Increased competition from Vietnam endangers Thai rice exports

August 22, 2011
By Peter Janssen, dpa

BANGKOK--For decades, the board of directors of the Thai Rice Exporters Association has gathered every Wednesday at their Bangkok office. For more than 40 years, Thailand has been the world's leading rice exporter, but rising competition from its neighbors combined with increasing government intervention in the marketplace is threatening that supremacy.

“I think rice exporting is a sunset industry for Thailand, mainly because of the political issues that have come in and made it much more difficult than before,” said Chookiat Ophaswongse, honorary president of the association.

Thailand exported 10 million metric tons of rice in 2010, and the country is expected to match that amount this year, largely because of a surge in shipments during the first eight months.

After that, nobody knows. The United States Department of Agriculture this month forecast that Thai rice exports in 2012 would decline to 8 million tons.

The expected drop is attributed mainly to the new government's price pledging scheme which is expected to go in to effect in November, when the main rice crop comes on the market.

The Pheu Thai Party, which won the July 3 general election and leads the current government, has promised rice farmers a fixed price for their paddy, or unmilled rice, at 15,000 baht (US$500) per ton for plain white rice and 20,000 baht (US$666) for jasmine, the aromatic variety that Thailand is famous for.

Details of the scheme, such as how the government plans to buy and distribute it to exporters, will be announced on Aug. 24, but ministers have confirmed that they will go ahead with the fixed paddy prices, a populist policy designed to boost farmers' incomes.

What may be good for farmers in the short term, looks like bad news for Thai rice exporters in the long term.

“Of course I'm worried,” said Charoen Laothamtas, president of the Uthai Products Company, which specializes in jasmine exports. “We will be pricing ourselves out of the market, and Vietnam will soon take over from us as number one exporter.”

Vietnam has come a long way in the rice trade over the past two decades.

This year, barring a natural disaster, the country will export more than 7 million tons of rice, including more than 300,000 tons of jasmine.

Jasmine is high-grade rice, favored by wealthy Asian consumers, that fetches premium prices on the world market.

But there is a limit to what customers are willing to pay for that premium.

“Today the FOB (freight on board) price of Thai jasmine is US$1,100 per ton, but Vietnam can sell at US$650,” Charoen said. “Of course, our quality is better but at that price differential, customers will prefer Vietnamese jasmine.”

The price of Thai jasmine is expected to jump to at least US$1,400 next year, once the government's price support scheme goes in to effect.

Thailand's jasmine exports to markets such as Hong Kong and Singapore dropped 25 percent last year, with the lost market share going to Vietnam, even before the price intervention scheme goes into effect.

Thai rice exporters, ironically, are helping turn the tide in Vietnam's favor.

“We have started buying Vietnamese rice to ship to our customers,” Charoen said. “We love our country but what can we do?”

Thailand faces similar challenges in the African market, which accounts for more than 40 percent of its rice exports.

India was previously a large exporter of rice to Africa but stopped shipments in 2008 due to an export ban. Now, with a huge rice stockpile of 80 million tons, India is considering re-entering the market.

If it does, Thailand's exports to Africa could fall by 2 million tons next year, Chookiat predicted.

Thai governments have intervened in the rice market before.

Fugitive former prime minister Thaksin Shinawatra, who is the de facto leader of the Pheu Thai party leading the current government, first introduced a rice price pledging scheme during his two-term rule between 2001-2006.

The Thai government amassed millions of tons of rice in its stockpiles which were then sold to exporters in transactions that were reportedly prone to corruption, according to industry experts.

“The paddy-pledging program gave the politicians both votes and money, so it was win-win,” said Nipon Poapongsakorn, president of the Thai Development Research Institute.