Sunday, November 16, 2008

Thailand's rice outlook dim amid distortions

Exporters say state scheme hurts market


KHON KAEN : Thai rice exporters foresee a tougher year ahead with demand falling to between eight million and 8.5 million tonnes from an estimated 10 million this year, while prices could tumble significantly.

Mr Chookiat (back to camera) joins exporters and farmers during the Thai Rice Exporters Association’s survey trip to Khon Kaen.

They blamed the government's rice pledging programme for distorting the market, leaving huge stockpiles in state hands, which has led to a big decline in orders from buyers abroad in recent months.

"The government has sent wrong signal from the beginning. Such high prices offered in the programme encouraged farmers to grow more while prices were on a downward trend," said Chookiat Ophaswongse, president of the Thai Rice Exporters Association.

Attractive prices from the last season encouraged farmers to expand rice paddy areas by more than 450,000 rai paddy output is expected to rise 3% to 24 million tonnes as a result.

"Meanwhile, the market is quiet and there are no big orders these days, especially in the first week of this month. We shipped only 97,000 tonnes, which was 62% less than in the same period the year before," said Mr Chookiat, who joined association members on an inspection tour of farms in northeastern Thailand over the weekend.

He said prospective buyers realised that the Thai government still had a huge stock of grain, so they are deferring orders in the belief that prices could go down further.

The Commerce Ministry is attempting to clear 3.1 million tonnes of rice it has held, some for more than three years. But the new pledging plan that started this month could add up to 4.5 million tonnes of milled rice.

The government is paying farmers 15,000 baht a tonne for pledged fragrant Hom Mali paddy, and 12,000 baht for 100% white rice paddy. The latter works out to about US$650 per tonne, compared with about $550-560 now quoted by Thai exporters.

Mr Chookiat said such high prices would definitely lessen the competitiveness of Thai rice against top rival Vietnam, which offers the grain at $400-420 a tonne.

Chookiat: Wrong signal from the start

"It is likely that we will miss the export target of 9.5 million tonnes set for 2009 and lose some markets to Vietnam and India. Both are expected to export more actively after a one -year break," he said.

India has lifted its export ban and is set to ship about 2.3 million tonnes next year, mostly Basmati rice. However, traders believe the volume could exceed four million tonnes if sales of parboiled and white rice go ahead.

The absence of Vietnam and India from the market earlier this year gave a boost to Thailand's rice exports at a time when prices were soaring - they peaked at $1,080 a tonne in April, triple the prices quoted a year earlier.

Thailand exported 8.3 million tonnes of rice in the first nine months of this year, up 36% year-on-year, and revenue rose 108% to 166 billion baht.

"If this year was the golden year for Thai rice, next year will be a different picture as export prices of $1,000 a tonne might drop to $300," said Charoen Laothammatas, the association's vice-president.

He said the two-tier system of high domestic prices and falling export prices was hurting exporters. "Importers have delayed payments, some have defaulted or refused to honour the deals made before."

Mr Chookiat said the global financial crisis was also a factor as both buyers and sellers were cutting inventories to reduce stock-management costs.

Thai exporters have cut their stocks by half, from the one million to 1.5 million tonnes they normally maintain in their warehouses.

Overbuying by some importers who feared prices would rise further had also caused the market to slow down, he said. For example, Nigeria imported nearly 800,000 tonnes in the first nine months, up 260% from the same period a year earlier.

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