The caretaker government is being advised to set up a credit scheme with financial institutions in a move to accelerate payments to rice farmers and curb further drops in rice prices.
Nipon Poapongsakorn, a fellow at the Thailand Development Research Institute, said a rice mortgage scheme should be set up with several banks in the same way as packing credit is now offered by financial institutions to exporters.
Packing credit is a type of short-term financing available to exporters who may need liquidity to buy raw materials for production of goods or preparation of finished goods to be exported. They then repay the bank after being paid by buyers. Packing credit can be given in baht or other currencies.
However, banks should be asked not to offload rice during a price slump, Mr Nipon said.
“Looming new output from the off-season rice production at home, and the anticipated massive supplies from Vietnam’s winter-spring crop, will definitely put more pressure not only on Thai grains but also the world’s overall market,” he said. “Lower rice prices will eventually hit Thai farmers’ income.”
The winter-spring crop is Vietnam’s biggest and most of the grain is exported. The harvest often peaks in March.
Mr Nipon said frequent rice sales held by the government and its hasty attempts to dispose of huge stocks to raise proceeds to farmers under the rice-pledging programme were admittedly a key reason for the drop in rice prices.
Paddy with 15% moisture now fetches 7,000 to 7,200 baht a tonne, much lower than the 15,000 baht promised to farmers.
Yingluck Shinawatra’s government started the scheme with pledging prices 40-50% higher than market prices in October 2011.
After sharp criticism over the hefty losses incurred, the government last year set a lower price for second-crop paddy of 13,000 baht a tonne, capped at 300,000 baht per household. The second crop runs from March 1 to Sept 30.
Nearly 1 million farmers who pledged paddy worth a combined 116 billion baht for the 2013-14 main crop from October last year to the end of February have been waiting for payment for months.
Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association, said earlier that prices are highly likely to see a further drop of 10-15% in April and May. Buyers are cautious as they wait to see if prices drop further.
According to the association, the average free-on-board price of 5% white rice was quoted last Wednesday at US$391 per metric tonne, much lower than the average of $516 in 2013 and $573.48 in 2012.
Thai rice prices are cheaper than those of India and Pakistan, which were quoted at $420 and $400 a tonne, respectively, and slightly higher than Vietnam’s grains at $385 a tonne.
Mr Nipon urged authorities to speed up inspecting state rice stocks for the exact amount of old, broken and rotten rice.
The government is believed to control 16-17 million tonnes, with Mr Nipon saying there are an estimated 4-5 million tonnes of broken rice and 3-4 million tonnes of rotten rice.
“Once the exact amount of state rice stocks is identified, authorities should clearly declare that it has managed the rotten and damaged stock. This method will leave only good quality rice left in the stocks and no longer create speculation and expectation in the market,” Mr Nipon said.
He added that inspection should be handled by an independent party.
First published: Bangkok Post, April 1, 2014