BANGKOK – Thailand, once the world’s biggest exporter, is short of funds to help growers under Prime Minister Yingluck Shinawatra’s 2011 program to buy the crop at above-market rates.
After the government built record stockpiles big enough to meet about a third of global import demand, exports and prices have dropped, farmers aren’t being paid, and the program is the target of anti-corruption probes. Political unrest may contribute to slower growth in Southeast Asia’s second-largest economy.
Selling the government inventory to pay farmers would flood the market with rice, eroding prices that in 2013 fell by the most in at least five years, and would escalate competition for shippers in Asia, including India, Vietnam and Cambodia.
Protests against Yingluck by farmers, who blocked roads in the provinces, added to opposition in Bangkok that led to deadly conflicts. Months of demonstrations led by Suthep Thaugsuban, a former opposition-party power broker, paralyzed parts of the capital and disrupted a national election on Feb. 2. Yingluck heads a caretaker administration until a new government is formed.
The price of Thai 5-percent broken white rice, a benchmark grade, tumbled 23 percent last year and was at $460 a metric ton today. A slump to $370 by March is possible as more grain is offloaded from state granaries, according to Chareon Laothamatas, president of the Thai Rice Exporters Association. It may take about five years for the state stockpiles to be sold off, Chareon said on Feb. 5.
Yingluck’s program was intended to boost farmers’ incomes and lift prices when it began in October 2011. Instead, Thailand was dethroned as the top exporter as reserves surged. After exporting 10.65 million tons in 2011, shipments slid to 6.7 million last year, behind India and Vietnam, U.S. Department of Agriculture data show. Shipments are seen at 8.5 million tons this year, the USDA forecasts.
The government spent 689 billion baht ($21 billion) in the past two crop years buying from farmers at prices that were as much as 76 percent higher than current market rates. The USDA expects that Thai inventories will reach a record 14.7 million tons this year, compared with 6.1 million in 2010.
As stockpiles grew, so did the strain on government finances. Moody’s Investors Service said in June losses from rice subsidies were credit negative for Thailand’s sovereign rating. The International Monetary Fund, the global lender based in Washington, urged the government in November to replace the policy, saying that it was hurting confidence in public finances. Kittiratt Na-Ranong, Thailand’s finance minister at the time, responded to the IMF’s assessment by saying that “the government has our ways to help farmers.”
The government needs to pay 177 billion baht for about 10 million tons bought from farmers since October, Niwattumrong, caretaker commerce minister, told reporters on Feb. 6. About 700,000 tons from the past two years is slated for sale in auctions today and tomorrow, according to the ministry.
“In the worst case, if they decide to get rid of the program and go back to the time when there was no mortgage scheme, it will put downward pressure on global prices,” said Samarendu Mohanty, senior economist at the Los Banos, Philippine-based International Rice Research Institute.
A further drop in rice prices would help extend a decline in global food costs, which fell in January to a 19-month low amid ample supplies, according to a 55-item gauge compiled by the FAO. The measure is down 15 percent since touching a record in February 2011, and cereal prices tracked by the FAO lost 26 percent since September 2012. Rough-rice futures in Chicago fell 0.8 percent to $15.53 per 100 pounds in the past year.