BANGKOK, April 1 (Reuters) - The Thai government will limit the amount of rice it buys from farmers during the forthcoming off-season crop, a move that traders and industry officials said was forced on it because it is running out of warehouse space and costs are rising.
The cabinet on Sunday agreed to guarantee a 105 billion baht ($3.59 billion) loan to the state-owned Bank of Agriculture and Agricultural Cooperatives (BAAC) to enable it to carry on paying farmers 15,000 baht per tonne for paddy, around 50 percent above the market price.
"The government has had to make some changes on the policy otherwise it wouldn't be able to go on any more with the costly scheme," said Vichai Sriprasert, honorary president of the Thai Rice Exporters Association.
The buying program, based on campaign promises from the July 2011 election, has raised rice stocks in Thailand to record levels and made export prices for the grain uncompetitive. The scheme has also cost Thailand its post as the world's top rice exporter, a spot it had held for three decades until last year.
The government has said it does not have funding problems and says it had to put some limit on the scheme because it is concerned about quality. Drought in some areas might also help by cutting back on output.
"This time we might not have to spend all of the loan as we expect we could buy less rice this crop," BAAC Vice-President Supat Eauchai told Reuters.
For the current phase of the scheme running until Sept. 15, before the start of the next main crop, the government will buy a maximum 7 million tonnes of paddy, or unmilled rice, a government official said on Sunday.
In addition, it will exclude 18 varieties of rice classified as low-quality. These varieties take less than 110 days to grow and farmers have increasingly used them to squeeze in extra crops to take advantage of the government buying programme.
Farm leaders seem resigned to the limits.
"We don't like it but we can accept it as we want the scheme to run on," said Vichien Phuanlamjiak, vice-president of the Thai Rice Farmers Association.
The government, honouring a commitment it made in the 2011 election, put up a budget of 400 billion baht to buy rice from October 2011. Total net government spending on the intervention scheme is unclear, partly because it has not announced how much rice it has sold or at what price.
Stockpiles now stand at an estimated 17 million tonnes, a record high.
The government has said it is confident it can sell rice on the market this year to clear warehouse space for the main crop in November, when around 25 million tonnes of paddy is expected to be harvested.
But it has sold hardly any of the rice bought since October 2011, because its high buying price has made Thai exports about a third higher than grain from rivals, notably India and Vietnam.
Thailand offered around 1.5 million tonnes of rice from stocks in tenders in the second half of 2012, but it rejected all the offers because bid prices were too low.
The government then said it had sold 7.3 million tonnes of rice to foreign governments, but buyers denied any deals had been done and shipping activities at Thai ports did not suggest such huge volumes.
The government has said it would open a tender to sell up to 500,000 tonnes of rice in April, but no further details have been given.
$1 = 29.2850 Thai baht Editing by Alan Raybould and Tom Hogue