Family Planning On Buying Rice Land...

[Rotweiler]

I have read and re-read hundreds of forum topics on (approximately) this issue, but have yet to find anything that covers the questions I have. Yes, I have search the internet for weeks and become only more confused.

Background:

My family wishes to purchase additional (fully irrigated) rice land (in Chiang Rai's Wiang Pa Pao valley). Land prices are staggering - ranging from a LOW of 100,000 B/rai (almost totally inaccessible) to a peak well over 1 Million. Since land in this area is very fertile; can easily sustain 2 crops per year; can produce between 750-900 kilos/rai (around 25-28 thang);

Rents:

It seems everyone we have talked to has a different version of what land rents should be - ranging from a low of 2,000 B/rai to over 6,000. I have read (including in this forum) so much about the supposed 1/3 sharing to the land-owner but no one seems to know anything about that here.

Rice prices:

Here's the nub: the world price for rice is around 9,000 - 12,000 B/tonne depending on grade and time of year. The pledging price is SUPPOSED to be around 15,000 B/tonne, yet local buyers will only pay considerably less than that.

So.... can anyone assist? What actually IS the price of standard grade sticky rice FOB cleaning mill in Thailand? If the 12,000 B currently being offered IS in fact close to the end-price, how the heck can rice land prices in the hundred's of thousands be justified?

[somo]

"how the heck can rice land prices in the hundred's of thousands be justified?"

Quite simply they can't be justified for agricultural purposes. Prices have gone crazy all over Thailand but they seem especially high in your area.

If the only use of the land is for growing rice it is probably only worth 25-30k/rai

[RedBullHorn]

"Rents .... the supposed 1/3 sharing...."

From my understanding of what you wrote is that you understood the rent are meant to be split 1/3 pay by you and 2/3 pay by the person whom is working the paddies.... right ?

It's a mistake or you could have misinterpret the concept.

When i bought land meant for paddies, i engaged my UIL to be incharge of this plot of land and he will be doing only paddies... no rent is applied but as land owner, the agreement is that i will get 1/3 of the yield harvest... i can negotiate for half of the paddies (50/50) under the condition i would need to supply the seeds needed for transplanting in the field and finance 50% of the fuel required for the tractor to work the field.

[Rotweiler]

Thanks for the confirmation.

By 1/3rd, I understood that I (as owner of the land) would receive 1/3rd of the crop or the value thereof for as long as the farmer used my land. Only in very rare instances is this formula applied here, it seems.

"Rents .... the supposed 1/3 sharing...."

From my understanding of what you wrote is that you understood the rent are meant to be split 1/3 pay by you and 2/3 pay by the person whom is working the paddies.... right ?

It's a mistake or you could have misinterpret the concept.

When i bought land meant for paddies, i engaged my UIL to be incharge of this plot of land and he will be doing only paddies... no rent is applied but as land owner, the agreement is that i will get 1/3 of the yield harvest... i can negotiate for half of the paddies (50/50) under the condition i would need to supply the seeds needed for transplanting in the field and finance 50% of the fuel required for the tractor to work the field.

[swissie]

"how the heck can rice land prices in the hundred's of thousands be justified?"

Quite simply they can't be justified for agricultural purposes. Prices have gone crazy all over Thailand but they seem especially high in your area.

If the only use of the land is for growing rice it is probably only worth 25-30k/rai

If the OP expects to live to the age of 750, the purchase price of 1 rai of land for 1 million for growing rice seems reasonable to me.

Sometimes it's better to rent/lease. In my aerea to rent 1 rai costs 500 Bht per year and it allows for more profitable crops than just rice. And not to forget: The market price of rice does not care, if the rice was grown on "cheap land" or "expensive land"!

Cheers.

[somo]

The price of land and the cost of renting it are in conflict.

It is true that land can be rented from 500-1000/rai/year.

a top end rent of 1000 would imply the rai was worth around 20k (a 5% return on assets)

but instead that same land has a price of 100k to buy. Something is wrong.

I suspect it may be that many buyers are speculators but most renters are farmers who want to work the land

and know there is no point in paying more.

Renting is definitely the way to go if you can find land available.

[thunder30101]

Farming is a losing proposition even for thais, most do it to feed the family and sell a little for spending money. With the gov and companies like cp controlling everything from seed to fertilizer to land and market prices farmers dont have a chance.

[TommoPhysicist]

@OP

If the family are planning on buying land, make sure you are not the one paying for it.

Then let them get on with whatever they want to do, as it won't be your loss.

[Rotweiler]

LOL.... Ya, sure... I think I clearly understand the present-day economics. For some reason or other (unfathomable to me, I'm afraid), they do not (or don't want to admit that) understand the economics. I just wondered if I was missing something here that my addled farang brain didn't comprehend.

From the responses, I guess not.....

Thanks to all for the confirmations!

@OP

If the family are planning on buying land, make sure you are not the one paying for it.

Then let them get on with whatever they want to do, as it won't be your loss.

[TommoPhysicist]

The economics of the deal can work out quite well.

Aunt/mother/sister sells 4 rai of her land to your gf for 400k, foreigner pays.

The family still have 4 rai of land plus 400k.

Good deal for the family, bad deal for the foreigner.

There are many variations on this game.

Edited September 3, 2012 by TommoPhysicist

[Khonwan]

Farming is a losing proposition even for thais, most do it to feed the family and sell a little for spending money. With the gov and companies like cp controlling everything from seed to fertilizer to land and market prices farmers dont have a chance.

Nonsense.

[swissie]

Farming is a losing proposition even for thais, most do it to feed the family and sell a little for spending money. With the gov and companies like cp controlling everything from seed to fertilizer to land and market prices farmers dont have a chance.

Nonsense.

Nonsense, with regard to the above it's a bit of strong wording I think. There is definitely something to the comment above. If farming was such a attractive thing to do, I don't think families that have been farmers for generations try to get at least one of the offspring to venture out into the world (Bangkok etc.) to improve things back home on the farm.

I have also noticed that planting intentions seem to be subject to some "herd-instinct". If at the local barber-shop a person of "importance" declares, that corn will be good this year, guess what? I see nothing but corn that is growing in my neighborhood with the effect, that if all that corn hits the market, prices will collapse locally.

The same with mom & pop stores. Since mid-june, 12 new mom & pop stores have opened nearby (in an aerea not more than a square kilometer). So far only 3 are left!

I think that things like "supply and demand" and anticyclical decision-making within a economical system are not really understood in Thailand yet. Instead It must be something like: If my neighbor that lives in a bigger house than I opens a store it must automatically be a good thing to do, So I will do the same. And this will go on until there are 12 mom & pop stores in existence with the slight problem, that the population in the aerea will never support 12 mom & pop stores !!

After such musings, usually one might say TIT (this is Thailand). But after ASEAN comes into effect in 2015, can this TIT-Syndrome withstand the harsh realites of a globalized world? Time will tell.

Cheers.

[Khonwan]

Of course it’s nonsense (hence my one-word reply). There are a great many successful farmers in Thailand (some on this very forum), not to mention some extremely rich farmers, e.g. Chok Chai Dairy Farm. As I’ve said so many times before (surely boring by now), success must involve scale of operation, i.e. bigger is better, or at the very least, too small is…too small. Your typical indebted Thai farming family once had a large piece of land, which has been divided and subdivided to the point of being uneconomical. This isn’t rocket science – poverty is an obvious consequence of trying to make a living out of a 5 or 10 rai paddy. This was well understood in the UK (probably throughout the west) in the past when it was an agrarian society – the land went to the eldest surviving male child (by law of primogeniture) in order to prevent the very thing we see in Thailand. Remember also that, until recently, large families were the norm, which certainly didn’t help matters in terms of the dwindling farm sizes.

One should hardly expect analytical decision making by farmers who have mostly been “educated” to Primary 4 only (i.e. the older generation), and that if they were lucky. High IQ might compensate for poor or non-existent education but Thailand is not known for this (as tested regularly).

As for Thais following fashion, I think that is quite normal – we see this in every country, in every sphere of life, despite the fact that it is not a recipe for success.

Rgds

Khonwan

[TommoPhysicist]

Of course it’s nonsense (hence my one-word reply). There are a great many successful farmers in Thailand

And how many of them would still have been successful if they had to buy all their land at 100k/rai using a loan to finance the land purchases? Ten years ago you could buy land at 10k/rai and buy it using money you brought over at 75bht to the UKP. A different prospect entirely.

Doesn't matter how good a farmer you are, you can't make money at todays land prices. it's just not a viable investment.

Edited September 5, 2012 by TommoPhysicist

[Khonwan]

I agree with you, TommoPhysicist, but would say again that you can rent and succeed.

Rgds

Khonwan

[TommoPhysicist]

I agree with you, TommoPhysicist, but would say again that you can rent and succeed.

I actually married a Thai lady with her own farm, we do succeed but only because we have no need to buy (or rent) any land. But the OP was specifically asking about buying land, which as we both agree, at this moment in time is a no go.

Edited September 5, 2012 by TommoPhysicist

[jamescollister]

On this land price and is farming profitable, can you make a return on your investment etc. Think people are missing a bigger picture, the prices in certain areas are not being driven by farmers, but by rich business families. Just like in the UK, rich people by estates that are not money makers, it's ownership that counts. They have money and if there is no short term return, they don't care.

Thailand is not a big country and there is a limit to land ownership. The wife has a friend from Uni, his family paid just under 1 mil US for 100 rai of rubber trees. When I said you will never make your money back, he said, but our children and their children will.

I often hear this ROI being quoted, but many, especially Thai/ Chinese families don't see the world as 5 years in the future, they have big money and a flash sports car is nothing, but land is the future for their children's children.

Don't know if anyone has been Peneng, to the house where they filmed the King and I, with Jodie Foster. On the wall they have brash placks with names of the family and were they have moved and what they do. They are all over the world and they still take care of the family dynasty.

We are here and now people, but others see things differently. Jim

[thunder30101]

Lets get real there are very few large scale farms in thailand so using them as an example to say farming in thailand is a profitable business is a stretch. I guess all those farmers just the other day and the last year protesting about market prices are just uneducated whiners ? The gov having to invoke large money losing subsidies on most crops is a sign of a healthy industry ? And please dont start with the western countries farming subsidies as we are in thailand not the eu or america. Like every other major industry in this country farming is controlled by a select few (Farming is a protected business by law keeping foreigners out, wonder why) What many on here claim to be doing is illegal. I have found that many westerners that claim to be making money here dont actually keep books and figure in all the costs of their business such as fuel, fertilizer usage, feed, equipment upkeep etc etc etc they just pull out their wallet from their pension and savings then at the end of the season have a bundle of money and say hey I made money.

[TommoPhysicist]

Lets get real there are very few large scale farms in thailand so using them as an example to say farming in thailand is a profitable business is a stretch. I guess all those farmers just the other day and the last year protesting about market prices are just uneducated whiners ? The gov having to invoke large money losing subsidies on most crops is a sign of a healthy industry ? And please dont start with the western countries farming subsidies as we are in thailand not the eu or america. Like every other major industry in this country farming is controlled by a select few (Farming is a protected business by law keeping foreigners out, wonder why) What many on here claim to be doing is illegal. I have found that many westerners that claim to be making money here dont actually keep books and figure in all the costs of their business such as fuel, fertilizer usage, feed, equipment upkeep etc etc etc they just pull out their wallet from their pension and savings then at the end of the season have a bundle of money and say hey I made money.

I spend 10k a month of my own money, the farm provides the rest for the family, no further investment from me, the five of us live quite well. So work out how much you spend every month, deduct 10k, then decide for yourself how profitable our farm is.

Edited September 5, 2012 by TommoPhysicist

[jamescollister]

Lets get real there are very few large scale farms in thailand so using them as an example to say farming in thailand is a profitable business is a stretch. I guess all those farmers just the other day and the last year protesting about market prices are just uneducated whiners ? The gov having to invoke large money losing subsidies on most crops is a sign of a healthy industry ? And please dont start with the western countries farming subsidies as we are in thailand not the eu or america. Like every other major industry in this country farming is controlled by a select few (Farming is a protected business by law keeping foreigners out, wonder why) What many on here claim to be doing is illegal. I have found that many westerners that claim to be making money here dont actually keep books and figure in all the costs of their business such as fuel, fertilizer usage, feed, equipment upkeep etc etc etc they just pull out their wallet from their pension and savings then at the end of the season have a bundle of money and say hey I made money.

Can't speak for anyone else, but I have no pension and think have about $20 in the OZ bank. We live off the farm income, there is nothing else. Life is not all hardship and poverty and we get by. Jim

[Khonwan]

Thunder30101: So you have more knowledge than we who farm and are deeply involved in farming communities? I now realise that my one-word reply was one word too much. Waste of time. Believe what you will.

[thunder30101]

So you know nothing about me or my background, never met me,and now claim that I know nothing about thai farming lol I never stated that I was an expert such as yourself on farming. I dont have to come on forums bragging about my upbringing where I live or the people around me to have an opinion. My comments to the op were not directed at you or anyone else. I think your self imposed exile was a good thing as you dont want to honestly debate the issues facing MOST thai farmers but only brag about yourself.

[thunder30101]

By the way who is WE ? Me,myself and I ?

[TommoPhysicist]

By the way who is WE ? Me,myself and I ?

I think he was including James and I in the 'we'

So how much do you spend every month? and how many are there in your family?

Just so we can calculate the relative profitability of our farms with your non-farm.

[thunder30101]

Aww the gang mentality shows its head lol How can you calculate your farm income with no numbers ? The family farms here I dont throw my money away easily or work for free. But I do have productive farm land in the us, guess what it is rented out to a large farming cooperative who yes can make a profit due to the size of their operations. And they account for every dime made and spent to calculate their profits, its called business.

[loong]

What's with the squabbling?? Lighten up folks

I agree that, in my experience at least, that many people fail to keep proper records/books and often don't know how much profit they actually make. This is not limited to farming and not limited to Thailand.

To be fair to Khonwan, as he has posted excel spreadsheets in the cassava thread, he obviously does keep records and analises his costs/profits.

Regarding the perceived value of rice farming land. I think that if an average rural Thai was to apply for a loan from a bank to buy land at 100K per rai, even with proper cost/profit projections, it would be rejected.

It is beyond me why anyone would even consider buying rice land at these sort of prices, especially if the land is unsuitable for other uses.

At the moment, Thailand is producing a lot more rice than it can sell in the domestic/export markets. Another reason to think again before "investing" in rice land at overinflated prices.

Maybe the OP should be questioning the sanity of his family and advise them not to buy.

Is Tommo correct in his earlier post? Is it that the family want to buy, but using the foreigner's money?

[pigeonjake]

Lets get real there are very few large scale farms in thailand so using them as an example to say farming in thailand is a profitable business is a stretch. I guess all those farmers just the other day and the last year protesting about market prices are just uneducated whiners ? The gov having to invoke large money losing subsidies on most crops is a sign of a healthy industry ? And please dont start with the western countries farming subsidies as we are in thailand not the eu or america. Like every other major industry in this country farming is controlled by a select few (Farming is a protected business by law keeping foreigners out, wonder why) What many on here claim to be doing is illegal. I have found that many westerners that claim to be making money here dont actually keep books and figure in all the costs of their business such as fuel, fertilizer usage, feed, equipment upkeep etc etc etc they just pull out their wallet from their pension and savings then at the end of the season have a bundle of money and say hey I made money.

please tell how im breaking the law, as you seam to know everything about farming in thailand,??

my wife has a small PROFITABLE pig farm with all her books in order,,

so if i fill a water butt up for my wife or help her clean her pigs out,, your saying im breaking the law,,

i dont get paid, not from my wife anyway, what she makes is hers, and when i go to work, i earn my own money,

and as for land prices as thats what this thred was about,

i would agree with the other posters, i would rent first just to see for one thing, that the family would infact want to work the land and not just say they own it to gain face,

jake

[cooked]

If I were a Thai I would be doing anything I could to get out of rice farming (and many are) .My wife has 8 Rai and makes about ฿20 000.- a year, she doesn't work out fertiliser costs and so on. This works out at ฿2500.- a Rai for a first class product. Very hard work, sleeping out in the fields this year to make sure nobody steals the irrigation equipment.

She has heard of Farangs paying ฿500 000.- for a Rai (Buriram), she too cannot understand prices like this unless some building is planned. They were offering ฿16.2 /Kg yesterday and nobody seemed to be selling. Even this low price is subsidised by the government and could well drop when they get tired of paying billions a year for too much rice.

[somo]

Farming is a losing proposition even for thais, most do it to feed the family and sell a little for spending money. With the gov and companies like cp controlling everything from seed to fertilizer to land and market prices farmers dont have a chance.

Feeding the family and making a little spending money is not a losing proposition it is a profit.

The only reason it is not a larger profit is the small amount of land most farmers cultivate.

Double the land and you would more than double the "little spending money" because as you say they are already feeding themselves. It is purely a question of scale.

As it is impossible to just double everyone's land the government should be investing in the farming sector to make it more efficient and improve lives that way.

[TommoPhysicist]

Farming is a losing proposition even for thais, most do it to feed the family and sell a little for spending money. With the gov and companies like cp controlling everything from seed to fertilizer to land and market prices farmers dont have a chance.

Feeding the family and making a little spending money is not a losing proposition it is a profit.

The only reason it is not a larger profit is the small amount of land most farmers cultivate.

Double the land and you would more than double the "little spending money" because as you say they are already feeding themselves. It is purely a question of scale.

As it is impossible to just double everyone's land the government should be investing in the farming sector to make it more efficient and improve lives that way.

I have the opportunity to more than double my farm at no financial cost at all.

It would involve adding another woman to my bed as a second wife, and I can just do without the extra effort involved in the extra land to work and the extra woman to endure.