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The Price For Rice Ain’t Right

29 July 2013

Although rice is a main component for Thailand’s exports, farmers sell their rice to traders at a low price. In early July, Prime Minister Yingluck Shinawatra tried to decrease the stress on government funds and cut the purchase price of rice by 20%, resulting in many revolts from the farmers in June 2013. Soon after, the original price was reinstated early July, and Yingluck continued the rice subsidiary program. The government started buying rice at 15,000 baht per ton of rice ($482), which is 50% above the market price. This program created a loss about $4.4 billion during the first crop year. If the market price is lower than 15,000 baht, the government makes a loss. On the other hand, if the market price is higher, then the government profits. The latter is hard to achieve, as 15,000 baht is such a high price compared to past prices. This monetary loss could even affect Thailand’s Baa1 credit rating as demand for Thai rice continues to fall. In order to raise the price of rice, Prime Minister Yingluck decided to hoard the rice from other countries; however, this plan failed as rival exporters such as India and Vietnam lowered their prices while the Philippines increased their production rates. Thus, Thailand lost its status as the world’s largest grain exporter to India.

The government then encountered another problem—moldering rice. After hoarding for a long period of time, the rice began to decay.  Having so much rice going to waste would increase the $4.4 billion loss. In order to salvage the 17 million tons of rice the government decided to spray chemicals onto the rice to reverse the rotting. These grains of rice are then sold to Thai citizens, although they don’t know whether or not the rice is stained with chemicals or not. People have come up with many solutions to avoid such chemicals—two of which include avoiding rice altogether or directly acquiring rice from local farmers.

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If the demand for rice in Thailand falls, the government should lower the price of rice. However, lowering the price would aggravate the farmers again as they prefer the rice subsidiary program, which provides a better living standard for them. Not only is rice held as a staple for many dishes in the Thai cuisine, but it is also highly respected as a sacred object and a cultural identity. Nevertheless, the country’s credit rating is in jeopardy. Commerce Minister Niwatthamrong Boonsongpaisal said the government would try to “promote the sale of Thai rice via government-to-government channels“. A trip during July to China, Indonesia, and Iran was planned for this purpose. Once the 15,000 baht price ends in September, perhaps another solution for the government would be to end the subsidiary program and change its policy.

Such a crisis shows how important agriculture is to any country. Increasing the demand for any product would greatly help the farmers who work tirelessly to grow their crops. Broadgate Plantations is also contributing by taking part in palm oil and corn production. We can provide various services that cater to farmers as well as investors. These services include plantation development planning, financial planning, and managing of an existing plantation

Kevalin HutachindaKevalin Hutachinda
Support Officer
Kevalin@broadgatefinancial.com
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official position of
The Broadgate Financial Group.