By the Blouin News Business staff

A mountain of Thai rice overhangs global market

by in Asia-Pacific.

A Thai vendor shows a variety of rice on sale at his shop at a market in Bangkok.

Thai rice. Photo Credit: AFP/Getty Images/Christophe Archambault

Thailand, until recently, was the world’s largest rice exporter. India assumed that position last year for the first time in 30 years after a two-year-old Thai government pledging program to support farmers’ incomes left millions of tonnes of paddy piled up in Thai government warehouses. With the country’s rice industry and its international customers gathered for their annual trade conference in Chang Mai, the government has just promised to renew the controversial populist program for a third year.

The government pays Thai farmers 50% more than the world rice price. That subsidy that has so far cost it $13.7 billion dollars and knocked an estimated $6 billion hole in its budget, the difference between what it pays for the paddy and what it says it sells it for to other governments including China, Bangladesh and the Philippines for their strategic reserves. Meanwhile Thai rice exports, which have become uncompetitively expensive compared to those from India and Vietnam, last year fell to 6.9 million tonnes from 2011’s record 10.6 million tonnes.

The risk is that the Thai government will decide it can no longer afford the subsidy and dump its rice stocks on world markets, driving down prices sharply. Amplifying the risk is the fact that the world is awash with rice. The world’s rice farmers produced a record crop in 2011 and then topped it last year. The U.N.’s Food and Agriculture Organization forecasts that this year’s harvest, at 746.7 million tonnes, will be 2.1% larger than 2012’s.

Though world riceĀ prices have been stable in recent months, Viet Nam has recently lowered its prices ahead of a possible offloading of large volumes of Thai rice on world markets. Earlier this month, Thailand’s commerce minister said the country’s exports would rise 22% this year, but the Thailand Rice Exporters Association projects rice exports to decline a further 14% from 2012’s levels. International rice traders are watching the Thai government closely for any indications of where the truth will lie, particularly if, when and how much rice it might release from its expensively acquired stocks.