Thailand, the world’s largest rice exporter, is considering selling up to 5m tonnes from its stockpile – equal to a fifth of the world’s annually traded rice.

The market is worried that such a large disposal could put further downward pressure on prices, which have halved since spiking last year to an all-time high of about $1,100 a tonne.

Thai medium quality rice, the world’s benchmark, however, has showed resilience, trading at $580 a tonne, more than double the price in 2007, supported by fresh demand from importers in Africa, brokers said.

Thailand’s stockpile has built up as a result of its policy of buying surplus production at above market prices in an effort to protect the incomes of farmers.

The country has been paying its farmers a premium of about 30 per cent for their crops in a bid to shield them from lower prices and high production costs, particularly of fertilisers.

The Ministry of Commerce, which controls the rice reserve, has yet to decide whether to release the stocks onto the open market, which could hit world prices, or try to dispose of it in a government-to-government deal. Thailand and Iran have talked in the past about such a deal.

The Vietnamese government recently concluded a deal to sell 500,000 tonnes to the Philippines, the world’s largest importer, at a price of $420 a tonne including freight. The two countries are also talking about further shipments of about 1.0-1.5m tonnes.

Chookiat Ophaswongse, president of the Thai Rice Exporters Association, said that if Bangkok decided to sell rice from the stockpile, the government would have to absorb the losses, estimated at a minimum of $100 per tonne.

“The question is, are they willing to lose that sort of money?”, said Mr Chookiat.

However, he said that a sale might be the best option in the long term because the existence of the stocks was capping prices.

“If the government keeps the rice in Thailand, I don’t think the world price will increase.”

Source: FT.com