BANGKOK – The government will have to sell off its rice stockpile amassed under the rice pledging scheme at market prices, PM’s Office Minister Nawatthamrong Boonsongpaisan admitted on Thursday.
The government will have to take a big loss on the sale, because pledging prices were set much higher than the market price, he said.
Prime Minister Yingluck Shinawatra recently assigned Mr Nawatthamrong to oversee the rice pledging scheme and ensure that taxpayer funding for the programme does not exceed 500 billion baht per year.
The cabinet has already approved a total budget of 410 billion baht for the rice scheme, and an additional 90 billion baht of needed funds will come from the Bank for Agriculture and Agricultural Cooperatives (BAAC).
Previously, the government insisted that it would not sell its stocked rice at a loss and that world prices would rise, partly because of demand for stockpiled Thai rice.
The government is now 476.89 billion baht in debt to the BAAC because of the rice pledging scheme over the last two harvesting years. The Ministry of Commerce has returned only 65 billion baht to the state-owned bank in proceeds derived from rice sales.
Commerce Minister Boonsong Teriyapirom said now is the right time to release the government’s rice to the market, as rice output was lower because of drought in producing areas.
The Foreign Trade Department had sold rice through a bidding system, earning 80 billion baht in revenue which had been returned to the Ministry of Finance, he added.
Former deputy prime minister Pridiyadhorn Devakula recently called on the government to urgently review its rice pledging scheme.
MR Pridiyadhorn said the losses stemming from the scheme were estimated at 140 billion baht for the 2011/12 harvesting season and this figure is projected to increase to more than 210 billion baht for the 2012/13 harvesting season.
Jac Luyendijk, chief executive officer at Swiss Agri Trading SA, which handles 600,000 tonnes of rice annually, said the price outlook in the long run is bleak.
“We have to keep in mind that with these increasing rice stocks in Thailand, the problem will become bigger and bigger,” Mr Luyendijk said. “Once Thailand unloads its stockpile we will look to very depressed rice prices for years to come.”
“Thailand will have to get rid of the surplus in the next few months to be able to continue the programme and purchase rice again,” said Samarendu Mohanty, a senior economist at the International Rice Research Institute, a group based in the Philippines. “Thailand cannot continue to hold these stocks for a long time due to quality issues and also the space.”
The country is seeking to reduce reserves by selling seven million tonnes to foreign governments including China, permanent secretary for commerce Vatchari Vimooktayon said in January. However, the government would not reveal the price, claiming it was “sensitive and secret”.
The government may also build more warehouses and increase borrowing to sustain its programme without being forced to reduce rates to match competitors’ prices, said Kiattisak Kanlayasirivat, a Bangkok-based director with Novel Commodities SA, which trades about $600 million of rice a year.