Thai Junta to Cut Rice Crop to Combat Glut as Reserves Sold

Thailand, the world’s biggest rice exporter, plans to cut production to reduce a local surplus and boost prices, complementing a drive by the government to sell record stockpiles that are clogging warehouses nationwide.

Rough-rice output may be cut to 33.73 million metric tons by 2016-2017, down from an average of 35.11 million over the past six years, according to Apichart Pongsrihadulchai, vice farm minister. Growers will be encouraged with incentives including soft loans to shift from rice to sugar cane or to mixed farming with livestock, Apichart said in an interview.

Thai authorities, led by military-leader-turned-prime minister Prayuth Chan-Ocha, are grappling with the legacy of the previous government’s rice-buying policy. Yingluck Shinawatra’s administration paid rice growers guaranteed, above-market prices for their crop, spurring increased production and the buildup of the country’s biggest ever stockpiles. Prayuth’s government last week offered almost 1 million tons for sale from the state reserves, which it wants to clear over the next two years.

“We need to restructure our rice production to solve a surplus problem,” Apichart said in Bangkok on Jan. 30. “We aim to slash production to be balanced with local consumption and exports. Hopefully, that will boost prices.”

Thai 5 percent broken rice declined 7.1 percent last year, extending a 23 percent drop in 2013. The Asian benchmark price was at $422 a ton on Jan. 28, the day before Prayuth’s government offered the 1 million tons for auction. Rough rice futures fell as much as 0.6 percent to $10.505 per 100 pounds in Chicago on Monday, the lowest since August 2010.

Manage Risk

“The plan will have more chance of succeeding if there are active extension efforts to educate farmers about the best techniques for planting alternative crops,” David Dawe, a Bangkok-based senior economist at the United Nations’ Food & Agriculture Organization, said in an e-mail. It’ll also be important to provide ways for growers to manage risk, as most crops are riskier to plant and market than rice, he said.

Over the next two years, about 700,000 rai (112,000 hectares) are targeted to be switched from rice to sugar cane, and a further 1.1 million rai will be switched to mixed farming, said Apichart. The government also plans to eliminate rice planting during the dry season across 400,000 rai, he said.

Targeted output of 33.73 million tons would return Thai rice production to the same level as it was in 2009-2010, according to the plan. The projected surplus -- the excess of output over local demand and export needs -- will drop from about 1.1 million tons in 2016-2017 to just 200,000 tons in 2019-2020. The policy to shift land away from rice is subject to approval by a rice-policy committee, Apichart said.

Record Crop

Under Yingluck’s rice-buying spree, production climbed to a record in 2011-2012, while reserves expanded to 17.8 million tons last year. That’s equivalent to more than 40 percent of global trade.

Earlier this month, Thailand’s junta-appointed legislature impeached Yingluck and banned her from politics for five years for her role in overseeing the rice-buying program. The Attorney General’s office said criminal charges will follow.

Minister of Agriculture and Cooperatives Petipong Puengbun Na Ayudhya said in an interview in October that there would be incentives for growers to switch crops to curb oversupply, notably from rice to sugar.

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