Analysis: High baht hurts rice sales
- Published: 3/05/2013 at 12:22 PM
- Online news:
The Thai baht's rally to the highest level in 16 years is hindering exports from the world's biggest rice shipper, curbing the government's efforts to diminish record state stockpiles and threatening to increase its losses.
Overseas buyers have rejected attempts by the government to boost prices in dollars to offset reduced revenues as the baht has strengthened, according to Commerce Minister Boonsong Teriyapirom. Thai stockpiles are set to double to 11.6 million tonnes (metric tonnes) in 2012-2013 from two years ago, according to data from the US Department of Agriculture.
The government of Prime Minister Yingluck Shinawatra began buying rice from farmers at above-market rates in 2011 to boost rural incomes. While benefitting growers, the programme has spurred the buildup of the biggest-ever stockpiles. Even as the USDA forecasts Thailand will regain its role as the largest exporter this year, displacing India, the estimated 8 million tonnes shipped would be about 25 per cent less than two years ago.
"If it's maintained at this level, our sales will definitely be seriously affected," Mr Boonsong said at his office in Nonthaburi, outside Bangkok on May 1, referring to the baht. "If we cannot sell to exporters, we might have to open bids here in Thailand for the local market." (Story continues after photo)
A worker sits in front of sacks of rice in the warehouse of the Sahakorn Kan Kasert rice mill in Suphan Buri. (Bloomberg photo)
Thailand's baht has risen 3.9 per cent against the dollar this year, the best performance in Asia. It reached 28.56 on April 19, the strongest level since July 1997, and was at 29.43 Friday.
The baht's rapid appreciation and volatility haven't always been justified by so-called economic fundamentals, and an "appropriate policy mix" would be used accordingly, the Bank of Thailand's Monetary Policy Committee said on April 30.
"Any success in offloading stocks will result in heavy losses for the government," said Darren Cooper, a senior economist at the London-based International Grains Council, which monitors global markets and promotes food security. "So the baht strength will merely add to what are likely to be very hefty losses."
Thai farm exports may drop as much as 8 per cent this year as the strong baht makes them more expensive, the state-backed Office of Agricultural Economics said on April 25. Rice, rubber, cassava and fishery products have been significantly impacted, according to Charuk Singhapreecha, director of KU-OAE Foresight Center, a unit of the office, which comes under the agriculture ministry. Agriculture accounts for about 12 per cent of the economy, the largest in Southeast Asia after Indonesia.
The Bank of Thailand should cut its key interest rate enough to stop the baht from appreciating further, Mr Boonsong said.
The bank's policy rate, held at 2.75 per cent for the past four meetings, is projected to be 3 per cent at the end of this year, the median estimate from 21 economists tracked by Bloomberg.
Higher rice reserves in Thailand may help increase global inventories to a record 173 million tonnes, according to the United Nations' Food and Agriculture Organiaation, which forecasts that world production will exceed demand for an eighth year. The price of the Thai 5 per cent broken variety of rice for export dropped 3.4 per cent to $564 a tonne this year, while rough rice in Chicago has gained 0.3 per cent to $15.22 per 100 pounds.
By contrast, corn, wheat and soybeans in Chicago have all tumbled into bear markets, losing at least 20 per cent from closing highs set in 2012, as producers boosted supplies after a US drought last year hurt output.
The Thai government pledges to buy unmilled white rice at 15,000 baht ($510) a tonne, and premium-grade fragrant rice at 20,000 baht a tonne. That's as much as 50 per cent above market prices, according to data from the Thai Rice Mills Association.
Thailand spends about 300 billion baht a year to build up the inventories and has purchased more than 22 million tonnes of milled rice since 2011, government data show. Milled reserves in Thailand may jump 40 per cent to 18.2 million tonnes in 2013, according to the Rome-based FAO.
Last year, Thailand sold about 8 million tonnes from the stockpiles, most to governments and the balance to state agencies and local buyers, Mr Boonsong said.
For this year, the ministry maintains an export target for 8 million tonnes, with at least 5 million tonnes to be sold to governments including China, South Korea and South Africa, he said.
The ministry has received 140 billion baht from rice sales since October and expects that to rise to 180 billion baht this year, Mr Boonsong said. Losses from sales of rice stockpiled in the first year of the programme will probably be lower than 80 billion baht, less than the income the government gained from boosting domestic consumption and an increase in value-added-tax income, Mr Boonsong said, without estimating losses in the second year.
Mr Boonsong rejected criticism over its cost from political opponents, saying expenditures are similar to a price-guarantee programme implemented under former Prime Minister Abhisit Vejjajiva, the opposition leader.
"We spend on one hand and receive income from the other hand," Mr Boonsong said. "We will keep the programme because it is the main policy of the government but will modify some of details," he said, without being specific.
Rice exports fell 6.7 per cent to 1.4 million tonnes in the first quarter, after tumbling 37 per cent to 6.73 million tonnes in 2012, Ministry of Commerce data show.
Thailand faces a rising financial burden from the programme as well as a shortage of storage facilities, and the government may have to sell grain at a loss, according to Concepcion Calpe, secretary of the FAO's inter-governmental rice group.
A World Trade Organization agriculture committee, with members from the European Union and the US, raised concern at a meeting in March that the Thai rice programme might breach domestic support limits and the government may offload the stockpiles by subsidising exports.
"We are selling even higher than the market price in the world, so what's there to argue about?" Mr Boonsong said, rejecting criticism that the government may be violating WTO principles with the programme.
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