BANGKOK – Chinese Premier Wen Jiabao’s visit to Thailand last week wasn’t just about security, infrastructure and investment—the two sides have also cooked up a deal to help resolve their rice problems.
China’s need for imported rice is soaring and imports have risen almost four-fold this year. Thailand simply has too much of it. Storage sites are overflowing, the harvest is coming in and storage costs and subsidies are weighing heavily on budgets.
Thailand’s stocks, already at a record of more than 12 million tons, could swell further because of Bangkok’s policy of purchasing from growers at well above market prices to boost rural income. Adding to the government’s problems, global rice prices are being dragged down by exports from India, Pakistan and Vietnam.
China also wants to keep its supply options open because the country’s demand is increasing and domestic farmers are struggling to compete with cheaper imports.
The result: The two governments have signed a Memorandum of Understanding for Thailand to supply China with rice when needed and the Chinese government also agreed to facilitate and support the country’s private traders when they buy Thai rice.
On the sidelines of Mr. Wen’s visit, four Thai exporters signed preliminary deals with Chinese buyers for 300,000 metric tons of rice, including high-priced Jasmine rice. The eight MOUs include Jasmine, white and glutinous rice, at an average price of $800 a ton—or a total value of $240 million, said Tikhumporn Natvaratat, deputy director general of the ministry of commerce’s department of foreign trade.
“The MOU with China shows that Thai government itself has become a rice trader and going forward we will see more such initiatives with other countries as it tries clear storage space but Thailand will still suffer losses because importers won’t buy the grain above market prices,” Santitarn Sathirathai, a Singapore-based analyst with Credit Suisse said.
However, rice exports by Thai companies aren’t always Thai rice.
Thai trading companies are supplying Pakistani rice to their traditional customers because it is cheaper, says Abdul Aziz Ghaffar, chief executive of Karachi-based trading company Rice Tex.
Some question the lack of specifics on volumes or prices in the government-to-government rice agreement, including Chookiat Ophaswongse, Honorary President of Thai Rice Exporters Association, who also sees some good points in it.
“The MOU agreement works for both sides because it shows Thailand as trying to get rid of its surplus while China is getting a commitment of supply during emergencies without actually buying rice,” said Mr. Chookiat.
Self-sufficiency in grains is a sensitive subject in China but in recent years imports of rice and corn have increased. China’s rice imports are rising because of higher domestic prices and are expected to reach over 2 million tons in 2012, up sharply from 578,000 tons last year, said Hu Wenzhong, a senior analyst at the China National Grain and Oilseeds Information Center. More than 70% of China’s rice imports are from Vietnam, Ms. Hu said.
Traders say that for Thailand to push up exports and sell off its surplus, it needs to be price competitive. China buys most of its imported rice from Vietnam and Pakistan, which is cheaper.