Rice shipments from Thailand, the second-biggest exporter, are set to increase as the government reduces the price paid to farmers to rein in spending, according to the Thai Rice Exporters Association.
Sales could total 7 million tonnes this year and 8 million tonnes in 2014, said honorary president Chookiat Ophaswongse. His previous forecast for 2013 was 6-6.5 million tonnes. The National Rice Policy Committee Wednesday approved a 20% reduction to 12,000 baht ($388) a ton from 15,000 baht in support prices for the unmilled white variety, said Commerce Minister Boonsong Teriyapirom. The decision needs to be endorsed by the cabinet.
Thailand has paid farmers as much as 50% above the domestic market rates since October 2011 to boost incomes. Around 588.7 billion baht has been spent on 27 million tonnes of milled rice, equivalent to 70% of annual global imports. The programme may have lost 136.9 billion baht in 2011-2012, the government estimates.
Moody's said on June 3 that losses hamper the goal of achieving a balanced budget by 2017 and are negative for sovereign ratings.
"The reduction in support will make Thai rice cheaper on international markets, boost exports and put pressure on world prices," Mr Chookiat said in an interview Wednesday.
"The extent of the increase in shipments will depend on the reaction by Vietnam and India, which could lower prices to compete with Thailand."
The price of Thailand's 5% white rice dropped 8.9% this year to $532 a tonne last week, according to data from the exporters' association - the lowest since January 2012. The rate fell on speculation the support price would be cut and on increased supply from India and Vietnam. Prices in Asia are declining as wheat, corn and soybeans enter bear markets, curbing global food costs.
Rice of the same grade was quoted at $445 a tonne from India and $370 from Vietnam,data from the association show.
The cut in support prices announced Wednesday will probably take effect from July 1 for the second harvest of the year which ends in September, according to Mr Boonsong. Purchases will be limited to 500,000 baht per family, he said. For rates in 2013-2014, the National Rice Policy Committee will consider prices in the range of 12,000 to 13,000 baht, he said.
The committee may set the support rate for 2013-2014 in one of three ways, according to a government statement.
It could reduce the price by 15-20%, use the farm ministry's assessment of production costs plus 25%, or use market prices with a 10% premium, it said.
The committee will finalise the proposal by the end of this month, Mr Boonsong said.
"The revision is not because the government doesn't have enough money," Mr Boonsong told reporters Wednesday, saying no date had been set for the cabinet approval.
"We want to be responsible for fiscal discipline and the programme shouldn't carry losses of more than 100 billion baht a year."