By Achara Pongvuthitham, Petchanet Pratruangkrai

Faced with fluctuating prices and production costs, Thai rice exporters have been forced to reduce stockpiles and shorten trading periods, while focusing on increased volume and value creation to maintain margins.

Since 2008, when global rice prices skyrocketed by more than 30 per cent, Thai exporters have lowered stockpiles to just 30-40 per cent of capacity, while shortening their trading periods from between two and three months to less than one month. A global food shortage and the effects of harmful natural phenomena have contributed to the problem.

However, prices took a plunge in 2009 as a result of stockpiling the previous year by importing countries, which feared food shortages and high prices.

Rice-trading margins now stand at just 0.5 per cent, compared with 1 per cent over the past few years, said Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association.

Since prices began dropping, traders have carefully managed their stock. During such downward trends, exporters often trade with a "hand-to-mouth" strategy, lowering stockpile volumes to ease cash flow, Chookiat said.

Increased competition makes reduced margins inevitable for Thai exporters. When prices rise, rice millers themselves often engage in exporting, as the business is not complicated, said Chookiat. Therefore, Thai rice traders face a double-edged sword: fierce competition both from the local and export markets.

Exporters have to focus on bigger trading volumes and shift to valued-added and premium-grade rice to maintain growth, Chookiat said.

Sombat Chalermwutinan, president of Asia Golden Rice, the Kingdom's largest rice exporter, said that with Thai export volumes being stable, the company is concentrating on value-added products and brand-building for better returns.

Asia Golden Rice claims a 16- to 17-per-cent share of the country's average exports of 8-9 million tonnes per year. Fierce competition means the company cannot easily boost export volumes.

As a result, the firm has turned increasingly to organic rice in recent years. To ensure supply, the company has signed contracts with 200 farmers in Ubon Ratchatani to grow organic jasmine or Hom Mali rice on 4,000-5,000 rai.

To encourage the farmers to sign, the company offers Bt2 per kilogramme above the market price.

Sombat said rising awareness about food safety and health in many markets have increased demand for organic products, which he said generate more income than non-organic rice. Demand for organic products is particularly strong in Europe, he said.

The export association has expressed concern that high prices will see Thailand, the world's biggest jasmine rice exporter, lose ground in this important market to China and other export. Jasmine rice is the highest premium grade of Thai rice, which is favoured by many countries and markets, in particular China, the United States and the European Union, and high-end sectors in Asian countries. China, Vietnam, Cambodia and other Asian countries have developed their own fragrant rice products in an effort to capture a piece of this lucrative market.

Chookiat said exports of Thai Hom Mali rice dropped by 15 per cent in the first half of this year due to the high retail price of US$950 (Bt30,700) a tonne.

"Skyrocketing jasmine prices have prompted many countries to develop their own fragrant rice varieties. Their aromas and grains are not of the same quality as Thai Hom Mali rice, but they are much cheaper," said Chookiat.

Vietnamese fragrant rice is quoted at $550 a tonne, while Chinese fragrant rice is trading at $500 to $600 a tonne.

Consumers in mass markets, including restaurants and medium-income people, will quickly switch to other fragrant rice products if the price is better, Chookiat said.

Asian Golden Rice president Sombat said fragrant rice from China may replace Thai jasmine rice as the market leader. China now has sufficient rice supplies to serve domestic demand.

In addition, the Chinese government has worked on the development of the country's own fragrant grains to offset losses from importing Thai Hom Mali rice.

Up to now, China's fragrant rice production has served its domestic market. But the country is likely to prepare an export plan for its excess capacity, and the grain will become a direct export rival with Thai fragrant rice, Sombat said.

To ensure Hom Mali rice exports grow, exporters have urged the government to help ensure a stable and suitable Hom Mali rice price, as well as provide assistance in ensuring quality and exploring new markets.

Source: The Nation