Bangkok, Feb 24 - Thailand's government has earned valuable political currency by subsiding farmers through a rice intervention scheme, but that plan may backfire on exports as its rivals steal market share because of their lower prices.
The programme by Prime Minister Abhisit Vejjajiva's government may placate Thailand's 20 million farmers by preserving incomes, recently made worse by a rice price slump, but analysts say the scheme had widened the rice export price gap with its competitors, possibly cutting exports this year by as much as 15 percent.
The Thai Rice Exporters Association has forecast sales of white rice to fall this year to under 8.5 million tonnes, down from last year's 10 million and 2007's 9.5 million.
"There's no hope in selling white rice as we cannot fight in the fierce price war when Vietnam can offer at $100 per tonne cheaper than us," said Chookiat Ophaswongse, president of the association.
In January, exports fell 41 percent from the year-earlier period as buyers turned to rice from other origins. [ID:nBKK313936] And going by this trend, exports may narrowly miss the government's 2009 target of 8.5-9.5 million tonnes.
For a graphic on Thai rice exports, click: https://customers.reuters.com/d/graphics/TH_RC0209.gif
Rice generates around 6 billion baht ($168 million) in annual revenue and accounts for 40 percent of total exports for the world's largest exporter of the grain. Around a third of the country's 64 million people work the land, mostly as poor rice farmers in the northeast and central regions.
Making up half of the country's 476 parliamentary seats, rural areas are an important political constituency to any government of the day.
The now decades-old rice subsidy scheme has been a tool by which the government has kept this base of support sweet by buying up grain at inflated prices to drain the market of supply and prop up prices.
So politically important are the subsidies, they are often given to prevent farmers from staging sporadic protests whenever prices of rice and other commodities tumble.
VOTES OVER EXPORTS
Analysts said last year's months-long political unrest has reinforced the government's desire to preserve political stability at all costs, and it hasn't gone unnoticed that a fair number of rice growers had taken part in the sometimes violent anti-government protests.
That said, they also argue that chances of political order remain dim as long as the rift between Bangkok's royalist military and business elite, who accuse former prime minister Thaksin Shinawatra of corruption, and rural voters who loved his populist policies, remains unresolved.
"It's very, very difficult for every government to end or to cancel the intervention scheme. It's not just an economic factor, it has become a political culture which Thai people are addicted to, otherwise there'll be a protest," said Sompop Manarungsan, professor of economics at Chulalongkorn University in Bangkok.
"Even (Abhisit's) Democrat-led government, which used to criticise Thaksin's populist policies strongly, still needs to intervene (in rice). The first reason is for its political stability. The second and very important reason is that the scheme could attract votes if parliament is dissolved and the government needs to call a snap election," he said.
Under the intervention plan, the government buys paddy from farmers at 12,000 baht ($340) a tonne, higher than market prices of around 9,000 baht and equivalent to $600 for milled rice, free on board. Export prices are then set around that level.
The price of Thai 5 percent white rice was quoted at $550 per tonne, a $110 premium above the price of a similar Vietnamese variety set by its government at $440 per tonne, allowing the latter to sell more rice this year, traders and exporters said.
This has widened the price gap for rice between Thailand and Vietnam -- its most formidable competitor and the world's second-largest exporter -- to $100 per tonne, from just $30 per tonne in the past two years.
Reflecting the difference in both countries' fortunes, Vietnam has said it could export 3.5 million tonnes of rice in the first half of 2009 -- a rise of about 43 percent from last year -- helped by a massive Philippines contract.
Even army-ruled Myanmar appears to be muscling in. Its exports nearly doubled in January to 400,000 tonnes, supported by demand from Africa, traders said. [ID:nSP203957]
"I can switch to buy rice from other origins, not only Vietnam. It could be Myanmar or even Cambodia if the quality is okay and the prices are not too expensive," said a trader from European trading firm Louis Dreyfus.
Traders expect Myanmar to export up to 800,000 tonnes of rice this year.
RESIGNED
The government appears on course to renew the intervention programme when it expires this month, a senior Commerce official has said -- in line with its past practice of keeping intervention schemes intact -- despite looming export losses and an economy teetering on the brink of recession.
Nothing new, say analysts.
Even when rice prices hit a record $1,080 a tonne last April, pushing domestic prices to 12,000-13,000 baht a tonne, the government still bought grain from farmers at an artificially high 14,000 a tonne, ignoring howls of opposition in parliament.
Analysts fear more subsidies could trigger large losses if and when prices fell in future, making it difficult for the government to sell stocks that had been bought at 14,000 baht.
Exporters are resigned to more haemorrhaging of exports, just when the Thai economy has suffered its sharpest contraction in memory in the fourth quarter of 2008 on collapsing exports because of the global slump.
"We are losing as we know that the government won't stop intervening and if prices are high like these we would get a big loss," said the rice exporters association's Chookiat.