Thailand's failed rice scheme creates moulding mountains of grain

BANGKOK: Prime Minister Yingluck Shinawatra's attempt to manipulate the world's rice market by buying up supplies has damaged her popularity and cost Thailand billions of dollars.

The fiasco has toppled Thailand from its perch as the world's top rice exporter, with exports worth almost $US6 billion ($6.48 billion) a year, and threatens to downgrade the country's credit rating as the government tries to figure out what to do with all the rice.

Hundreds of thousands of tonnes of rice are being smuggled from Cambodia and Myanmar into Thailand, although the country's warehouses hold enough stock to meet half the world's annual trade in the commodity.

Ms Yingluck last week ate rice in front of the media to play down claims that up to 18 million tonnes of milled rice stored in the country are starting to spoil.

Swept into power on a promise to support the rural poor in 2011, Ms Yingluck came up with a scheme to subsidise rice, not just a staple for Thais but an object of respect.

Observers at the time saw the idea as her way of mimicking her elder brother, Thaksin Shinawatra, who introduced popular expansionist economic policies in rural areas before he was ousted in a 2006 coup.

The plan was to buy up local rice harvests for as much as 50 per cent above market rates to drive up global prices. But the market saw it as a clumsy attempt at price manipulation. Rival exporters such as Vietnam and India stepped up production while Thai exporters responded by investing in emerging producers such as Cambodia, Laos and Myanmar.

Global prices stayed low last year and the Thai government, still committed to overpaying for farmers' rice, amassed ever-larger stockpiles rather than selling overseas at a steep loss. Time is now running out, because rice goes bad after one or two years in storage.

A government investigation found much of it gathering dirt, mould and mildew, so at the very least it will need thorough washing.

Placing large amounts of rice on the market is also likely to push prices down further, analysts say.

Farmers and traders in the neighbouring countries are capitalising on Thailand's problem by rampantly smuggling rice across porous borders to be sold into the Thai scheme for twice what it fetches in their own countries.

Analysts and traders estimate the illicit cross-border shipments at 750,000 tonnes a year, adding to Ms Yingluck's dilemma over how to stem mounting losses over the scheme.

The government said last month that losses amounted to US$4.4 billion for the Thai crop that ended in September 2012.

Since the program began in 2011, the government has bought about 36 million tonnes of rice, paying farmers $US11 billion while earning $US1.9 billion by selling some.

Losses from the scheme in 2011-12 could eat up 5.6 per cent of Thailand's budget, analysts say, prompting Moody's to cite it as a negative factor in the country's credit rating.

As the political and economic fallout worsened this year, Ms Yingluck faced the stark choice of continuing to pay the subsidy to farmers or cut the payment and risk losing their political support.

Last month she earned praise from economists by announcing that from July 1 the amount paid to farmers would be cut 20 per cent to 12,000 baht ($420) a tonne.

But when the announcement brought protesting farmers to the streets of Bangkok, Ms Yingluck reversed the decision and sacked Commerce Minister Boonsong Teriyapirom, who was responsible for the scheme, replacing him with Niwatthamrong Bunsongphaisan, a government spin doctor. Mr Niwatthamrong says the government will sell up to 1.5 million tonnes of rice a month this year through tenders and try to sell to other governments.

But with the original scheme still in place and no apparent move to end or scale it back, Thailand's warehouses are reported to be so full there is little space left for the next main harvest, which starts in November.

Somporn Isvilanonda, a senior fellow at the Knowledge Network Institute of Thailand, said given the volume of rice in storage it is almost impossible for the government to care for it. "The quality of rice in storage drops each day," Professor Somporn said. "The question is how badly our image as the producer of the world's best rice – an image built up over many decades – will be damaged," he said.

The controversy is also fresh fuel for long-simmering anti-government sentiments, prompting renewed protests in the capital.

The story Thailand's failed rice scheme creates moulding mountains of grain first appeared on The Sydney Morning Herald.

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