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    Thaksin's rice scheme drives out Thai businesses

    Pat Angko
    Pat Angko

    Posts : 34
    Join date : 2012-03-29

    Thaksin's  rice scheme drives out Thai businesses Empty Thaksin's rice scheme drives out Thai businesses

    Post by Pat Angko on 30th April 2012, 11:08 am

    THE NATION April 30, 2012 1:00 am

    The distortion of prices in the rice business in Thailand has driven a number of leading exporters to set up not only plantations but also mills and trading companies outside the Kingdom to ensure their future competitiveness rather than remaining here in the world's biggest rice-exporting nation.

    Neighbouring countries in line for the new investment are mainly Cambodia, for plantations and mills, and Vietnam, which would host trading firms. In addition, Myanmar, which once was the world's biggest rice exporter, has great potential for plantations and processing facilities but potential investors are waiting for more political stability there.

    Leading Thai rice exporters looking overseas include the country's biggest, Asia Golden Rice, and the second-biggest, Capital Rice, both of which plan to invest in Cambodia. Others are Huay Chuan Group, Uthai Produce and Bangsue Chia Meng Rice Mill.

    These exporters complain that the Thai government's price-subsidy policy has created market distortions, particularly local rice prices. The policy is also undermining the Kingdom's rice-export history that has been developed for more than half of century, they claim.

    The change in strategy came about under Prime Minister Yingluck Shinawatra, whose government insisted on proceeding with a price-pledging programme as one of its populist policies by doubling paddy prices of white rice to Bt15,000 and of jasmine rice to Bt20,000 per tonne.

    Exporters say that if the government continues this policy, Thailand will lose its prestigious No 1 exporter status within five years, or as little as two years. Thai rice is not in the same demand as before as consumers now are familiar with rice from other exporting countries as being of almost the same quality but with lower prices.

    If the pledging prices remain unchanged, they will cause difficulties for Thai rice exporters. Currently, even if they only get a margin of 50 US cents to $1 a tonne, they have to take the order.

    The world rice market now is facing tougher competition after India lifted its export ban. India's rice stocks have hit a historic high of 32 million tonnes, although it targeted exports of only 18 million to 19 million tonnes. Vietnam's target is 7 million tonnes of rice for export.

    In addition, the subsidy policy has shaped a new business culture in Thailand, with the government completely monopolising the market, aiming for all rice seeds to come under the subsidy programme. The result has been a more powerful role for millers, as farmers flock to sell their rice to them while exporters race to them to buy.

    It has been noted that rice millers with close connections with politicians are expanding their businesses, particularly warehouses.

    In the past, the biggest players in the Thai rice market were exporters, whose high bargaining power restrained prices. But now, exporters have to compete with the government to buy rice from farmers and millers.

    It is expected that government rice stocks will grow to 10 million tonnes this year. It is widely questioned how the government can release such a huge stockpile without a marketing arm.

    There are reports that the stockpile has already reached about 8 million tonnes, including this year's second crop.

    A major downside of this stockpiling is the erosion of the quality of Thailand's premium rice strains, particularly the prestigious Hom Mali, or jasmine rice. The lure of jasmine rice comes mainly from its fragrant smell and glutinous quality. However, these unique qualities deteriorate during long storage in a warehouse. Fresh harvests of jasmine rice have the highest quality, and newly harvested crops account for 80 per cent of the market demand.

    "Within two years, the Thai rice-export business will have collapsed," said Charoen Laothamatas, president of Uthai Produce, one of the country's leading rice exporters. It has already set up a trading unit in Vietnam to facilitate its exports to China.

    Charoen said the government was weakening exporters but providing bargaining power to millers.

    "Thai rice is losing its competitiveness, as we quote prices $50-60 higher than rivals for the same type of rice," he said.

    Chookiat Ophaswongse, managing director of the Huay Chuan Group, said rice exporters had been forced to set up business outside Thailand because of market distortions here. The price subsidy has resulted in high production costs from farm to table.

    "No government can bring down rice prices or it will lose votes. In addition, production [costs] have been increased in line with the high subsidy prices. What will be the future of Thai rice?" said Chookiat, who is also honorary president of the Thai Rice Exporters Association.

    If Thailand cannot export rice to the same extent as in the past, the government will have to deal with increasing stockpiles, which could reach 10 million tonnes this year, the highest ever. What will happen to the rice business next year?

    Toyota Tsusho, the trading arm of Japan's Toyota Motor Corporation, has teamed up with Thailand's Huay Chuan Rice Co and Uthai Produce to cash in on Cambodia's growing rice industry. The Thai-Japan joint venture is looking to lease 60,000 rai (9,600 hectares) in Battambang province, which borders Thailand on the west, for plantation. In addition, the investment comprises a rice mill and processing plant for export with an investment of $100 million (Bt3 billion).

    Chookiat plans to talk with the Japanese partner on setting up a rice mill in the first phase in preparation for exports in the future. If the partner agrees, the mill would be operational by next year. It would be a medium-size mill.

    Cambodia's rice industry has grown rapidly in recent years under the government's policy of promoting exports once production is sufficient for local consumption.

    "The Cambodian government has opened the market wider to foreign investors, especially those bringing in new technology and research and development to improve the local rice industry," he said.

    Asia Golden Rice, Thailand's biggest rice exporter, said it was setting up a rice mill in Cambodia. Construction is in progress in the southern province of Kampot. It is expected that operations will start next year.

    The group will maintain its focus on expanding overseas - particularly in Cambodia - this year, even though prices might tumble, as the pledging scheme has created artificially high costs.

    "With or without the government's price-pledging scheme, the group is going ahead with investment in Cambodia as it foresees business opportunity not only from rich rice production but also the fact that its government has promoted exports," said Sombat Chalermwutinan, president of the group.

    Asia Golden Rice has been venturing abroad for years, mainly in Asia. It is establishing a presence in Cambodia with a rice mill, planned to be completed within a year and a half, at a cost of more than Bt1 billion. The company operates in Cambodia under a joint venture with a leading local partner, with businesses covering the local market.

    Sombat said the group wanted to raise rice prices not only in Thailand but overall among rice-exporting nations.

    "Today, rice prices are very low, and if we focus on high-quality rice, we will gain additional value. In particular, if the price of Cambodian rice is high, that of Thai rice will also be high, and we [Thailand and Cambodia] need not compete with each other," he said.

    The global rice trade this year will experience fierce competition after India lifted its export ban last year. That country's overwhelming stockpile will allow Indian rice to dominate the market, particularly parboiled rice. The surge in India's export volume will affect the Thai rice share in the world market.

    Sombat said the Thai government could not halt the price-pledging scheme at this time but would have to consider whether to maintain the high pledging price through the next harvest season.

    The investment in Cambodia is aimed not only at ensuring production but also at maintaining price stability in the rice market in the future. Asia Golden Rice sees Myanmar as another country with investment potential.

    As the Kingdom's second-biggest rice exporter, Capital Rice plans to set up new business in Cambodia this year to ensure export competitiveness in the future while reducing business risk in Thailand.

    Deputy managing director Wanlop Pichpongsa said the company was conducting a feasibility study on investment and looking for local partners to set up business there. Under the initial investment plan, the firm will form a joint venture with a local partner in Cambodia to set up a warehouse, rice mills, and a trading firm.

    He said Cambodia had one of the highest potential as a new trading centre for Thai rice exporters thanks to the plentiful supply and good quality of its rice, particularly jasmine rice.

    Rice export from Cambodia to the European Union enjoys an import tariff exemption of €142. As a result, Cambodian jasmine rice price is cheaper than Thailand's, quoted at about $900 per tonne while Thai jasmine rice is quoted at $1,100.


    Vallop Manathanya, chairman of Bangsue Chia Meng Rice Mill, said the company was looking at starting a new business in Vietnam or Myanmar to serve as trading and production centre. He said the rising price of Thai rice had forced many large enterprises to explore business opportunities in neighbouring countries, including his company.

    "The bigger the rice exporter, the more impact from the government's price-subsidy policy, which does not reflect the real costs. This is the important factor lowering Thailand's export volume. Thus many local rice traders, mainly large enterprises, need to shift to neighbouring countries to maintain business growth."

    Bangsue Chia Meng is considering investing in Vietnam. If the pledging policy continues for another year, the company will push forward with the investment plan next year. The plan would call for a Bt100-million capital investment to set up a warehouse, rice mill and trading unit. He said that in the near future, not only would the quantity of Thai rice exports shrink greatly, but rice quality would also drop. The government has paid little attention to rice quality under the pledging project and has no plan to support quality development, he said.


    Sompong Kittirienglarp, president of Ponglarb, one of the country's top-five rice exporters, said it had no plan to invest in other countries. However, it has to adjust its management to ensure income if the pledging scheme is prolonged.

    The company's exports have dropped significantly since the government started the pledging project last October. Its average export volume before that was about 20,000-30,000 tonnes a month. Since then, export volume has dropped to only a few thousand tonnes a month.

    Sompong said that as his firm has two businesses, export and milling, it was currently focusing on the latter, as millers can join the pledging project.

    The company has invested more than Bt500 million to build five new warehouses to stock rice under the pledging scheme. The warehouses will be able to store more than 500,000 tonnes of rice.

    Amid declining exports, Sompong has diversified the business to property development.

    "The company can no longer rely on rice export because of the government's intervention in the rice-trading system. Thai rice export will come to an end within five years if the government continues its intervention to set prices too high, while ignoring development of rice farming and marketing," Sompong stressed.]


    This poor thought out rice policy is bankrupting Thailand. This will signal the end of this family's strong hold on Thailand, if they change or not change this policy both will be disastrous in the end. The electorate may take some time to understand, but they will one day see they were being used. Som nam na. cheers

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