* Thai government's populist rice buying scheme proves
* India, Vietnam poised to snatch Thailand's rice exporter
* Thai rice exporters diversify, seek alternative sources of
* Government says willing to accept losses to support
By Apornrath Phoonphongphiphat
BANGKOK, Aug 9 Millions of tonnes of rice that
no one wants; huge losses for the state budget; farmers more
interested in quantity than quality; exporters throwing in the
towel. Thailand's world-beating rice industry is in a sorry
The government won election a year ago by promising to pay
farmers double the market level at the time for their rice -- a
policy to help the poor, ostensibly, but one that has backfired
by making grain so expensive that hardly anyone is buying it.
As a result Thailand exported just 3.45 million tonnes in
the first half, down 45 percent from the same 2011 period.
The Thai Rice Exporters' Association is expecting exports of
no more than 6.5 million tonnes for the full year against 8
million to 10 million normally, and that means Thailand will
probably lose its crown as the world's top rice shipper to India
Exporters are struggling: the bigger ones are looking for
opportunities in other countries or diversifying into other
sectors to stay afloat, while the smaller ones are getting out.
The exporters association had 192 members last year and
officials reckon only 30 to 40 can be certain of surviving,
because they have the financial means to get into other
businesses such as real estate and food processing.
"But small companies will have to get out of the business,"
said association president Korbsook Iamsuri, referring to
exporters that ship just 500 to 1,000 tonnes a year.
Twenty companies have already resigned.
Among the bigger names, number two exporter Asia Golden Rice
Co Ltd is investing in milling and exporting in neighbouring
Cambodia as costs rise at home.
Uthai Produce Co Ltd has scaled down its exporting business
in Thailand and is getting grain from Cambodia, Vietnam,
Pakistan and elsewhere for clients in the United States, Canada
"We still have our expertise. We are still keen on the rice
exporting business. It's just that we're using our expertise to
boost exports for other countries," said Charoen Laothammatas,
president of Uthai Produce.
"I could quit the rice business here in Thailand one day,
too, if the government carries on with this policy," he said.
PLOUGHING ON REGARDLESS
Commerce Minister Boonsong Teriyapirom is unapologetic about
the cost of the scheme. "Our policy is to support farmers. And
to do so, we need to accept some losses."
Despite the enormous cost to the state budget, the
government has extended the scheme beyond its initial end date
of June and will renew it for the main crop in October.
The government has spent 260 billion baht ($8.26 billion) on
the scheme so far. For the period from October, it plans to set
aside another 300 billion baht, which is equivalent to the total
planned budget deficit for fiscal 2012/13.
Not all that money will be lost but the International
Monetary Fund estimated in June the programme could cost about 1
percent of GDP annually, even before storage and management
costs. That is about $3.8 billion a year.
Even that assumes the government can find buyers for the
record 10 million tonnes of milled rice it has stockpiled.
It sold 240,000 tonnes to Ivory Coast in July but in general
buyers have gone elsewhere, Thailand's reputation for logistical
efficiency and reliability not counting for much in the face of
big cost savings brought by Indian and Vietnamese rice.
The Thai government rice costs around $700 per tonne by the
time it is ready for export, while market prices offered by
India and Vietnam stand more than 40 percent less, at around
$430 a tonne.
Thailand usually influences world prices but not this year,
mainly because India returned to the market last September after
a gap of four years following a food supply panic in 2007/2008.
At best, Thai rice has reached $640 per tonne this year and
is now offered at around $580 by exporters who have managed to
buy at perhaps 9,000 baht a tonne to fill orders, taking
advantage of some farmers' need for quick cash.
Many farmers are throwing quality concerns to the wind since
they know the government is offering 15,000 baht ($480) a tonne
and has said it will buy every grain of rice if necessary.
"Who cares about quality? Farmers know they'll get 15,000
baht so they just grow more and more, and that's it," said
Prasit Boonchuey, head of the Thai Farmers Association.
Many farmers had switched to lower-quality, short-grain rice
strains that take less time to grow, he said.
A senior Agriculture Ministry official said that was
particularly so in the well-irrigated centre of the country,
which contributes half of annual production of about 30 million
The implications for the Thai rice industry are serious if
it loses the high-end market at the same time as it loses market
share on common rice grades to India and Vietnam.
"It would take years to build up rice quality again, as now
we have plenty of low-quality seeds but a lack of high-quality
ones," said Vichai Sriprasert, a director at the Thai Rice
The IMF report called the intervention scheme cumbersome and
said small farmers often found it simpler to sell to middlemen,
even at lower prices. "Hence, the programme could end up mainly
benefiting large-scale producers and middlemen," it said.
The previous government tried to introduce a scheme that
paid farmers the difference between what they got for their rice
on the market and a guaranteed minimum price. This was resisted
by many farmers and in the end the scheme ran side by side with
the more traditional programme.
Rice intervention is always a murky affair in Thailand but
opposition politicians say the nature and scale of the present
scheme leave it open to corruption.
Grain is smuggled from Cambodia, for example, to exploit the
higher prices in Thailand. Millers, big landowners and food
companies benefit much more than the millions of poor farmers,
"Civil servants tell me there has been huge growth in the
number of warehouses that have been developed to accommodate the
rice scheme," former Finance Minister Korn Chatikavanij said.
Grain stockpiling fees would pay for the warehouses in 38
months, he said.
"These guys are not just any ordinary entrepreneurs, these
are people with connections to make sure that the government
uses their facilities to stock their rice ... So you have all
kinds of interests riding the rationale for deciding whether
this programme should continue," he added.
($=31.50 Thai baht)
(Additional reporting by Amy Sawitta Lefevre; Writing by Alan
Raybould; Editing by Clarence Fernandez)