Thailand to extend controversial rice intervention for another year

CHIANG MAI (REUTERS) - Thailand has pledged to renew its controversial rice-buying scheme for a third year, defying opposition over a policy that has been blamed forstraining government finances and slashing exports as the grain has piled up in warehouses.

The two-year old programme to pay farmers more for rice than it is worth on international markets has cost Thailand its spot as world’s top exporter and provoked concern at the World Trade Organization.

“We will be continuing with the scheme, with which we aim to go on supporting farmers. At this stage, we see no change in the intervention,” said Commerce Minister Boonsong Teriyapirom, confirming a move that had been widely expected by market participants.

The government has spent 410 billion baht (S$17 billion) in buying paddy since the scheme kicked off in October 2011, and has been looking at measures to stem ballooning losses so far estimated by analysts and industry officials to be at least US$6 billion (S$7.6 billion).

Mr Boonsong added that Bangkok would largely be able to finance the scheme through sales to other governments, avoiding taking out loans for funding.

The government has said it has sold up to 7.3 million tonnes of rice from stocks to foreign governments, including China, Bangladesh and the Philippines. However, all buyers have denied the deals and traders said activity at ports did not suggest big deliveries.

“It is not very surprising as the government is committed to buying rice from farmers and it can’t really go back on that,” said a trader with a Singapore-based grains trading company.

“What this means is for the market is that the scheme will result in more rice stocks piling up in government silos. Other exporters ... will continue to take advantage of Thailand pricing itself out of the market.”

Rival producers such as India and Vietnam, who have stepped into the vacuum caused by the exit of Thai exporters from the market, are watching closely in case Thailand is forced to dump millions of tonnes of rice onto well-supplied global markets, driving down prices.

Thailand pays farmers 15,000 baht a tonne of paddy, or around 50 percent above market prices, pushing Thai export prices for common grade white rice to US$550 a tonne, or around US$170 per tonne higher than the offers from India, Vietnam and Pakistan.

Uncompetitively high prices cut Thai exports sharply to 6.9 million tonnes in 2012, well below a record 10.6 million tonnes in 2011.

India has taken No.1 spot as the world’s biggest rice exporter from Thailand for the first time since 1983, with 10.2 million tonnes in 2012.

Vietnam stayed as the second-biggest exporter with 7.7 million tonnes, with Thailand relegated to third position.