Thailand has long been a pre-eminent producer and exporter of rice, and the crop has become so important that it has surpassed its role as a lucrative export product and domestic food staple to become an influential social and political component.
Powerful Commodity
From an economic perspective, rice is one of the most significant commodities in the agriculture sector, as the second-most valuable agricultural export product behind rubber. In 2015 receipts for rice exports totalled BT155.9bn ($4.7bn), accounting for 29% of all agricultural exports. As a long-standing food staple for the Thai population, consumption of rice generally accounts for more than half of annual production. In the year 2015/16 the US Department of Agriculture (USDA) estimated domestic consumption in Thailand at 11.2m tonnes. The grain’s role extends beyond its monetary value due to the key position it occupies within Thai society. Rice farmers make up a significant portion of the country’s labour force, and this large and powerful block often garners special attention from politicians entering during election years. As a result, a number of past major policy decisions have been tailored to the interests of the rice industry, sometimes at the ultimate expense of the greater fiscal responsibilities of government.
Global Player
Thailand remains one of the world’s top rice producers. It consistently ranks in the top 10 nations worldwide for output and is the largest single exporter. Rice cultivation is highly decentralised throughout the country, with major growing regions focused in the lower north, central plains and the north-east. Thailand has two annual rice-growing periods, commonly referred to as the wet season, which accounts for nearly three-quarters of national production, and the dry season. Wet-season rice is heavily dependent on monsoonal weather systems, with 70% of the crop being totally rain fed and is thus highly susceptible to drought conditions, such as those which occurred in 2014/15. Due to the use of irrigation, dry-season rice crops have nearly double the yields of the primarily rain fed wet-season crop. The majority of acreage, however, is non-irrigated and, as of late 2015, encompassed approximately 6.7m ha – 6.15m ha wet season, 500,000 ha dry season, according to USDA statistics. Of the total irrigated area, 80-90% of the acreage is supplied by water from two major reservoirs, Bhumipol and Sirikit, which are located in the northern headwaters of the Chao Phraya river basin.
The country produced 18.8m tonnes of milled rice in the 2014/15 season, placing it as the sixth-most prolific rice-growing country, behind China with 144.56m tonnes, India (104.80m tonnes), Indonesia (35.56m tonnes), Bangladesh (34.50m tonnes) and Vietnam (28.24m tonnes). This was lower than the 20.5m tonnes produced the previous year, largely due to dryer conditions, which resulted in low reservoir levels. Dry weather has persisted into the 2015/16 growing season, lowering crop estimates to 16.4m tonnes, down 12.5% from the previous year and the lowest since 2004/05. As of October 2015, the harvested area for rice was estimated by the USDA at 9.7m ha, down 0.55m ha (5%) from the previous month and a 6% decline from the same month the previous year. Yield was estimated at 2.58 tonnes per ha, well below average.
Export Quality
Although Thailand produced under 4% of global rice output in the 2014/15 season, the country’s relatively smaller population, desirable rice strains and well-developed infrastructure have placed the country at the forefront of international rice trade. With other Asian countries such as Vietnam and India producing less expensive rice and selling it on the international market, Thailand has been competing on the basis of higher quality, targeting niche segments in order to compete on the international market. Organic rice, for instance, is increasingly popular in Western markets and fetches a higher price, while the well-regarded, high-grade Thai Jasmine rice, in particular the prestigious Hom Mali variety, preferred by affluent Asian and North American consumers, commands a premium price compared to other grades.
Market Activity
Thai rice exporters edged out India by the slimmest of margins for the top exporting honour in 2014, when the country shipped out 11m tonnes of rice compared to India’s 10.9m tonnes in 2014. The ensuing drought the following year had a significant impact on Thailand’s exports, however, dropping them to 9.2m tonnes and relegating the country to the number two spot behind a resurgent India’s 11m tonnes. Rice exports were valued at BT155.9bn ($4.7bn) in 2015, down 10.8% from the 2014 total of BT174.9bn ($5.3bn) but exceeding the 2013 tally of BT133.9bn ($4bn) according to the Ministry of Commerce. Looking forward, Thailand’s 2016 export projection was raised by 300,000 tonnes to 10.3m tonnes by the USDA in January 2016, based on stronger demand from major buyers.
The top market for Thai rice is China, which purchased more than 10% of all rice exported in 2015 and has dramatically increased its imports, from BT4.7bn ($141.5m) worth of the staple in 2012 to BT16.3bn ($490.6m) in 2015. The US was the next largest market, buying BT13.8bn ($415.4m) worth of rice for the year, mostly of the Jasmine variety, followed by the West African nation of Benin, with BT10.2bn ($307m) in imports, the Philippines with BT10.1bn ($304m), and Nigeria, with BT8.3bn ($249.8m).
In spite of the strong volume position Thailand’s rice exporters have established in the global markets, profits have been squeezed lately as the price of rice has declined in recent years. After averaging $587 per tonne as late as 2012, the market price for Thai parboiled rice has declined to $357 per tonne by January 2016, according to USDA data. This decline is the cumulative result of a number of factors, including substantial global stockpiles and a sluggish global economy and global commodities market. The latter of these is particularly relevant for the Thai export market in that many of its top markets around the world, such as Nigeria, are heavily reliant upon the sale of natural resources and have seen their own revenue streams decline, resulting in less foreign currency and purchasing power for imports.
Staple
In addition to its value as a primary foreign currency earner for the country, rice remains the staple food of choice for Thais, with per-capita consumption ranging from 80 kg for urban households, up to around 155 kg per rural household and up to 125 kg per year in low-income households, according to the USDA. Domestic consumption is dominated by medium-quality rice, which accounts for approximately 50-60% of total rice consumption and is used for both human consumption and animal feed. High quality rice, especially fragrant rice, accounts for another 10-15% of total rice consumption, with low quality rice making up the balance.
Future Growth
One bright spot on the horizon for Thailand and other rice producing countries is the long-term demand from the world’s second-largest economy, China. Although it is currently in the midst of an economic cooling period, China still has well over a billion mouths to feed, and signs are becoming increasingly apparent that the country’s official self sufficiency policy as it relates to rice may need to be overhauled in the near future. Anecdotal evidence already suggests that millions of tonnes of unreported rice is already filtering through the borders from Myanmar and Thailand, as demand outpaces supply within the country.
China has also officially increased its rice imports from Thailand significantly since 2012 to become the single-largest purchaser of Thai rice, a trend that continued in 2015, with the signing of large-scale, new export agreements. The Thai and Chinese governments inked an agreement in early December 2015 for the sale of 1m tonnes of Thai jasmine rice and Thai 5% broken white rice to China, as part of a 2m-tonne deal agreed to previously in a December 2014 memorandum of understanding between the two countries. Thai rice exporters are also expected to increase their sales to South-east Asia and South Africa in 2016, which in all likelihood would propel the country back to the position of largest exporter of rice in 2016, according to USDA projections.
Any significant upturn in rice exports would also be beneficial for the industry in that it could allow Thailand to begin to ease the substantial stockpiles of the grain it accumulated under a state rice purchasing programme, launched by former Prime Minister Yingluck Shinawatra. With millions of tonnes of rice still lying in state-owned silos, some of which is already degraded to the point where it can only be sold at a steep discount for non-food usage, such as ethanol or animal feedstock, the government is expected to push for further similar deals in 2016.
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