Thailand, once the world’s biggest rice exporter, will see a 17 percent jump in stockpiles to a record next year as it pursues a policy of buying from farmers at above market rates, said the Food & Agriculture Organization.
The government stepped up efforts since July to dispose of inventories even at a loss to free storage space and raise funds, the United Nations agency said in its quarterly report on the global market. The reserves, described as “huge,” will still climb to 20.4 million metric tons next year even as exports rebound 26 percent to 8.5 million tons, said the FAO.
Prime Minister Yingluck Shinawatra’s administration, which fended off violent demonstrations across Bangkok this week by protesters seeking her removal, started its rice-buying program in 2011. The $21 billion policy, designed to boost rural incomes, spurred the buildup of record stockpiles as output rose and exports fell. The International Monetary Fund said last month the program should be replaced, warning that left unchanged it would hurt confidence in public finances.
“The Thai government continues to face significant pressure over the financial implications of its high price-support policy,” the FAO said. There have been “renewed efforts by the Thai authorities to offload supplies from public granaries to secure funds for the continuation of the program.”
The price of Thai 5 percent broken white rice, an Asian benchmark, tumbled 23 percent to $450 a ton this year, helping to cut global food costs. Rice prices will probably come under increasing downward pressure as the Thai government tries to reduce the stockpiles and global supplies rise, said the FAO.
While the comments from the IMF were rejected by ministers, they followed Moody’s Investors Service’s remarks in September that the program heightened risks for Thailand achieving its goal of a balanced budget by 2017. A committee representing World Trade Organization members asked for more information earlier this year after the U.S., European Union, Australia and Canada questioned if Thailand was breaching support limits.
The expansion of Thai stockpiles will help global milled reserves gain 2.6 percent to 179 million tons in 2013-2014, rising for a ninth year, said the FAO. World rough-rice production will expand 1.1 percent to a record 741.1 million tons, with Thai output rising 3.9 percent to 38 million tons.
“Greater competition resulting from an increase in Thai supplies in the world markets is expected to come to the detriment of a number of suppliers,” said the FAO, citing India as the most at risk. India will be the world’s largest exporter this year, according to the U.S. Department of Agriculture.
While there has been “meek interest” from potential buyers in the 1.1 million tons offered for sale by Thailand since July, “signals of the Thai authorities’ willingness to accept sales at a loss were enough to weigh heavily on market sentiment,” said the Rome-based agency.
Yingluck’s government faced down a challenge over the past month from protesters occupying ministries and fighting street battles with police in Bangkok to drive her from office. The upheaval is supported by the main opposition Democrat party, which has targeted the rice program for criticism. Protest leader Suthep Thaugsuban has suspended rallies until Dec. 6, refraining from action tomorrow to mark the king’s birthday.
A bond sale on Nov. 25 by the finance ministry on behalf of the Bank for Agriculture & Agricultural Cooperatives to fund the rice program fell short of its 75 billion baht ($2.3 billion) goal, garnering 37 billion baht. Farmers from many provinces have yet to receive any payment for the harvest season that started on Oct. 1, Prasit Booncheuy, president of the Thai Rice Farmers Association, said in an interview on Nov. 26.
The purchasing program is putting a severe strain on Thailand’s public finances, according to Nicholas Spiro, London-based managing director of Spiro Sovereign Strategy. The policy augurs badly for the credibility and transparency of fiscal policy, Spiro said on Nov. 26.