Thai rice exports fell by 63% year-on-year in March as the government rice mortgage programme pushed prices well above competitors such as India and Vietnam, according to a senior Bank of Thailand official.

The decline in March exports followed a 27% decline year-on-year in February.

Mathee Supapongse, the central bank's senior director for the Domestic Policy Department, said rice exports had begun to fall since last September, as flooding disrupted yields.

But declines since January reflected higher export prices as a result of policies implemented by the government to boost farm income.

"The impact of rice policies on exports was initially unclear, as supplies fell following last year's floods," Mr Mathee said.

"But later, more rice has entered the rice mortgage programme. And it has become clear that we have lost price competitiveness in the world market, particularly during February and March."

During last year's election, Yingluck Shinawatra pledged to revive the rice mortgage programme with a purchase price of 15,000 baht per tonne of white rice paddy, and as much as 20,000 baht for Hom Mali paddy.

Price constraints have led to a sharp decline in exports. For the first quarter, rice exports totalled 1.4 million tonnes, with 430,000 tonnes shipped in March and 608,000 tonnes in February. In contrast, Thailand exported 11 million tonnes of rice last year and 9 million the year before.

Rice export prices stood at $549 per tonne from February to March, up from $480 in mid-2011.

Mr Mathee said rice prices are expected to rise further as more paddy is pledged to the mortgage programme.

Overall, the Thai economy performed better than expected in the first quarter, with manufacturing production rebounding strongly from last year's flood-related declines.

The strong recovery of the manufacturing sector helped boost overall exports, although declines in agricultural commodities, particularly rice and rubber, were a drag on overall shipments.

Manufacturing production fell 3.2% in March from the year before. Sectors such as automobile saw manufacturing return to pre-flood levels, while high-technology sectors such as hard disk drives and integrated circuits recovered to near pre-flood levels.

Farm income contracted 8.6% year-on-year in March, in line with declines in rubber prices. But domestic consumption and private investment both continued to improve in March.

March exports totalled $19.6 billion, down 7% from the same period last year, led by a 38% year-on-year decline in farm goods. Imports totalled $21 billion in March, up 21% year-on-year, due to higher imports of oil, capital goods and electronic parts.

The current account deficit totalled $1.4 billion in March, while the overall balance of payments recorded a surplus of $760 million.

Mr Mathee said inflation, as measured by the consumer price index, accelerated to 3.45% year-on-year in March, led by higher petrol prices due to the government policy to raise levies paid to the State Oil Fund.

A central bank survey of businesses found that inflation expectations had risen to 3.7% in March, compared with 3.5% in February, indicating growing expectations of higher production costs.

Source: Bangkok Post