have dropped significantly since the government started the pledging project last October. Its average export volume before that was about 20,000-30,000 tonnes a month. Since then, export volume has dropped to only a few thousand tonnes a month.

Sompong said that as his firm has two businesses, export and milling, it was currently focusing on the latter, as millers can join the pledging project.

The company has invested more than Bt500 million to build five new warehouses to stock rice under the pledging scheme. The warehouses will be able to store more than 500,000 tonnes of rice.

Amid declining exports, Sompong has diversified the business to property development.

"The company can no longer rely on rice export because of the government's intervention in the rice-trading system. Thai rice export will come to an end within five years if the government continues its intervention to set prices too high, while ignoring development of rice farming and marketing," Sompong stressed.

-- The Nation 2012-04-30

[LuckyLew]

Can someone answer a question for me about the rice situation in Thailand?

Did these same issues exist during the previous Democrat Government?

[TomTao]

Can someone answer a question for me about the rice situation in Thailand?

Did these same issues exist during the previous Democrat Government?

As far as I am aware this problem did not exist under the previous government, don't know about any previous governments, but according to news feeds Thailand has lost its position as the biggest rice exporter in the world, from what I can see the pledging scheem has effectively priced Thai rice out of the market.

Posted with Thaivisa App http://apps.thaivisa.com

[Moruya]

Can someone answer a question for me about the rice situation in Thailand?

Did these same issues exist during the previous Democrat Government?

These issues are purely the result of an election pledge by the current government to pay prices to farmers that are massively over the market norm. They tried to buck the world markets using their position as leading rice exporter and failed.

The winners out of this are other rice exporters such as India and Vietnam. Cambodia may have been shrewd in permitting foreign investors to participate in rice production provided that machinery is purchased to increase competitiveness.

Domestically the winners are the rice warehouse businesses - the article above insinuates that these are owned by Thai politicians. The losers are the tax payers who are paying money into a black hole.

The situation is that the Thai government is essentially buying and storing millions of tonnes of rice that it can only sell at a loss. Once the wareshouses are full it will force their hand one way or another. They either stop buying, build yet more warehouses or sell at a loss. Given the disintegration of the vast majority of other election promises, PTP will be very reluctant to hold up the white flag by either ceasing to purchase rice or selling at a loss.

Thailand - the hun of rice storage?

[Colin Yai]

Can someone answer a question for me about the rice situation in Thailand?

Did these same issues exist during the previous Democrat Government?

These issues are purely the result of an election pledge by the current government to pay prices to farmers that are massively over the market norm. They tried to buck the world markets using their position as leading rice exporter and failed.

The winners out of this are other rice exporters such as India and Vietnam. Cambodia may have been shrewd in permitting foreign investors to participate in rice production provided that machinery is purchased to increase competitiveness.

Domestically the winners are the rice warehouse businesses - the article above insinuates that these are owned by Thai politicians. The losers are the tax payers who are paying money into a black hole.

The situation is that the Thai government is essentially buying and storing millions of tonnes of rice that it can only sell at a loss. Once the wareshouses are full it will force their hand one way or another. They either stop buying, build yet more warehouses or sell at a loss. Given the disintegration of the vast majority of other election promises, PTP will be very reluctant to hold up the white flag by either ceasing to purchase rice or selling at a loss.

Thailand - the hun of rice storage?

Yep, pretty accurate no nonsense description of the Clanger this present administration has dropped, no need for me to add anything as its all been said

[OzMick]

Can someone answer a question for me about the rice situation in Thailand?

Did these same issues exist during the previous Democrat Government?

The Democrats had a rice subsidy scheme which while lower in price was paid directly to the farmer. The current scheme was proposed by Thaksin and in its earlier incarnation was plagued with corruption issues with around 37% of funds disbursed actually reaching farmers (source BP).

Of course the Dem scheme was abandoned when PTP were elected because nobody does it better than the world's smartest businessman.

BTW the primary intent of both schemes is vote-buying. If you can't/don't read a newspaper, PTPs baby sounds better.

[LuckyLew]

Thanks for all the replies to my inquiry

[moe666]

When the warehouses are full the release of this rice will cause the markets to collaspe. Governments should never get enolved in food markets.

[animatic]

They have shot their own foot multiple times on this one.

And may if it isn't corrected, it will PERMANENTLY ruin the rice export business that had been thriving. The main issue was never end prices, but inequitable sharing of what profits came in. Millers still getting the lions share and farmers the shaft.

Trying to make the prices artificially high and pass on THAT share to the farmers never has worked in the past, the Millers just make bigger profits at the publics expense and the farmers a fractional raise, but not enough to cover inflation let alone bring comfort to their lives.

Edited April 30, 2012 by animatic

[animatic]

Can someone answer a question for me about the rice situation in Thailand?

Did these same issues exist during the previous Democrat Government?

The Democrats had a rice subsidy scheme which while lower in price was paid directly to the farmer. The current scheme was proposed by Thaksin and in its earlier incarnation was plagued with corruption issues with around 37% of funds disbursed actually reaching farmers (source BP).

Of course the Dem scheme was abandoned when PTP were elected because nobody does it better than the world's smartest businessman.

BTW the primary intent of both schemes is vote-buying. If you can't/don't read a newspaper, PTPs baby sounds better.

Better window dressing, but the reality is far from the advertising campaign.

[swillowbee]

... an interesting added variable to this train wreck ... guess who Thailand replaced as the world's #1 rice exporter? ... Myanmar!

... with the opening of Myanmar, I suspect Myanmar rice exports will again flourish ... if Myanmar rises as the darling of emerging economies, the foreign investment capital in modern, efficient agricultural infrastructure will be made available (as opposed to Thailand, where foreigners are excluded and impovements in efficiency are shunned by elitist Thais in favor of an endless supply of horribly oppressed, cheap labor forever, and ever, and ever).

... Myanmar has the same amount of arable rice land (probably more), as when they were the world's #1 rice exporter ... they have the same availability of water ... the large labor force is young and hardworking ... Myanmar's basic domestic distribution infrastructure to international ports remains, though it will undoubtedly be upgraded.

... I'd bet that Myanmar surpasses Thailand in rice exports, and again competes as world's #1 rice exporter.

... when the Thai rice industry private sector is incapable of transacting rice sales at free market rates, they will likely redeploy their marketing, sales and distribution experience and resources to Myanmar ... that will leave Thai rice exports in the capable hands of the Thai government to market at an unsellable rate ... domestically, or internationally.

... the Thai agricultural sector comprises approximately 41% of the 40 million Thai labor pool ... that would be about 16 million workers, presumably voting age ... just a little less than the total votes over which the Toxin-istas claimed in the last election ... holding them is absolutely essential.

... once they get a taste of the money for which they have long been denied by the privileged elitists, these poor Thai farmers are unlikely to let go of this give-away without a fight... to them, it is huge ... and, a covenant promised to them by Toxin ... the Phue Thai will have no choice but to subsidize the huge losses with taxes paid for by the minority of middle and upper class Thais and corporate Thailand who pay taxes ... the Thais who pay for it are likely to oppose this bleeding ... the class divide this train wreck creates between the haves and the have-nots will only widen, making a socially integrated Thailand a bridge too far.

... it seems unsustainable ... economicly ... politically ... nothing good will come of this.

... Thailand = corruption + incompetence ... a mathematical certainty.

Edited April 30, 2012 by swillowbee

[JohnAllan]

Thai governments, particularly the current one, should look to the history of the EU [ECC] CAP and its disastrous agricultural mountain policy: milk, butter, etc; all produced in extreme surplus, then either dumped or destroyed. And that doesn't take account of the cost incurred in administering the policy, which often proves much greater than the amount being paid.

[Skywalker69]

Maybe Thaksin has invested in Cambodia`s rice production?

[Skywalker69]

When the warehouses are full the release of this rice will cause the markets to collaspe. Governments should never get enolved in food markets.

+1

[Colin Yai]

Maybe Thaksin has invested in Cambodia`s rice production?

Many a true word spoken in jest

[thaicbr]

Thai governments, particularly the current one, should look to the history of the EU [ECC] CAP and its disastrous agricultural mountain policy: milk, butter, etc; all produced in extreme surplus, then either dumped or destroyed. And that doesn't take account of the cost incurred in administering the policy, which often proves much greater than the amount being paid.

Shinawatra Governments do not look at any history for he who is square faced knows everything.. any one who is not Thai and has a round face knows nothing...... simple really

[tingtong]

"The change in strategy came about under Prime Minister Yingluck Shinawatra, whose government insisted on proceeding with a price-pledging programme as one of its populist policies by doubling paddy prices of white rice to Bt15,000 and of jasmine rice to Bt20,000 per tonne."

I dont know how is the price around Thailand, or if anyone really getting this price.

In fact the price the buyers/middleman pay in our area is 14 THB (Bt14,000/tonne) for hom mali paddy rice.

Maybe there is a pledge system, but that seem to pledge to fill the middlemen's pocket, and all of those up on the 'food chain', but not really of the farmer's who suppose to benefit from this.

I think most farmers would be better of if in fact some real government buying would take place at say Bt17,000/tonne, and in turn the export would be better of too.

Oh, that the now crying exporters and the low paying middlemen seem to be the same group? or am I the only to see this way?

[Colin Yai]

Thai governments, particularly the current one, should look to the history of the EU [ECC] CAP and its disastrous agricultural mountain policy: milk, butter, etc; all produced in extreme surplus, then either dumped or destroyed. And that doesn't take account of the cost incurred in administering the policy, which often proves much greater than the amount being paid.

Not forgetting the Wine lakes John !! Edited April 30, 2012 by Colin Yai

[DP25]

This scheme was never intended to help farmers or Thailand to begin with. It was always meant to be a handout of the budget to the connected politicians who control rice mills in exchange for supporting Thaksin. He needs massive monetary handouts in order to keep those powerful feudal politicians loyal to him, and to keep their support in his quest for a pardon for his crimes and in order to get the money the courts took from him, the money he stole from the Thai people, returned. The disastrous affects this policy may have on farmers or on the nation as a whole are completely irrelevant. The plan is working as designed.

[GentlemanJim]

Mark my words. Thailand has rejected Thaksin and he is going to destroy it!

[geriatrickid]

Can someone answer a question for me about the rice situation in Thailand?

Did these same issues exist during the previous Democrat Government?

India was not exporting rice at the time due to its own internal rice shortage.

Vietnam was suffering from a catastrophic rice virus and an infestation of grasshoppers that wiped out exports.

No one was dumping rice on the market at a price lower than the cost of growing and exporting.

[allan michaud]

... an interesting added variable to this train wreck ... guess who Thailand replaced as the world's #1 rice exporter? ... Myanmar!

Very interesting, that will really screw things up for Thailand.

On a brighter note, I would also like to point out that while Cambodia is expanding it's agricultural sector dramatically they are doing this almost entirely at the expense of their forests. I work in the environmental sector here (but am married to a Thai) and it is fast becoming apparent they will almost certainly have serious water problems in the not too distant future. One govt official recently even suggested that only 10% forest cover was necessary, the rest is to be largely replaced with rubber, bio fuel crops and rice. Siem Reap is a great example, where well drilling was once only to 20-30 meters it is now over 150 meters before you find ground water. They already have had to tanker in water in the dry season for some years now. According to well drillers I have worked with this is happening across the country and is a direct result of deforestation.

Thailand is certainly in for a very rough ride though. Grate work by Thaksin... again.

My only conclusion, from all the incredibly dumb ideas being implemented by this govt, is that PTP are deliberately trying to ruin the economy so the Baht will collapse and Thaksin, with all his foreign based money, will get back what he's spent on votes and terrorism. He is the ultimate megalomaniac and has a history of making the most of favorable exchange rates in very dubious circumstances.

[sparebox2]

When the warehouses are full the release of this rice will cause the markets to collaspe. Governments should never get enolved in food markets.

Including Mark's government?

[Skywalker69]

Mark my words. Thailand has rejected Thaksin and he is going to destroy it!

You hit the nail GJ.

[Skywalker69]

This scheme was never intended to help farmers or Thailand to begin with. It was always meant to be a handout of the budget to the connected politicians who control rice mills in exchange for supporting Thaksin. He needs massive monetary handouts in order to keep those powerful feudal politicians loyal to him, and to keep their support in his quest for a pardon for his crimes and in order to get the money the courts took from him, the money he stole from the Thai people, returned. The disastrous affects this policy may have on farmers or on the nation as a whole are completely irrelevant. The plan is working as designed.

+1

[belg]

i only wonder if thai money if going to neighbouring countries, if they also get the: you can only own 49% of your own rice mill company and the rest is with vietnamse nominies

and apparently if they also invest into plantations, thai can buy land in vietnam/loas/cambodia, but thailand remains closed to farang to buy land to put their own home on it... i can understand that thailand does not want speculators who buys up everything, because the rich chinese thai elite wants to remain in power

[thaicbr]

Can someone answer a question for me about the rice situation in Thailand?

Did these same issues exist during the previous Democrat Government?

India was not exporting rice at the time due to its own internal rice shortage.

Vietnam was suffering from a catastrophic rice virus and an infestation of grasshoppers that wiped out exports.

No one was dumping rice on the market at a price lower than the cost of growing and exporting.

AND ALSO they were not paying so much over the market price for the rice.. they (democrats) actually strived to reduce the stored rice to a reasonable level.

Also WHO exactly is "dumping rice on the market at a price lower than the cost of growing and exporting"

The price of rice in the world market 2010 - 2012 has actually been fairly stable....

Edited April 30, 2012 by thaicbr

[Krungbin]

Everybody seems to be surprised... But what is happening to the rice market now was predicted during the last election campaign...by the Democrats! And who will loose in the long run? The farmers, the taxpayers, and Thailand will loose its position of "World Number 1 Rice Exporter"....

[SICHONSTEVE]

Can someone answer a question for me about the rice situation in Thailand?

Did these same issues exist during the previous Democrat Government?

Of course they didn't!!!

They were warned numerous times that it would be disastrous by the Democrats and other 'rice bodies' if implemented with the reasons given as to why it would be. Did they listen?? No!!! This of course is one of Thaksin's brain waves - the man is a 'walking disaster' and is ruining Thailand. Why doesn't he just disappear and do us all a favour.

How can a bunch of peasant farmers and woman with no political experience run a country - wake up people!!!!

[volk666]

Democrat price guarantee scheme was also prone to cheating and corruption but it had a fundamentally different approach to the farmers - Dems guaranteed farmers some minimum income and allowed them to grow more or better quality rice and reap high profits if they succeeded.

Current scheme does not provide any incentives to improve rice quality, rather the opposite, and I'm afraid it will change farmers attitudes forever if PTP doesn't back down soon.

The issue of losing number one position is not so serious, you can always win it back if you really really want it, it doesn't affect Thailand's farm sector long term security as much as deteriorating quality and hands-off attitude by farmers.

Market confidence can be won back but not if they keep selling crappy rice and paying farmers a hand and an arm to do so.

Then there's an issue with millers and "special treatment" companies selling rotten rice under secret contracts, if not to Indonesia then to somewhere in Africa.

In the past many shady, corrupt companies were blacklisted from dealing with government rice but where resurrected in 2008 under Samak government. Siam Indigo is one of them and their relations with the current government should be brought in the open - rice pledging, after all, is the government's single most expensive policy so far, perhaps will turn out a hundred times bigger than tablet purchasing scheme.

Thai companies entering Cambodian or Vietnamese markets is a rather good news, isn't it? Damning for the government, sure, but overall it's good.