Thailand’s government is expanding a rice-buying program it says will bring in more cash for the grain as exporters blame the policy for putting the country’s 30-year reign as the world’s top shipper at risk.
The program to purchase rice at above-market rates, entering its second phase today after a government extension last month, is expected to boost state stockpiles this year to new highs, according to forecasts from the U.S. Department of Agriculture. The value of rice shipments may grow 20 percent this year to more than 200 billion baht ($6.6 billion), Yanyong Phuangrach, the top Commerce Ministry bureaucrat, said Feb. 24.
Prime Minister Yingluck Shinawatra’s attempts to boost farmer incomes through government purchases since taking power in August have had a minimal affect on global price movements as India increased sales of cheaper rice. Hitting revenue targets set by the government largely depends on whether India can sustain its exports, according to Darren Cooper, a senior economist at the International Grains Council in London.
“As long as India remains in the market, I cannot see the market moving much higher,” Cooper said by phone. “If it comes to the point later this year where global supplies are tight, Thailand has all those stocks on the balance sheet and Vietnam’s crop is not due until March 2013, then certainly Thailand will be well positioned to release the stocks.”
Prices have come under pressure as the global harvest is poised to reach a record, boosting stockpiles to the highest level in almost a decade as imports decline for the first time in three years, according to the USDA. Thailand’s export price, an Asian benchmark, may tumble as much as 13 percent to $500 a ton in 2012, the lowest since June last year, according to a Bloomberg survey in February of 11 traders and exporters.
The government wants to boost export prices to $700 per ton, Commerce Minister Boonsong Teriyapirom said on Feb. 23. The price of 100-percent grade B rice climbed from an average of $556 per ton in July to $650 in November, before falling to $565 last month, according to data compiled by Bloomberg.
“The government wants to send a signal to international traders that they shouldn’t expect to buy cheap rice from Thailand,” Yanyong, the permanent secretary for commerce, said today. “Thai rice is good quality and it has to be expensive.”
Yingluck’s announcement of the policy last July helped spur average local prices of unmilled white rice by as much as 22 percent, to 11,700 baht per ton in November. Prices averaged 10,920 baht a ton in the first three months of the program that started Oct. 7, compared with the 15,000 baht guaranteed by the government.
Some farmers didn’t take part in the program because they received compensation from the government after floods damaged crops in the fourth quarter of last year and they were forced to sell supplies to millers at lower rates, said Chanchai Rakthananon, president of the Thai Rice Mills Association.
Yingluck touted the rice-buying program in leading Pheu Thai to a majority victory in July elections over a party led by former Prime Minister Abhisit Vejjajiva, who implemented a policy of direct cash payments to farmers to subsidize their incomes while in power. About 35 percent of Thais made their living growing crops in 2010, according to data from the Office of Agricultural Economics.
“The extension of the program will benefit Pheu Thai’s popularity,” Prasit Boonchuey, president of the Thai Farmers Association, said by phone. “More rice may be sold in the program in the second round because of attractive high prices.”
Thailand’s cabinet extended the program to buy rough rice at guaranteed rates from today to Sept. 15. The government has said it will buy an “unlimited” amount from the second harvest, which it estimates will yield about 11.1 million tons.
The purchase will increase Thai stockpiles to a record of almost 8 million tons this year, the USDA said in a Feb. 9 report. During the first phase, the government spent about 100 billion baht to buy about 6.7 million tons, short of the initial target of 15 million tons because of flooding, the commerce ministry’s Yanyong said. Abhisit’s income-guarantee program cost 60 billion baht without building stockpiles, he said.
“The program has made it very difficult to sell rice,” said Sermsak Kuonsongtum, director of Chaiyaporn Group, Thailand’s third-largest exporter. Shipments have fallen since the start of the program and the country’s exports this year may plunge by 40 percent, he said.
Shipments from Thailand may slide 38 percent to 6.5 million tons this year, the same level as nearest rival Vietnam, data on the USDA’s website showed, while India’s exports may jump 43 percent to 6 million tons.
From Jan. 1 to Feb. 23, Thai exports tumbled 50 percent from a year earlier to 852,629 tons, according to the Thai Rice Exporters Association, which said in January shipments may total 6.5 million to 8 million tons for the year.
Vietnam shipped 473,802 metric tons from Jan. 1 to Feb. 23, the Vietnam Food Association said yesterday. The country may ship as much as 7.34 million tons in 2012, Vietnam’s agriculture ministry said Feb. 3.
India’s exports of non-basmati rice may total 4 million tons by the end of March, buoyed by the government’s decision to lift an export ban in September, the All India Rice Exporters Association’s Executive Director Rajendran Sundaresan said in Bangkok on Feb. 9.
“Don’t worry that we won’t be able to sell rice,” Yanyong said. “We are in talks with many buyers on a barter trade of a large amount of rice. We can also sell under government-to-government contracts, or sell to the market.”