Jul 16, 2013

    Thai subsidies feed rice smuggling

    HIDDEN in 18-wheeler trucks, carts and pick-up vans, hundreds of thousands of tonnes of rice are being smuggled from Cambodia and Myanmar into Thailand, although the country holds enough stocks to meet half the world's annual trade in the commodity.

    A populist programme to support prices has led to the Thai government paying its farmers almost double the prevailing prices in Cambodia and Myanmar. Farmers and traders in the neighbouring countries are trying to take advantage, sending their grain across the border to be sold into the Thai intervention scheme.

    The equivalent of 750,000 tonnes of milled rice is being smuggled into Thailand each year, mainly from Cambodia and Myanmar, according to estimates of analysts and traders who have studied the illicit shipments.

    "No one can differentiate which one is Thai rice and which one is Cambodian rice. That makes it easy to smuggle rice in and make a profit by selling it to the government," said Mr Kiattisak Kalayasirivat, managing director of Thai trader Novel Agritrade.

    The extent of the smuggling adds to a headache for Thai Prime Minister Yingluck Shinawatra, who increased the support price for unmilled rice to 15,000 baht (S$610) per tonne after she took power in 2011, to please her farmer vote-bank.

    Ms Yingluck's support base is mostly in rural districts, and her government mistakenly bet that Thailand could corner the world rice market by building up stocks.

    Instead, the government, already running a budget deficit of 300 billion baht this fiscal year, is struggling to fund the multi-billion-dollar programme and find buyers for the grain. Ratings agency Moody's warned last month that "populist measures" were a risk to financial discipline.

    The government said last month that losses from the scheme amounted to US$4.4 billion (S$5.6 billion) in the crop year that ended in September last year.

    Thailand now sits on rice stockpiles of 18 million tonnes, almost double a normal year's exports and nearly half of annual global trade of 38 million tonnes.

    It is mostly holding on to the stocks since it will make a huge loss if the rice is sold. From being No. 1, Thailand has dropped to being the world's No. 3 rice exporter, behind India and Vietnam.

    The quality of the rice in its warehouses has also dropped because most of the smuggled grain is broken rice, which is then blended with full-grain Thai rice.

    Thailand's porous border with Cambodia, to the east, has no natural barriers like rivers and villagers easily cross between the two countries. Smuggling of rice appears to be rampant.

    "As long as our prices are high and they can make a profit, we won't (be able to) stop them," Pakkarathorn Teainchai, the governor of Sa Kaeo province on the border with Cambodia, told Reuters. "It's like a cat running after a mouse."

    "Recently we confiscated 60 tonnes of rice. There's bound to be more that we can't prevent."

    Mr Noppadol Thetprasit, head of a Customs post in the Aranyaprathet district of Sa Kaeo, said he recently intercepted 30 tonnes of rice being smuggled from Cambodia, but he knows more must be getting through at smaller crossing points that lack his facilities.

    "The rice is being carried into Thailand on villagers' small carts, and is then reloaded onto bigger trucks and moved on to other provinces in Thailand to be resold," Mr Noppadol said.

    The smuggling is happening on a far-bigger scale than the talk of villagers and the carts would suggest. Thai officials say some smugglers use 18-wheel trucks to bring rice into the country.

    Small-scale smuggling had occurred previously but volumes have jumped with the advent of the high intervention price.

    The International Grains Council in London estimated the equivalent of 750,000 tonnes of milled rice a year was coming into Thailand, senior economist Darren Cooper said. That would be about 900,000 tonnes of unmilled rice, or paddy.