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Vietnam may replace Thailand as the biggest rice exporter in 2012

According to the Thai Rice Exporters’ Association, by early December 2011, the country had exported 10.3 million tons of rice, an increase of 29.94 percent over the previous year. However, what worries them most is that the export has been slowing down recently.
With the overly high export prices, and the recent big floods which affected 70 percent of the storehouses and processing workshops, Thai rice exporters are worried that the rice export volume of the country would fall by a half in 2012. If this occurs, the position of the Number One rice exporter would be transferred to Vietnam.

The government plans to pay its farmers more than double the market value for rice. “We have been very concerned about this, mostly because this is going to affect [African] markets – definitely,” said Aliou Diagne, an economist with the Benin-based Africa Rice Center. USAID last month warned that prices were likely to climb 20 percent over the next three months, while others predict the greatest short-term impact has already been felt.

What happens next, economists say, depends on how Thailand implements the programme. In the long term, analysts said they expect it to encourage other countries to step up exports and thus dampen the price of rice – consumed by three billion people daily.

But some say what Thailand is doing is unsustainable, and doubt it will last long.
This has been attributed to the recent big floods which affected 70 percent of the storehouses and processing workshops in the country. Especially, a lot of processing factories still have not resumed their production after the floods had gone down. They said that they need to wait two or three more months to see the workshops’ ground returning to the normal conditions.

However, the biggest reason behind the sharp decrease of the rice export volume in 2011 is the uncompetitive price. With the new policy applied by the Thai government which commits to buy rice from Thai farmers at high prices, the Thai export price is much higher than the prices offered by Thai rivals such as Vietnam and India.

In early December 2011, five percent broken rice of Thailand was offered at 595 dollars per ton, while the same kind of rice was offered by Indian exporters at 450-470 dollars per ton only.

Korbsook Iamsuri, Chair of the Thai Rice Exporters’ Association, said that in 2012, Thai rice export volume may drop to 7-7.5 million tons. Meanwhile, Thai rice exporters seem to be more pessimistic about the export volume in 2012, saying that if there is no big change in the policy, Thailand would export only five million tons in 2012.

Slowing exports and unreasonable prices of Thai rice have prompted packers to call on the government to stop the pledging scheme and return to price guarantees for farmers to bolster exports and domestic trading.
The government should at least consider lowering the pledging price as fast as possible to enhance trading, which now faces market sluggishness due to artificially high prices, they said.

The current policy has not only reduced rice exports but has increased local retail prices by 5-10 per cent, which directly affects local consumers, the rice packers said. Overly high subsidised prices will also encourage rice traders to focus more on overseas business, particularly in neighbouring countries such as Vietnam, to reduce their costs.

Prices of packed rice are expected to rise in the second quarter of this year to cover expected increases in the costs of production, if the government decides to extend its pledging scheme for the second crop, said the president of the Thai Rice Packers Association, Somkiat Makcayathorn.

"If the government prolongs the high subsidy price, rice packers will need to raise the retail price to reflect the higher cost of production," he said.

Newly appointed Commerce Minister Boonsong Teriyapirom will today meet with rice traders and millers to hear private enterprises' opposition to government price intervention. The main-crop subsidy will expire next month.

Commerce permanent secretary Yanyong Phuangrach plans to propose that the government continue the pledging scheme at the same prices from March to June.

Somkiat said that not only were rice exporters suffering from the high pledging prices, the domestic trade was also starting to be affected. As exports have dropped greatly since the pledging scheme started, the domestic trade is facing a tough situation on expected higher costs of production.

To reflect the real cost of production and allow growth of rice trading, Somkiat said the government should consider change its pledging policy to guarantees so that farmers would continue to receive high returns. If the government insisted on prolonging the pledging programme, it should lower the prices to reflect the real cost of production and increase competitiveness.

Somkiat said the appropriate pledging price for white rice was Bt12,000 per tonne of paddy, while jasmine rice should be pledged at Bt17,000-Bt18,000 a tonne. The current pledging price for white paddy rice is now Bt15,000, and jasmine rice is Bt20,000 per tonne, which he said was too high.

To ensure businesses survive, Somkiat, who is also managing director of Patum Rice Mill and Granary, an owner of MBK brand, said many rice packers would look to export small rice packs to Asean markets to escape the tough domestic situation.

He said export of Thai packed rice to Asean nations should increase greatly to 1 million tonnes after the bloc's economic integration and zero tariffs for rice trading. Moreover, rice packers will promote more domestic consumption of their product to compensate for lower exports.

He expects that domestic demand for rice will increase by 10 per cent this year, from growth of only 1-2 per cent in the past few years.

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Somroek Tangpiroonthum, chief executive officer of Thai Ha, the producer of packaged rice and instant food under the Kaset brand, said that if the government did not revise its rice-pledging policy, the domestic trade would be sluggish amid low demand for exports.

"Thailand will face an oversupply of rice as a higher supply from other countries is expected this year. In the end, farmers will suffer from the pledging as the government will no longer spend a huge amount on subsidies," he said.

Sumeth Laomoraphorn, chief operating officer of CP Intertrade, producer of the Royal Umbrella brand, said the serious drop in Thai rice exports had encouraged more domestic rice trading.

He said many rice exporters and millers who faced difficulties had become rice packers to stay in the rice industry. Thus rice trading in the country faces high competition, which to which players must work hard to adjust.

Sumeth said rice packers would face lower margins as they could not increase retail prices while facing higher raw-material costs. To remain in the business, he suggested rice traders create their own brands and focus on developing rice of high quality or value-added rice products.