26th September 2014 Daily Exclusive ORYZA E-Newsletter by Riceplus Magazine

Daily Rice E-Newsletter by Rice Plus Magazine www.ricepluss.
com
News and R&D Section mujajhid.riceplus@gmail.com Cell # 92 321 369 2874

26
th
September, 2014

TOP Contents - Tailored for YOU
Latest News Headlines
Oryza Overnight Recap - Chicago Rough Rice Futures Little
Changed as Improved Export Sales Compete with Negative outside
Markets
Fiscal Indiscipline, Monopolization and Corruption Dominated Rice
Pledging Scheme, Says TDRI Researcher
Global Rice Quotes
Oryza Afternoon Recap - Chicago Rough Rice Futures Slip Slightly
as Grains Tumble under Market-Wide Sell-off
China Takes Measures to Halt Cross Border Rice Imports from
Myanmar
Thailand Rice Sellers Increase Some of Their Quotes Today; Other
Asia Rice Quotes Unchanged
China imports 1.5 Million Tons of Rice in First Seven Months of
2014, Down 6% from Last Year
Oryza Global Weekly Weather Rice Recap
Vietnam 2014 Paddy Rice Production Estimated at 45 Million Tons,
Up 2% from Last Year

Daily Rice E-Newsletter by Rice Plus Magazine www.ricepluss.com

News Detail
Oryza Overnight Recap - Chicago Rough Rice
Futures Little Changed as Improved Export Sales
Compete with Negative outside Markets
Sep 25, 2014
Chicago rough rice futures for Nov delivery are seen 0.5 cents per cwt (about $0.11 per ton) lower at $12.725
per cwt (about $281 per ton) during early floor trading in Chicago. The other grains are seen trading lower this
morning: soybeans are currently seen 0.7% lower, wheat is listed about 1.7% lower and corn is noted about 1%
lower. U.S. stocks declined on Thursday, a day after the S&P 500 jumped the most in more than a month, as
Wall Street weighed a drop in orders for durable goods and a less-than-expected rise in weekly jobless claims.
Economic reports had orders for long-lasting goods falling 18.2% in August, while applications for
unemployment benefits rose by 12,000 to a seasonally adjusted 293,000 last week, less than the 300,000
estimate.
A third number came from financial-data firm Markit, which said its initial services Purchasing Managers
Index for September came in at 58.5 versus an expected 59.0. The Dow Jones Industrial Average shed 109.94
points, or 0.6%, to 17,100.12. The S&P 500 lost 15.69 points, or 0.8%, to 1,982.61, with industrials the greatest
laggard and utilities faring best among its 10 main industry groups. The Nasdaq declined 42.46 points, or 1%, to
4,512.98. Gold is currently trading about 0.3% lower, crude oil is seen trading about 0.4% higher, and the U.S.
dollar is currently trading about 0.2% higher at 9:30am Chicago time.
Tags: chicago rough rice futures, U.S. rice prices, U.S. rice market

Fiscal Indiscipline, Monopolization and Corruption
Dominated Rice Pledging Scheme, Says TDRI
Researcher
Sep 25, 2014


Oryza Speaks with Nipon Poapongsakorn of Thailand Development
Research Institue (TDRI) about the Thai rice sector, the problems it
encountered right from the inception of the most controversial rice pledging
scheme to the current reforms initiated by the military government. Dr.Nipon
says there is no problem with the paddy pledging scheme per se but the main
problem was the then government's failure to place a budget constraint on
the policy. He adds that the policy was considered as a means to monopolize
the global rice trade taking advantage of the global reputation enjoyed by
Thai rice.
It was intentionally designed to rake off the taxpayers money for the politicians rather than for benefiting the
farmers, he says. He highlights some points which show that the scheme was associated with corruption at high
level. He says the main culprits were the most influential political leaders who did not have any position in the
government and the National Anti Corruption Commission (NACC) should find evidences in that direction. His
final research report on corruption in government rice sale and how the politically connected traders have
resorted to stealing the tax payer money is to be released shortly.
Expressing doubts whether the reforms suggested by the National Council for Peace and Order (NCPO) would
be really effective, he highlights what the Thai rice sector needs at this time. Excerpts from the interview:
Oryza: The rice pledging scheme introduced by the previous government has confronted many criticisms
since its inception. Can you highlight the reasons behind its failure? Was it a policy failure or an execution
failure? What are the lessons learnt?
Dr.Nipon: I t had both policy and execution problems.
Policy failure:
Constitution failure and accountability problem: While the government announced in an election campaign
that it would buy every grain of rice at 15,000 baht (around $465) per ton (which was 50% higher than the
market price), it failed to consider and publicly announce the fiscal cost of the policy. Note that the paddy
pledging policy to buy paddy at 15,000 baht in itself was not wrong. Other countries like the US government
used to have very high price support policy. But the problem is that no budget constraint was put on the policy.
After presenting its policy statement to the parliament, the government never submitted the budget for the
paddy pledging policy to the parliament for an approval. Unlike the regular fiscal budget, financing the rice


pledging policy (and other populist policies) through off-budget loans from the state financial institutions does
not need to be approved by the parliament. Thus the government practically has an absolute power to
spend unlimited amount of money without any accountability, let alone fiscal discipline.
As a result, total cost (cash and in-kind) ballooned to 939.03 billion baht in 5 crops (4% of GDP in 2012 and
2013, or almost 73% of value added of paddy and rice mills in 2012) of which 857.24 billion (around $27
billon) is the cost of paddy purchase. According to a case study submitted by TDRI, accounting loss is at least
594.5 billion baht (around $18 billion), if the remaining stock is valued at the April 2014 price.
Monopoly policy: The big mistake is that Mr. Thaksin and the government thought (or used to think) as the
worlds largest rice exporter, Thailand can control the world rice price like Saudi Arabia controls the world oil
market. Its policy was to monopolize the rice trade both internationally and domestically, arguing that the world
rice market is imperfect and that the large Thai exporters always bought rice at low prices. But rice is not oil.
When rice price increases, farmers will grow more rice, while oilreserve cannot be increased. Oil can be stored
without storage cost, while there is high storage cost for rice.
The government, particularly Mr. Thaksin, thought that by monopolizing the rice trade and limiting the quantity
of rice export, it would be able to sell Thai rice at the higher price. The government used to insist that it might
be able to sell rice at the price of cost plus i.e., at least $800 per ton (around $24) (15,000 baht milling
ratio).
The government (and probably Mr. Thaksin) did not understand the nature of the world rice market. Although
Thai export price increased in the second quarter of 2012, the Indian export prices continued to decline after the
Indian government eliminated an export ban in the late 2011.Vietnamese exporters decided to reduce the export
prices to be competitive with Indian rice. Vietnamese rice production also increased between 2011 and 2013,
contrary to Mr. Thaksins belief. As a result, Thailand dropped from being the world largest rice exporter to the
third largest in 2012 and 2013 as its export dropped sharply. Thus replacing the competitive market with
monopoly resulted in export and welfare loss for the society. Many exporters and rice brokers went out of
business. Some exporters were forced to do business in the neighboring countries.
Note that the 2007 constitution (clause 84) stipulated that the government must support the free and fair
economic system through the use of market mechanism, and the government must not compete with the private
sector except for the security of a nation or public interest.
The related problems arising from the monopoly policy is the governments support of cronies, which is the
execution failure (more on crony capitalism below).


Finally the large exporters do not have an easy life as claimed by Mr. Thaksin. Exporters could not simply
buy rice at low price and sell high because unlike in the 1960s to 1980s, now Thailand no longer has any
monopolistic power, as shown by the latest econometric study. There are now new low cost competitors, such
as Vietnam, Cambodia and Myanmar. In Thailand there are more than 150 exporters. Thus the gross margin is
declining. Though the large exporters still manage to make profit, it is the return to their investment in
information cost and risk taking. They have to invest heavily in information cost because the world rice market
is imperfect as almost every government importers as well as exporters heavily intervene in the domestic
market. Consequently, the world rice prices fluctuate widely. If the exporters make a wrong decision, they could
easily suffer huge loss.
Consumer subsidy added additional cost: Although it successfully shored up the Thai rice price in the
international market, it chickened out on the domestic price policy. Instead of allowing the domestic retail price
to follow the international price, which would help contain the cost of the policy, the government also had a
policy to stabilize the domestic retail price of rice (see figure). Consequently, the policy cost ballooned. (out of
the estimated accounting loss of 594.5 billion baht (around $18 billion), 296.53 billion baht (around $9 billion)
is attributed to the farmer subsidy, the consumer subsidy 138.46 billion baht (around $4 billion), loss due to
selling at the prices which are lower than the wholesale price (or corruption in rice sale) 84.48 billion baht
(around $2.6 billion), operation cost 74.995 billion baht (around $2.3 billion) and impairment value of rice in
the stock 17.65 billion baht (around $547 million).

Execution failure
Liquidity problem is confounded by the lack of financial accounts in a multi-billion baht policy: In the mid
2012, the government realized that the spending on rice purchase exceeded the approved loan. It began to float
an idea of reducing the pledging price from 15,000 baht per ton (around $465) to 13,000 baht (around $402) and
to limit the amount of purchase from each farmer. But after the farmers protest, it decided not to do so in its
third pledging project (the 2012/2013 wet season crop), and only began to limit the sale by each farmer to
500,000 baht (around $15,489) in the fourth project and then 350,000 baht (around $10,842) in the fifth and
final project. By that time it was too late, because actual spending already exceeded the total guaranteed loan of
500 billion. Yet the MOF refused to raise the loan ceiling, citing fiscal discipline. Instead it pressured the MOC
to sell rice so that revenue could be recycled to finance additional paddy purchase. But the MOC failed to do so.
This explains why the government could not pay 130 billion baht (around $4 billion) to 1 million farmers when
it abruptly dissolved the parliament in December 2013. The 2007 constitution prohibited the acting government
to create any fiscal burden for the new government. The farmers protest in the early 2014 forced the


government to put the rice stocks on fire sale, which caused the Thai export price to decline sharply to the level
which was lower than that of Vietnam for the first time in the history.
One important reason that the government ran into liquidity problem is the lack of consolidated accounts as will
be explained in Question 5 below. Since each step of the policy implementation was done separately by
different agencies, the government did not have any clue on the current financial situation of the scheme.
Crony capitalism, incompetent cronies and loss of Thai rice reputation: To control the rice trade, the
government replaced the competitive rice market with a monopoly. But instead of a government monopoly, it
used one private company which was orchestrated by its executive and a few influential political leaders who
did not hold any position in the administration. The government sold most of its rice to the company at the
prices which were lower than the wholesale price (see estimates of corruption below). Anyone package rice
wholesalers, millers and exporters - who wanted to buy rice from the government, had to buy from the
monopoly. The government also sold rice to a few other companies which publicly supported the rice pledging
policy.
Despite the fact that the cronies were able to buy rice from the government at very low price, they were totally
incompetent in exporting riceas evidenced by the sharp decline in Thai rice exports in 2012 and 2013.
Moreover, some of the rice the crony company exported to Indonesia and Iraq were rejected because of the
quality and delivery problems. Both governments stopped importing rice from Thailand for a while.
Corruption, especially rice sale corruption: The government did not have a real intention to prevent corruption
in the rice pledging scheme, let alone apprehending and convicting the wrong doers. A number of rice experts
warned the government that there was corruption at all stages of the rice pledging scheme. But the government
turned deaf ear and blind eyes. The Democratic Partys members of parliament presented solid evidence on fake
G-to-G sale and corruption in the censure session. The Chairman of the Account Closing of the Paddy Pledging
Policy disclosed that 2.9 million tons of rice went missing from the governments rented warehouses. Instead of
admiring her, the Minister of Finance ordered the MOF to set up a committee to consider her fault. Although
the government ordered a one day stock checking nationwide, it did not disclose the report. The Chairman of
the stock-checking subcommittee was the deputy secretariat of the PM, who is a politician, not an independent
person.
It refused to disclose any G-to-G information citing the confidential nature of the deals. Thailand has a public
information law which stipulates that all government information is publicly available, with a few exceptions.
But when the media wrote a letter to get an access to the G-to-G information, the government refused to
disclose. Moreover, the MOC also moved to conceal most information on the rice pledging policy, e.g., stop
uploading all regulations and ministerial orders on its web site. But the most important move was to withdraw


its authorization that allowed the Chamber of Commerce to issue the permits to export white rice. Since May
2013, such export permits have to be issued by the MOC. As a result, no one has access to the information on
rice export by exporters who bought rice from the government, particularly the exporters who are not members
of the Thai Rice Exporter Association (TREA).
In effect, the rice pledging scheme is intentionally designed to rake off the taxpayers money for the politicians.
My study for the Thai Research Fund finds that the value of corruption in the government rice sale is 84.5 to
111 billion baht (around $2.6 3.4 billon). There are four types of corruption, i.e., G-to-G (45 billion baht
around $1.4 billion), secret rice sale to those who tendered their offer (21.5 billion baht around $666 million),
cheap packaged rice policy (12.3 billion baht around $381 million) and missing rice from the government
stock (32.1 billion baht around $994 million).
Lessons learnt:
To prevent the elected governments from abusing its power and introducing bad policies that will seriously
damage the economy, there must be a law that requires the government to get an approval from the parliament
on the off-budget for its policies. The government will also have to be required by the law to make the
consolidated accounts for its policy and disclose the information every quarter. The public information law will
also have to be revised so that all public information concerning the policy implementation cannot be kept
secret by the government. Finally, government intervention in the market should also be minimized. Thus the
government must justify its intervention and more important present concrete evidence to the public that the
intervention really benefits the public.
Oryza: How do you think the government planned to manage such high costs associated with the rice
pledging scheme?
Dr. Nipon: If the question means the Yingluck government, I think it never planned. Its a policy on the run.
When the Chairman of the Rice pledging Account Closing Subcommittee and rice experts disclosed that the
scheme resulted in large loss, the government always came out to deny that reports. When the liquidity
problems emerged in the late 2012, it should have taken immediate action to reduce the cost of the policy. But it
did not. Though it floated an idea to reduce the pledging price and amount of pledged rice per farmer, it was
forced to backtrack by the farmers protest. It only begun to reduce the amount of paddy sale per farmer in the
last two projects (i.e., the 2013 dry season crop and the 2013/14 wet season crop) which was already too late.
It beganto partially fiscalise the debt that it owes to the BAAC. But I do not think it will fully fiscalize all the
debts because doing so would severely limit government borrowing. When Mr. Thaksin was the PM, his paddy


pledging scheme resulted in a huge debt which he did not care to fiscalize. It was the military government that
fiscalised most of the debt recently.
Oryza: Did any other country/government implement such a scheme earlier? What could have been the
influencing factors for the government to adopt such a scheme?
Dr. Nipon: In fact the paddy pledging policy is similar to the US loan rate policy in the past which created
large fiscal burden and huge stockpiles in the 1980s and early 1990s. Since then the US government reformed
its policy in such a way that it did not hold large stock of rice. Today the US government has a complex system
of price support for the agricultural products.
The Korean government, a rice importing country, used to have an expensive procurement policy for the sake of
rice self-sufficiency. As a result it used to hold large stockpiles of rice. After the policy reform in 2000s, it
adopts the price support policy similar to that of the US government, i.e., direct payment, plus counter cyclical
payment, etc.
India also has the price support policy and holding large stock of rice to stabilize domestic price of rice. But its
main objective is rice self-sufficiency which is different from the Thai government.
Influencing factors: (1) Main factor is the political reason, i.e., to win the votes of farmers who constitute the
largest group of voters. (2) A belief (which is myth) that most, if not all, farmers are poor. The Household
Expenditure Survey in 2011 shows that almost one million rice farm households are in the top 30% of Thai
households with highest household income.
Oryza: From media reports, we understand that you have unearthed many facts regarding the
implementation of the scheme in your research. Can you share some of them with us?
Dr.Nipon: I and my colleague, Dr. Ammar Siamwalla, presented an evidence to refute a belief that most
farmers are poor and a claim that the rice pledging policy benefited the poor farmers. In fact, the middle class
and rich farmers, who constitute the majority of rice farmers - and the single largest group of voters - benefited
most from the policy. Moreover, there are almost one million rich rice farm households in the top three income
decide households.
I first pointed out that it was not possible for Thailand to export 2.18 tons of parboiled rice in 2012 because
practically all dry-season rice crop was sold to the government in 2012. While estimated dry-season production
was 12.2 million tons, total quantity of pledged paddy was 14.7 million tons. Note that the pledging policy
never allowed rice mills to produce parboiled rice and all paddy sold by the farmers to the government must be


milled within a certain period, normally 7 days. The production process of parboiled rice is to stream paddy,
then dry and mill.
We presented the fact that the government successfully maintained the stability of retail price of rice (See
figure). To explain why the retail price was as low as that in the Apisith government, while the paddy price was
high, I used the rice balance sheet method. I showed that the government had to release adequate amount of rice
to balance the demand with the supply. It turned out that the minimum amount of rice sale was larger than what
the government told the public. We also showed that it must have sold rice at the price which was below the
Bangkok wholesale price, using the government document. This is an indirect evidence of corruption in rice
sale.
I also presented evidence that the rice pledging policy generated large economic rent to participants, especially
farmers and rice millers. The high paddy price is the main reason why the cost of production increased rapidly,
particularly land rent which increased by 100-200%. This is a classic economic proposition that price
determines cost and not the other way round-which is a popular belief.
Moreover, because of the economic rent, the millers hadsignificanltly increased their capacity. In fact, our
survey showed that millers began to increase their capacity during the period when Thaksin first began to
increase the pledging price to the level which was higher than the market price in the 2003/04-2005/06 period.
Today there are about 90-100 million tons of annual milling capacity, while total production is 34-37 million
tons per year. Thus when the pledging policy is abolished, many millers will go bankrupt, resulting in non-
performing loans of some commercial banks.
I also found that the government sold 2 million tons of old rice stock in 2012 and early 2013. These stocks came
from the rice pledging scheme of Thaksin government (2003-06), Samak and Somchai government (2008-
2009). No rational rice traders would want to buy old rotten rice. The millers who bought the old stock of rice
are the participants in the rice pledging scheme who illegally sold the pledged rice in the market. Thus they had
to buy cheaper rice to deliver to the government warehouses in place of the new rice that they stole.
In the next two weeks, I will release my final research report on corruption in government rice sale. In addition
to the estimates of 84-111 billion baht of rice sale corruption, Ill describe how the politically connected traders
stole the tax payer money. There are four methods of corruption, the missing rice (about 3 million tons) G-to-G
deal, rice sale to those who tendered their purchasing order and package rice (which was investigated by a
senate committee).
Oryza: What was the exact role of the former Prime Minister in this whole process? Do you think she and
some of the (accused) ministers really encouraged corruption in the implementation of the scheme?


Dr.Nipon: I believe that Thaksins strategy was to distance Ms. Yingluck from the execution of the rice
pledging policy. This is why she delegated her authority as a Chairman of the National Rice committee to the
Minister of Commerce. One of the most important decisions that were delegated was the authorization of rice
sale. In Apisiths government the deputy PM, Mr. TrairongSuwankiri was responsible for rice sale but the
cabinet had to be informed of his decisions (and, I think, the cabinet had to approve his decisions).
But as the chief executive of a nation, she had to be responsible for the execution of the policy. She knew all the
problems because she had been officially informed. For example, the reports on account closing of the rice
pledging projects were directly submitted to her by the Minister of Finance. In the press interview with the
Minister of Commerce, she also had information about the G-to-G rice deals.
I dont know whether or not she encouraged the corruption in rice sale, but Im sure that she was informed of
the problems. The followings are the evidence on what the PM and her ministers, who were responsible for the
policy, did.
An examination and tracking of the government documents related to the rice pledging policy clearly showed
that the government intentionally kept most of the crucial information, particularly the selling prices and the
amount of G-to-G sale, highly confidential. The way that the project operated was designed is to keep
everybody completely blind. Each step of operation is done separately by different agencies, i.e., the farmer
registration was done by one department (DOAE), the paddy procurement and storage by another (PWO and
FMO), the cash payment to farmers by BAAC, the selling by another agency (DOF). Yet there are no
consolidated accounts for all operations, despite the fact that this is what the policy makers must be held
responsible for. One cannot believe that the government did not keep track of the cash flow of the multi-billion
baht projects. I was told that the Public Warehouse Organization (PWO), which is responsible for the
government rice stock, did not have the proper accounts and record of stock movement. I think other
responsible government agencies, except BAAC, do not keep proper accounts for the rice pledging scheme.
Five months after the coup, the military junta still cannot inform the public of the actual amount of government
rice sale, prices and actual loss of the rice pledging scheme because some agencies still have not provided all
the information.
Worse, when Ms. Supa, a chairman of the rice pledging policy account closing subcommittee which was
officially set up by the National Rice Policy Committee chaired by the PM - tried to set up the consolidated
accounts of the overall system, she had great difficulties in obtaining the required documents from those
operating agencies. When she disclosed the results of her findings, she was strongly criticized by the PM and
her ministers. The PM also asked the minister of finance to set up a committee to investigate her wrong-doings,
instead of praising her.


The PM did not use her authority to prevent or to stop the corruption. Although the government set up a sub-
committee to check the rice stock after a report of missing rice, she did not disclose the report of the sub-
committee. When the Chairman of the sub-committee on account closing of the paddy pledging project gave a
testimony to the senate committee that there was high risk of corruption at all stages of the policy execution, the
PM and the ministers were angry at the chairman and the Ministry of Finance set up a committee to investigate
the chairmans wrongdoing. When the PM was informed that the chairman was cleared, an informed source told
me that the PM was angry.
Personally, I think the minister of commerce might not directly involve in corruption. But he and the PM are not
the innocent by standers. They knew there was corruption at high level. I cannot tell whether or not the
minister, his deputy minister or the high ranking officers at MOC encouraged corruption. But the public can
answer your question themselves simply by considering what he did. First, why did he lie to the public about
the G-to-G deals? Since the government rice sale must be approved by him, why didnt he disclose the
information, particularly price, amount of sale, and names of buyers? Why did the MOC sell rice only to a few
companies?
As you knew, now the Anti-corruption commission (NACC) gathered enough evidence that linked the former
deputy minister of commerce and a secretary to the minister of commerce to the corruption charge. The NACC
has not yet finalized its charge against the minister of commerce.But the NACC will never been able to
apprehend and convict the real culprits - the most influential political leaders who did not have any position in
the government.
Oryza: Few days back, the President of the TDRI slammed the NACC for using your research as evidences
against the former PM? Can you tell in what way the NACC tried to use your work?
Dr.Nipon: A research paper that NACC refers to is my previous work focused on the fiscal cost and rent
seeking activities in the rice pledging policy during Thaksin government. The NACC had informed Yingluck
that her pledging policy resulted in high cost and damage similar to the previous policy implemented by her
brother as shown by my study. So it warned the government to review the rice pledging policy. Since Yingluck
did not follow the advice- why should she? NACC files a charge claiming that shes already known that her
policy resulted in damage but she did not stop the policy. The major evidence against her is the corruption by
her ministers.
Two reasons created confusion in the media about my research. First, in his lecture on law and econ last month,
a commissioner of NACC Nr VichaMahakun gave an unclear statement about the usefulness of my previous
research for the work of NACC commission. Secondly, I do not understand why a spokesman of the general
attorney told the media that NACC only sent a cover page of my research to the attorney office. The attorney


general should fully understand from the NACC document that my research has nothing to do with the
corruption in the Yinglucks rice pledging scheme.I do not want to speculate on the spokesmans motive.
Oryza: The Office of the Attorney General has sought more evidences against the former PM? The Office
also stated that they along with the NACC would gather more evidences? Do you think the process is going
on fairly?
Dr.Nipon: I believe that if there is no political intervention, the cooperation between OAG and NACC on the
evidence gathering would be fair. A few legal experts on public law believe that the NACC is not as good as the
OAG in preparing a file of case. One major weakness of the file of case against the PM is that the NACC has
been too obsessive with its argument that the PM did not stop the rice pledging policy despite the fact that
NACC had warned her a few times that the policy would result in serious damage.
The NPCO chief has also clearly stated in the public that he and NPCO do not want to find fault with any
politicians. They will let the NACC and OAG independently carry out the legal charges against the wrong
doers. But whether or not the NPCO and Thaksin have any deals with each other, I dont know.
Oryza: The newly appointed Commerce Minister and his Deputy have said that they would prioritize rice
sector reforms. What kinds of reforms are really needed to put the Thai rice industry on track?
Dr.Nipon: So far it is not clear what kind of reforms that the new government will adopt except (1) a no market
intervention policy (i.e., no rice pledging policy, no income guarantee policy); (2) The short-run measures of
cost reduction which will require the total budget of 4,747 million baht (around $147 million). The objective is
to reduce the production costs by 432 baht per rai (around $33 per hectare) which amounts to 9% reduction. It
plans to reduce the cost of fertilizer, seeds, harvesting service fee and land rent by asking for cooperation from
companies and landlords; subsidizing the farmers credit at the interest rate of 3% for the maximumloan of
50,000 baht (around $1,549) per farmer ; (3) disaster insurance policy, especially the areas that have high risks
of disasters ; (4) the long term policy to restructure the rice production by adopting the zoning measures, but it
is still not clear how it will implement the zoning policy.
The new Minister of Ministry of Agriculture and Cooperatives (MOAC) wanted to reduce rice production by
paying some farmers to stop producing rice; and (5) the government wants to clear the 755 billion baht ($23
billion) of rice debt in 7 years by partly fiscalization and rice sale. In 2015, 70.13 billion baht (around $2.17
billion) has already been budgeted to pay for the debt. The BAAC manager reckons that the government should
be able to sell up to 60 billion baht of rice stock in 2015. But the DG of the Department of Foreign Trade told
me that the government will be able to sell at most 10 billion baht in 2015, given the complicated problems of
rice stock inspection and accounting. At the moment, the government is more concerned about the export of the


dry-season harvest and the new wet-seasonharvest in the coming months. Rice auction will take place regularly
(see questions 11-12).
Oryza: What are your comments on the measures taken by the military government for the rice sector?
Dr.Nipon: a) The cost reduction measures will not be effective. Yet the production cost will decline following a
fall in paddy prices, e.g., when fewer farmers want to grow rice, the demand for inputs will decrease.
Although big fertilized companies agree to reduce their price, it is impossible for the bureaucrats to force all
land owners to reduce the rent. The service cost of harvesting has been constant for the last 10 years at 500 baht
per rai. Some of the service providers (mostly big farmers) have promised to reduce their fee provided that their
trailers are not caught by the police on the charge that they transport too wide the combine harvester. But who
will monitor the highway police?
So the measures are simply a means to give comfort to the farmers. I dont think the farmers appreciate the
policy.
b) In fact the real problem of high input costs is the inappropriate use of fertilizer, sub-standard fertilizer and
misleading advertising of fertilizer by the small and medium-scale fertilizer producers. Although there are
voluminous literatures on the use of site-specific fertilizer use which will cut down the cost of production by 20-
30%, and there are a number of academicians and NGOs who provide intensive training for farmers on how to
use the fertilizer, most farmers still do not embrace the idea. This is because of the long delay in the public
service of soil testing, and the time cost and inconvenient use of site specific fertilizer.
Although there is a law governing the quality of fertilizer and controlling the advertisement, the Department of
Agriculture has no resources to enforce the law.
c) Most government officers (as well as the private sector) still have a myth that agricultural zoning will be able
to solve the problem of shortage and surplus. Yet they are smart enough to know that they cant give any order
to the farmers. So why do they still advocate such a ridiculous policy? I believe that it is all about budget. Some
officers may sincerely believe that with some incentives and disincentives, they can convince the farmers to
follow their advice on what crops are most appropriate for each zoning area. They forget that they do not know
best. Their information may be wrong. When things go wrong, the bureaucrats do not bear the cost of mistakes.
Oryza: Leaving apart the rice pledging scheme, can you highlight the problems faced by the Thai rice
farmers compared to their counterparts in other rice producing Asian countries?


Dr.Nipon: Farmers complain about so many problems, especially the low paddy price, high production cost,
etc. Paradoxically, they keep on increasing their production.
Perhaps the most important problem faced by the Thai rice farmers is that their farm is too small. (But keep in
mind that farm size in Thailand is the second or third largest in ASEAN. Malaysia has the largest farm size). So
even if they make very high profit per ton, their farm income is too small to maintain a living standard of the
middle class. The key policy challenge is how to consolidate land.
Another serious problem is that Thai farmers are rapidly aging, with the average age of almost 60 years old. But
most of their children do not want to farm, particularly those who have high education.
The related issue is the lack of old aged pension for the farmers. In the past, when farmers get old, their children
will take care of them. But in the near future, there will be no one to look after because their children are in the
city. If they sell their land, it may not be enough for them to live until they die.
Sadly, the Yingluck government refused to implement the national saving fund act which was passed in the
Apisiths government. The law will provide a kind of old aged insurance for informal workers and farmers. The
fund will be financed by the contribution of workers and the government.
Other problems include (1) no market for varieties of rice. As a result farmers cannot grow the niche products
unless they form their own farmer group to market their rice varieties. (2) Output fluctuation as a result of flood,
drought an pests, etc.,
In addition to the problems faced by the farmers, the Thai rice sector has several serious problems, for example:
(1) agricultural research is under-funded. Research intensity for agriculture and rice (measured by research
expenses as the share of agricultural value added) declined from 0.9% in the mid 1990s to 0.25% in the 2010s.
Politicians prefer to spend more on extension because it produces short term effect which is important for
voters. In addition, higher share of budget of the Rice Department is allocated to activities that have no clear
impact on productivity. (2) The research projects are still supply driven and not driven by demand (3) Thai
jasmine rice has declining quality, particularly the fact that today Thai Hom Mali is no longer as aromatic as it
was in the past. There are several hypotheses, but there are no definite research studies that can effectively solve
the problem.
(4) Thai farmers in the irrigated area still use free water despite the fact that water has become scarcer. (5)
Comparing to other less developed Asian countries, the cost of production in Thailand is increasing rapidly,
particularly the cost of non-traded inputs such as land labor.


Oryza: Most of the importers are keen on buying stocks from latest harvests, in which case the stocks in
warehouses may be left idle. This means the quality of stocked rice has become a major issue. Can the
government manage to dispose of all the 18 million tons of rice stocks it is currently holding in such a
situation? Do you think the government may plan to use the rice stocks mostly for domestic consumption?
Dr.Nipon: The government is now facing several constraints and challenges. The rice pledging policy generated
755 billion in debts and the huge stock of 18 million tons. If it wants to clear rice debt as soon as possible, rice
sale will affect the domestic paddy price, which will hurt the farmers. On the other hand, if it sells only small
amount of rice, loss will increase as the quality of rice in the stock deteriorates.
The BAAC reckons that it will take about 7 years to clear the whole debt based on the governments current
repayment rate and sale of rice stocks. Given the past performance and the huge stockpiles, I think it will take at
least 10 years to clear the stock, much of which will be rotten and cannot be sold.
My understanding of the current rice sale policy is the followings. The new minister of MOC (General
Chatchai) said the government is not in a hurry to sell its rice stock because it already repaid the debt that it
owed to the farmers. Since the governments main concern is the paddy price, its strategy is now to export the
upcoming crop by as much as possible so that the price of paddy can be maintained at the target range of 8,500-
9,000 (around $263 - $279)baht per ton. Meanwhile it will regularly and transparently auction rice from the
stocks that are already inspected and problem free. The new auction policy allows the bid winners to file
complaints after the purchase if the buyers find out that there are problems with the rice that they bought. This
will create more confidence among the bidders, who, in turn, will be willing to offer higher price. The old
auction practice was that the bid winners had to accept to buy all the rice that they successfully bid, regardless
of its quality. That is why in the past the bid prices were very low.
At the moment, the government is still struggling on rice stock inspection and gathering records of rice sale and
rice in-flows and out-flows from 2,000 rented warehouses. It is a snail pace and complicated process because
it still does not get rid of the old staff at the PWO. They tried all the tactics not to provide accurate information.
After more than 2 months, the government has just managed to appoint the new board of directors for PWO. It
will not be long to fire the executive director of PWO. But it will be a long and complex process to remove all
the corrupted staff who are responsible for the warehouses and rice stocks.
Although the Thai consumers prefer the one year old rice and are willing to pay the premium, it is not possible
to use rice stock mostly for domestic consumption because the domestic demand is highly inelastic to price.
Total domestic use, which is about 10 million tons per year, is not going to increase significantly unless the
price is much lower.


Oryza: Any suggestions on how the stocks could be cleared without impacting prices?
Dr.Nipon: I and my colleagues (DrAmmarSiamwalla) told the media that the government should quickly
inspected the rice stocks, separate those with poor quality from the good ones, and then disclose the
information. The government should have a clear policy to destroy those rotten rice because if they are large (I
estimate that there should be at least 4-5 million tons of poor quality rice), it will affect market expectation.
Note that although the government does not sell the bad stocks, it has not yet finalized its stock inspection.
We suggest that the government should sell rice regularly by small lots through the auction and through the
Futures Market Channel. It should have a target floor price at which it will stop selling. It should not sell rice
when the new crops are harvested in mid October.
Although the government still auction rice by big lot (all the stock in each warehouse), some of the stocks in the
same warehouse that are found to have quality problems are not put on auction. But the small lot sale through
the Futures Market is not progressing due to several technical problems.
Oryza: Thai rice exporters are hopeful that the country would reclaim its top rice exporter status this year
after losing it to India for last two years. What are your comments on Thai rice exports given increasing
competition from I ndia, Vietnam, Pakistan, Cambodia and Myanmar?
Dr.Nipon: The rice exporters are bullish because the government has a clear policy of non-market intervention.
In addition, the MOC is now seeking advice and cooperation from exporters who are members of TREA. The
government realizes that if it does not work closely with TREA, the domestic price of paddy will be low,
creating political pressure from the farmers. As a result, TREA has been discussing the possibility of rice export
with several countries.
As of end of August 2014, Thailand already exported 7.34 million tons, thanks to its competitive prices relative
to Vietnam and plentiful supply in the domestic market as well as expected 2% increase in the wet season crop
in the coming months. For the first time, Thai 5% white rice is sold at lower or similar price as the Viet double-
water polished milled rice. Thai exporters also won the recent bid to sell 300,000 tons of white rice to the NFA,
the first sale in so many years, thanks to the competitive price. They have also been able to sell to Indonesia.
Therefore, the target of 9.5-10 million tons is very feasible. Indias export will decline because of smaller crop
and increased consumption. Vietnam is believed to increase its export, but the expected total export (6.7 million
tons) is already smaller than the Thai export in the last 8 months (7.3 million tons).
Oryza: Any other issues you would like to share with our readers?


Dr.Nipon: The government is still very slow in making the consolidated accounts of the rice pledging scheme.
Although the accounting rice stock is 18.6 million tons in May 2014, we still do not know how much rice are
actually in the stock. It does not yet know how much rice was actually sold by the previous government because
there was no account. Believe it or not, the one-trillion scheme has no account! The Yingluck government does
not have any responsibility, let alone accountability. Though it always claimed that it was an elected
government, the way it managed the policy is not what the truly democratic government does.
Dr.Nipon is a distinguished fellow, Thailand Development Research Institute.Former president of TDRI and
dean, Faculty of Economics, Thammasat University.
Tags: Thailand rice pledging scheme, Thailand rice exports, Thailand rice farmers, Thailand rice prices
Global Rice Quotes
Long grain white rice - high quality
Thailand 100% B grade 450-460
Vietnam 5% broken 440-450
India 5% broken 425-435
Pakistan 5% broken 405-415
Cambodia 5% broken 465-475
U.S. 4% broken 525-535
Uruguay 5% broken 610-620
Argentina 5% broken 610-620

Long grain white rice - low quality
Thailand 25% broken NQ
Pakistan 25% broken 360-370
Cambodia 25% broken 450-460


India 25% broken 380-390
U.S. 15% broken 515-525

Long grain parboiled rice
Thailand parboiled 100% stxd 435-445
Pakistan parboiled 5% broken stxd 440-450
India parboiled 5% broken stxd 415-425
U.S. parboiled 4% broken 600-610
Brazil parboiled 5% broken 595-605
Uruguay parboiled 5% broken NQ

Long grain fragrant rice
Thailand Hommali 92% 1065-1075
Vietnam Jasmine 585-595
India basmati 2% broken NQ
Pakistan basmati 2% broken NQ
Cambodia Phka Malis 880-890

Brokens
Thailand A1 Super NQ
Pakistan 100% broken stxd 325-335
Cambodia A1 Super 360-370
India 100% Broken stxd 330-340


Egypt medium grain brokens NQ
U.S. pet food 460-470
Brazil half grain NQ

All prices USD per ton, FOB vessel, oryza.com

Oryza Afternoon Recap - Chicago Rough Rice
Futures Slip Slightly as Grains Tumble under
Market-Wide Sell-off
Sep 25, 2014
Chicago rough rice futures for Nov delivery settled 2.5 cents per cwt (about $1 per ton) lower at $12.705 per
cwt (about $280 per ton). Rough rice futures turned negative today as bearish outside markets weighed on
prices. Considering that the other grains each suffered anywhere from a 1%-1.5% loss on the day rice futures
faired pretty well, however they were unable to test nearby overhead resistance at $12.800 per cwt (about $282
per ton) and the high of the day fell short of this level. However, the market did manage to chart a higher low
and high than it had in the previous session, a fact that is seen as supportive of prices for tomorrows trading
direction. Soybeans closed about at $9.2275 per bushel; wheat finished about 1.3% lower at $4.7400 per bushel,
and corn finished the day about 1.1% lower at $3.2600 per bushel.
U.S. stocks declined on Thursday, a day after the S&P 500 jumped the most in more than a month, as Apple
tumbled on glitches tied to its new smartphone and as investors considered a proposal in Russia that would let
its courts seize foreign assets. Reuters reported the draft law, submitted to Russia's parliament on Wednesday by
a pro-Kremlin deputy, and would also allow state compensation for those whose assets were taken in foreign
jurisdictions. After a 262-point drop that pushed it below 17,000, the Dow Jones Industrial Average was lately
off 256.18 points, or 1.5%, to 16,953.88. The S&P 500 lost 27.00 points, or 1.4%, to 1,971.30, with technology
knocked the hardest among its 10 main industry groups. The Nasdaq declined 75.45 points, or 1.6%, to
4,479.77. Gold is trading about 0.3% higher, crude oil is seen trading about 0.6% lower, and the U.S. dollar is
seen trading about 0.2% higher at about 1:00pm Chicago time.


Wednesday, there were 282 contracts traded, down from 312 contracts traded on Tuesday. Open interest the
number of contracts outstanding on Wednesday increased by 65 contracts to 9,169.
Tags: chicago rough rice futures, U.S. rice prices, U.S. rice market
China Takes Measures to Halt Cross Border Rice
Imports from Myanmar
Sep 25, 2014
The Chinese authorities are taking requisite measures to halt cross border rice
exports from Myanmar via the Muse border, according to local sources.Usually,
Chinese traders buy rice at the Muse border and transport it inside China.
However, serial checking of imported rice and arrests of some Chinese buyers by
the Chinese authorities have stopped Chinese traders to buy rice from the Muse
wholesale border. Most of the rice purchased by China is exported from Mandalay
through the Mandalay-Muse highway. With these restrictions in place, Myanmar
traders have also stopped exporting rice from Mandalay to the Muse border.
Some Chinese traders told local sources that the authorities are very serious over allowing cross border imports
and that they are being severely interrogated. Some Myanmar traders noted that this kind of interrogations are
common during the harvest season but it is on a larger scale this year.
Chinese authorities treat these cross border imports as illegal as there is no formal rice export agreement
between China and Myanmar. Both the countries are keen on finalizing such an agreement.China has been
complaining for a long time that the quantity of illegal rice exports from Myanmar has been increasing and has
expressed concerns that Myanmar rice is not adhering to Chinas plant quarantine rules. The Chinese
government had also recently demanded a formal sanitary and phyto-sanitary agreement on rice standards with
Myanmar.
Recently, Myanmar's Commerce Minister told local sources that they will begin negotiations with the China's
Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) authorities soon seeking a
framework highlighting aspects for legalizing rice exports to China. They will also seek to fix an export quota
to ensure that all rice exports from Myanmar are legal. Further, they are also planning to finalize a free trade
agreement (FTA) with China, including rice as well as other agricultural products.


Myanmar's rice exports to China increased almost 125 times since 2011 and most of it is through northern
borders, according to a report by the World Bank in June this year. In 2013 alone, Myanmar exported 747,000
tons of rice to China through the Muse border.
Tags: myanmar rice exports, China rice imports
Thailand Rice Sellers Increase Some of Their Quotes
Today; Other Asia Rice Quotes Unchanged
Sep 25, 2014
Thailand rice sellers increased their quotes for parboiled rice by about $5 per ton to around $435- $445 per ton
today. Other Asia rice sellers kept their quotes mostly unchanged.
5% Broken Rice
Thailand 5% rice is quoted at around $435 - $445 per ton, about $5 per ton discount to Vietnam 5% rice shown
at around $440 - $450 per ton. India 5% rice is quoted at around $425 - $435 per ton, about $20 per ton
premium on Pakistan 5% rice quoted at around $405 - $415 per ton.
25% Broken Rice
Thailand 25% rice was last quoted at around $350 - $360 per ton, about $50 per ton discount to Vietnam 25%
rice shown at around $400 - $410 per ton. India 25% rice is quoted at around $380 - $390 per ton, about $20 per
ton premium on Pakistan 25% rice quoted at around $360 - $370 per ton.
Parboiled Rice
Thailand parboiled rice is quoted at around $435 - $445 per ton, up about $5 per ton from yesterday. India
parboiled rice is quoted at around $415 - $425 per ton, about $25 per ton discount to Pakistan parboiled rice last
quoted at around $440 - $450 per ton.
100% Broken Rice
Thailand broken rice, A1 Super, was last quoted at around $310 - $320 per ton, about $25 per ton discount to
Vietnam broken rice shown at around $335 - $345 per ton. India broken sortexed rice is quoted at around $330 -
$340 per ton, about $5 per ton premium on Pakistan broken sortexed rice quoted at around $325 - $335 per ton.


Tags: Thailand rice prices, Vietnam rice prices, pakistan rice prices, India rice prices
China imports 1.5 Million Tons of Rice in First
Seven Months of 2014, Down 6% from Last Year
Sep 25, 2014
China has imported around 1.503 million tons of rice in the first seven months of 2014 (January - July), down
about 6% from around 1.587 million tons imported during the same period last year, according to data from
China Customs General Administration.
In July 2014, China imported around 180,000 tons of rice, down about 25% from around 240,000 tons imported
in June 2014, and up about 25% from around 144,019 tons imported in July 2013.
USDA estimates China to import around 3.9 million tons of rice in 2014, up about 24% from around 3.144 tons
imported in 2013.


Oryza Global Weekly Weather Rice Recap
Rain is expected across southwest China from Thursday to Saturday. The heavy showers in the Yangtze Valley
this month maintained abundant moisture supplies for late-crop rice but slowed other summer crop maturation
and harvesting.
Rain is expected across lower North, Central and Northeast Thailand from Thursday to Saturday.
Rain showers are expected in central and southern Vietnam on Thursday and Friday.
Rain is expected in some places in Southern India for the next two days. Thereafter, light rain is expected at
few places in West Bengal, Maharashtra and Interior Karnataka from September 28-30.
Mainly hot and humid weather is expected in most parts of Pakistan for next two days.
Light rain is likely to occur at many places over Rajshahi, Rangpur, Chittagong , Sylhet divisions, Barisal,
Dhaka and Khulna divisions in Bangladesh today and tomorrow.
In Indonesia, showers are expected across northern Borneo, southeaster Borneo and northern Sumatra on
Thursday and Friday.
About 46% of the U.S.s rice crop was harvested by September 21. Producers in the Upper Coast of Texas had
finished up harvesting rice. Overall, 74% of the rice crop was reported in good to excellent condition in the US.
Vietnam 2014 Paddy Rice Production Estimated at
45 Million Tons, Up 2% from Last Year
Sep 25, 2014
Vietnam's 2014 paddy rice production is estimated at around 45 million tons (around 28.125 million tons, basis
milled), up about 2% from around 44.17 million tons (around 27.6 million tons, basis milled), according to
Reuters.The Agriculture Ministry was quoted as saying that the increase is mainly attributed to increased output
from the winter-spring crop. The Ministry said the winter-spring crop produced around 20.83 million tons of
paddy (around 13 million tons, basis milled), up about 4% from around 20 million tons (around 12.5 million
tons, basis milled) produced last year.
Vietnam exported around 4.453 million tons of rice in January 1 - September 18, 2014, down about 15% from
about 5.22 million tons of rice exported during January - September 2013, according to data from the Vietnam
Food Association (VFA).USDA estimates Vietnam to produce around 44.8 million tons of paddy rice (around
28 million tons, basis milled) in 2014, up about 2% from around 44 million tons (around 27.54 million tons,
basis milled) produced last year. It estimates Vietnam to export around 6.5 million tons of rice in 2014, down
about 3% from around 6.7 million tons exported last year.

26th September 2014 Daily Exclusive ORYZA E-Newsletter by Riceplus Magazine

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