Thai prices ease as intervention distorts regional trade

Wednesday, 10 October 2012

brecorder.com

Posted by Shoaib-ur-Rehman Siddiqui

BANGKOK: Thailand's rice intervention scheme is distorting trade around Southeast Asia, attracting rice smuggled from neighbouring countries into Thai government stockpiles, but genuine business remains slack and Thai prices have fallen this week.

Cheap rice from Cambodia and Myanmar is finding its way into Thai government warehouses and some analysts reckon as much as 500,000 tonnes of Vietnamese paddy may also have been smuggled in via Cambodia.

"Vietnam normally imports a few million tonnes of Cambodian paddy each year that boosts its exports. But this year, even Vietnamese paddy has been smuggled into Thailand across the Cambodian border," said Pham Quang Dieu, an analyst at Agro Monitor.

He calculated that the fall in available paddy this year could cause Vietnamese exports to fall short of the government's target of 7.2 million tonnes.

"I think Vietnam could sell 7 million tonnes at best because exporters aren't getting enough paddy," he said.

The Thai government is buying paddy at 15,000 baht ($490) per tonne. Vietnamese paddy would cost around $440 a tonne by the time it is transported into Thailand, while Cambodian rice costs $330 a tonne, giving smugglers a nice profit if they manage to sell it to the Thai government.

Stung by criticism of the intervention scheme, the Thai authorities are starting to crack down on such illicit trading.

The Department of Special Investigation (DSI), part of the Justice Ministry, seized 180 tonnes of smuggled paddy last week in Sa Kaeo province, around 240 km (150 miles) east of Bangkok on the border with Cambodia, DSI chief Tarit Pengdith said.

At the western border with Myanmar, police arrested local traders and confiscated 10 tonnes of paddy brought by truck into Mae Sod district in Tak province.

"It might just be a tiny amount of rice but this sort of smuggling is going on every day," a police officer in Tak province told Reuters, declining to be named.

In the 2011/12 crop year to the end of September, the Thai government stood ready to buy every single grain it was offered.

As a result, it has amassed stockpiles that traders and analysts put at around 12 million tonnes of milled rice. As a comparison, in recent years Thailand has exported around 8 to 10 million tonnes.

The government has recently given lower figures for the stockpiles of around 4 or 5 million tonnes but it is unclear how that figure is reached, especially as rice it may have sold to other governments may not be shipped for many months.

In the absence of port activity or other proof, traders remain sceptical that these deals have really been signed.

PRICES EASE

With the stockpiles hanging over the market and Thailand starting to harvest its main crop, prices have fallen this week. More rice may be reaching the market, allowing exporters to offer lower prices.

"This suggests there is no warehouse space left for holding rice and it is now spilling over into the market," said Vichai Sriprasert, a h o norary president of the Thai Rice Exporters Association.

The price of Thailand's benchmark 100 percent B grade white rice dropped to $565 per tonne from last week's $600. Demand remained thin.

The 5 percent broken grade fell to $555 a tonne from $585, way above the same grade in Vietnam of $445-$452 a tonne. That was up from $430-$435 early this week but still below the new floor price of $460 a tonne set by the Vietnam Food Association.

Vietnamese 25 percent broken rice was quoted at $410-$420 a tonne versus $420 last week, lower than the $435 a tonne set as the floor, which came into effect on Wednesday.

"Prices will only rise if the government secures a new contract," an exporter in Ho Chi Minh City said.