Thailand will have to deal with its biggest-ever rice stockpile of more than 10 million tonnes this year if the government insists on maintaining its subsidy scheme and targeted export price of US$700 per tonne.

The huge stockpile is expected to bring trouble for Thai rice exports, as overseas buyers will shift to countries offering more attractive prices. The whole stock burden is expected to be endured by the government eventually.

Thailand will face export difficulties next year, as importing countries will push for low prices due to excess supplies. Holding rice in warehouses for so long will also cause the quality of Thai rice to deteriorate. But a key factor is global prices are not expected to rise, as huge stocks remain. If the rice price does not go up as projected, all rice is likely to be handled by the government at taxpayers' expense.

Niphond Wongtra-ngan, former president of the Thai Rice Millers Association and ex-director of the Marketing Organisation for Farmers, said in an interview with The Nation that 2012 would be a bumper year for rice due to high rainfall. But the exorbitant price of Thai rice would make it hard for Thailand to release rice from government stockpiles.

"The government is overly optimistic that India will suspend its rice exports in the second half of this year as they have reduced their stocks. However, according to the analyses and reports of many organisations, India will grow plenty of rice. New Delhi will not easily suspend its rice exports this year," he said.

It seems impossible that the export price of Thai white rice will reach $700 per tonne this year, as the government expects. India will not easily suspend its rice exports, while Vietnam, Burma and other rice producing countries will continue to drive their exports this year, as they also appear likely to enjoy huge harvests.

The Thai government has a target to export 9.5 million tonnes of rice this year, although private exporters and the United States Department of Agriculture project that Thailand will export only 6.5 million-7 million tonnes this year.

The USDA predicted global rice supplies will increase from 97.2 million tonnes last year to 100.1 million tonnes this year, while trading will drop from 34.8 million tonnes to 31.9 million tonnes. Many countries are expected enjoy greater output of rice and other cereals because La Nina will create more rain and increase production of major farm commodities including rice and wheat.

Global rice production is tipped to edge up from 450 million tonnes last year to 461 million tonnes this year.

Stocks should increase from 42.6 million tonnes to 44.5 million tonnes in China, 23 million tonnes to 24.5 million tonnes in India, 5.6 million tonnes to 7.9 million tonnes in Thailand, and 1.9 million tonnes to 2.2 million tonnes in Vietnam.

However, Niphond said Thailand might end up with 10-14 million tonnes of rice as the highly subsidised price has hurt Thai rice export competitiveness.

The government's centralisation of rice trading and the high pledging price would completely ruin normal trading. The government may only be able to re-lease a few million tonnes under government-to-government contracts, while monthly exports could fall to only 400,000 tonnes.

"Thai rice trading will be in limbo as the price is not competitive. Other rice importing countries will turn to purchasing rice from other rivals or turn to other cereals, which have lower prices.

Thailand will end up with huge stocks and losses and that will be seen by the end of year," he said.

The government currently holds 2 million tonnes of rice. At least 5 million tonnes from the current pledging project for the main crop recently entered the state stockpile. And with the government to extend the rice-pledging scheme to the second crop, a further 4-6 million tonnes are expected to enter warehouses, while the private sector will carry 1.5-2 million tonnes of rice in their silos.

The high subsidy will encourage farmers to grow more rice in their second crop. The government will shoulder greater stocks under the pledging scheme as the year goes on.

Normally, about 6-8 million tonnes of paddy are produced in the second crop. But due to plentiful rainfall and water, the second crop this year is projected to reach 8-12 million tonnes.

Since the government has set the pledging price high, Thai exporters will not actively compete with the government to purchase rice from farmers. Thailand is expected to lose huge sums subsidising rice in such an inefficient price intervention.

The government has set aside Bt400 billion for the main crop, and plans to spend Bt100 billion-Bt150 billion for the upcoming second crop.

To ensure Thailand will not suffer huge losses under the pledging project, many analysts say the government should lower its pledging price and set a lower export price in order to compete with other rice exporting countries.

There are also fears the huge inventory will breed corruption among government officials, politicians and unscrupulous traders under the rice-releasing policy.

The government should open its rice bidding to traders and consider offsetting some losses to allow exports of Thai rice.

It should also establish a central com-mittee, Niphond said, with rice traders, academics and farmers to inspect the rice-releasing method and set a fair in-tervention price in the upcoming harvest season.

Source: The Nation