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A new memorandum of understanding (MoU) with China could help Thailand tackle its rice oversupply problem and may also serve to pad government coffers. However, many onlookers are sceptical about the true potential for change.
With a rapidly increasing need for rice and a fourfold year-on-year increase in rice imports in 2012, China seems a promising destination for Thai grain stocks. Indeed, Chinese Premier Wen Jiabao’s visit to Thailand in late November led to the signing of an MoU that seems to promise mutual benefit: Thailand will supply China with rice when needed and the Chinese government has pledged to support Thailand’s private traders when buying rice from the country.
While Wen was in the country, preliminary deals were signed between four Thai exporters and Chinese buyers for 300,000 tonnes of rice, including white rice, glutinous rice and the higher-priced jasmine variety. These average out at $800 per tonne, totalling $240m, according to Tikhumporn Natvaratat, deputy director-general of the foreign trade department at the Ministry of Commerce.
Despite being the world’s largest exporter of rice, Thailand is in need of an outlet for its growing stockpiles. Oversupply has remained a significant issue in the sector, first due to an export ban that increased supplies to around 80m tonnes and more recently as a result of government rice subsidy policies. The most recent of these, a rice-pledging programme enacted by Prime Minister Yingluck Shinawatra’s Pheu Thai Party at the end of 2011, guarantees farmers a minimum price of BT15,000 ($488) per tonne of plain white rice and BT20,000 ($650) per tonne of jasmine rice. This has pushed the cost of Thai rice above global market prices and added to the oversupply problem.
In spite of these issues, in September 2012 the cabinet approved a budget of BT405bn ($13.17bn) to support the continuation of the programme into a second year – a staggering addition to the BT260bn ($8.45bn) it had already spent on the scheme. Government officials in favour of the programme claim it promotes stability by providing farmers with income security and improving their quality of life.
The pricing issues have led Thailand to lose its place as the top exporter of rice globally – a position it held for three decades. Competition is arriving from other countries in Asia, which are often able to export at cheaper prices, and Thailand is now behind India, which has exported 9.75m tonnes so far this year, and Vietnam. However, the US Department of Agriculture expects Thailand will reclaim its place at the top for the 2012/13 year (which began October 1), predicting Thai rice exports to reach 8m tonnes and Indian exports to drop to 7.25m tonnes.
Indeed, increased demand from China could play a major role in Thailand’s ability to increase its rice exports, particularly as China is set to import 2m tonnes of rice in the year to September 2013, according to the China National Grain and Oils Information Centre. However, some observers are sceptical about the true extent of the effects of the MoU, claiming more official contracts are needed to really make a difference.
“The MoU with China is not a contract to sell,” Natvaratat told Reuters in late November. “We need to negotiate prices and quantity again if China wants to buy.”
Positive effects of agricultural trade with China reach beyond rice, however. Thai sugar exports, for example, reached 6.5m tonnes between January and August this year, largely due to increased exports to China. This was up 18% from 5.5m tonnes in the same period in 2011. This number is expected to reach 7.7m tonnes for 2012, up from 6.71m in 2011.
“We forecast 2012/13 output at 9.4m tonnes. There should be around 7m tonnes left for exports next year,” Somsak Suwattiga, the secretary-general at the Office of the Cane and Sugar Board, told Reuters in late November.
China bought around 943,000 tonnes of sugar from China in the first 11 months of 2012 – nearly four times the 239,000 tonnes it purchased in the same period of 2011.
The MoU may not be as solid a sign of export growth as some would like, and the government will indeed need to address its oversupply problem, likely with much-continued debate over the rice-pledging scheme. However, the initial deals between Chinese buyers and Thai firms, coupled with forecasts for increased Chinese rice imports, are promising indicators for the local rice industry.