Hong Kong protests, cheap Chinese rivals: why Thai rice is in crisis

The country was once the world’s top exporter but it has been hit by a triple whammy of unrest in Hong Kong, a strong baht and tough competition. With rice front and centre in Thai politics, that’s bad news for Bangkok. This is what SCMP reported.

(SCMP) – Thai rice, once dominant on the world market, is now facing a triple whammy of a strong baht, tough competition from Asian neighbours and social unrest in Hong Kong that is weighing on demand.

The weaker sales overseas are part of a lacklustre performance by the country’s export sector amid an almost 10 per cent rise in the currency against the US dollar since the beginning of the year. Rice exports have been left exposed to stiff competition from large producers such as India, Vietnam and China.

Traders have also blamed continuing anti-government protests in Hong Kong, where about half of rice classified as premium produce comes from Thailand. The number of tourists visiting the Chinese city has plunged in recent months, from 5.1 million in July to 3.1 million in September.

Thailand exported 143,000 tonnes of rice to Hong Kong between January and September last year.

In the same period this year, the country managed only 127,000 tonnes – an 11 per cent drop.

Thailand’s share of the city’s rice market peaked in 2016 at 64 per cent, but Laothamatas said it had since fallen to about 52 per cent.

However, a source at Chaitip, a major rice trading company that has been exporting to Hong Kong for more than a century, said the demonstrations had not been as damaging as recent price rises.

“The lower demand is not due to the unrest, it is because jasmine rice has become too expensive,” said the source.

“Droughts in many parts of Thailand this year have led to lower production of jasmine rice, which is why the price has shot up.”

Thai hom mali, or premium jasmine rice, is the country’s most recognisable rice product. Its slim and aromatic grain now costs about 1,200 baht (US$39) per tonne, while Vietnam’s white rice is priced at about half that figure.

The industry is crucial for Thailand because of the large number of Thais who depend on it. It supports as much as 30 per cent of the country’s 69-million population, according to Chookiat Ophaswongse, TREA’s special president.

Until 2012 Thailand was the world’s top rice exporter in terms of volume, but India took the top spot after it lifted a ban on non-basmati rice exports in 2011.

The loss of Thailand’s prized position came in the wake of a “rice-pledging scheme” embarked on by Yingluck’s administration. The government bought rice from farmers at inflated prices, which sent the price of the product upwards on the world market while forcing down demand. An 18-million-tonne stockpile was accumulated by the state, the last of which was shipped out to market only last year, when total exports for the year stood at 11 million tonnes.

The disastrous programme cost the government US$8 billion, according to figures from the military, which cited it as a major justification for its coup that deposed Yingluck in 2014. The prime minister was subsequently sentenced in absentia to five years in prison, and the military junta then worked hard to court Thai rice farmers before it relinquished power this year.

Nipon Puapongsakorn, a researcher at the Thailand Development Research Institute Foundation, said the government subsidy programme was a short-sighted attempt to maintain Thailand’s agricultural productivity and competitiveness.

The state last month also began paying farmers across Thailand who have joined a rice price guarantee scheme.

The scheme ensures farmers are paid the difference when the price falls below a predetermined benchmark. It covers five types of rice, including those from the country’s hom mali paddy and glutinous rice paddy, which are badly affected by drought and floods.

The programme will run until October next year, but several other subsidies and financial support schemes for rice farmers and growers of other crops, including oil palm, cassava, rubber and corn, will be available for longer.

Sudarat Keyuraphan, a key member of Thailand’s Shinawatra-backed Pheu Thai political party, this week said the government subsidy would allow middlemen to reduce the price of rice further when they bought from farmers.

But Puapongsakorn said these measures were only short term. “The budget for subsidy programmes is much higher than that for rice research, which helps Thailand stay competitive in the long run,” he said.

The researcher added that India’s development of hybrid fragrant rice and Vietnam’s research into soft white rice for export had seen Thailand’s jasmine rice lose its charm among international buyers.

“Vietnam has lower costs and the country’s currency is under control,” he said. “The government needs to develop new types of rice that meet more of the market demand.”

“Vietnam is now the third-biggest supplier in the world.”

Meanwhile, China, with its estimated rice stockpile of more than 100 million tonnes, has begun releasing supply to African countries, further edging out Thai producers, according to Puapongsakorn. He said China’s exports rose more than 70 per cent last year due to demand from Africa, with Ivory Coast the country’s biggest customer.

Chinese white rice cost US$300 a tonne in July, while similar grains from Thailand were quoted at US$390, those from Vietnam at US$360, and India at US$370, according to Thai media.

Market share for Thailand in Africa stood at 51 per cent last year, TREA figures show.

Laothamatas said TREA had cut its export target for this year to less than 8.5 million tonnes, down from the usual figure of between 9 million and 9.5 million.

“There was no competition 20 years ago, but there is competition everywhere now, from India, Pakistan, Myanmar and Cambodia,” he said. “We need to develop new rice varieties and reduce our costs so that we can compete.”

Ophaswongse told Bloomberg that the competition was “killing us all”. “We don’t know what else we can do. We tried reducing costs, but the baht keeps making our rice more expensive,” he said.

“We can only sit and wait, and some might have to quit the business.”