By Sameer Mohindru
HO CHI MINH CITY (MarketWatch) -- The Thai government's procurement of rice from growers well above market prices is expected to result in at least 2.5 million metric tons of the grain from Cambodia, Laos and Myanmar to find its way into Thailand's granaries and trade, industry officials said.
On Oct. 7, Thailand started procuring domestic rice from growers at THB15,000/ton, around 40% above market rates. Barely any procurement has taken place due to severe floods but is likely to gather pace in the next few months as waters recede.
Traders and industry officials point out that due to Thailand's porous borders, rice from neighboring countries will also be moved into Thailand to take advantage of the higher prices. This will push up inventories in Thailand, world's largest exporter and push up global prices.
There is a large price differential between Thai and Cambodian rice, even though the quality is similar and many traders are now trying to bring in rice from across the border, said Christophe Cousin, managing director, Prasert and Sons, a Pathumthani-based international rice brokerage in Thailand.
It is usual for around 1.0 million tons of Cambodian rice to be transported across the Thai border every year for more remunerative export prices, and now with the government offering even better rates, the trans-border movement will at least double in volume, said Chookiat Ophaswongse, former president of Thai Rice Exporters Association.
Cambodia's ordinary white rice is being traded around THB7,000/ton, less than half of the Thai government's procurement price. Corresponding prices of rice in Laos are between THB6,000-THB7,000/ton. Rice in Myanmar is even cheaper between THB4,500-THB5,000/ton.
At least 500,000 tons of rice from Myanmar move across the border annually to neighboring countries including Thailand as part of informal trade and it is possible that Thai traders make more purchases this year due to high price differential, said Tin Htut Oo, a senior adviser in Myanmar Rice Industry Association.
Analysts and industry officials participating in a global rice conference here said that Thai government policy has loopholes because the grain will be procured and stored by the millers on its behalf. Earlier this month, government said that it has set a stringent criteria to ensure only the domestic crop of the latest harvest is procured.
However, private executives point out that due to unscrupulous millers and gullibility of lower-level bureaucracy not only rice from neighboring countries but also previous year's Thai harvest will be passed on to pocket the price differential.
Millers will blend large volumes of rice from neighboring countries and previous Thai crops and register them in the name of local farmers resulting in a huge government stockpile, a slowdown in exports and tightened global supply, said Chookiat.