http://www.businessweek.com/magazine/content/11_16/b4224009283905.htm

Food

Why Thai Rice Production May Decline


Many Thais revere Me Posop, the rice goddess who guards humankind and rewards good stewards of her grain. Me Posop has been kind to Thailand in recent decades. While its neighbors Vietnam, Myanmar, Cambodia, and Laos struggled through war, Marxist-Leninism, and authoritarian rule, Thailand prospered from its new factories and booming rice exports. The nation surpassed Myanmar as the world's top rice shipper in 1965: Last year 9 million tons of Thai rice were exported around the world. Thailand, like the Saudis in oil, became the key producer, the country that could always moderate global prices with its abundant reserves. This year, while corn and wheat prices have reached new highs, ample stockpiles of Thai rice have driven rice prices down.

Now the Thai government is proposing a major change in strategy for its rice growers, who feel hard pressed by low prices, an assault of pests, and the presence of low-cost competition from emerging rivals. The government seems ready to abandon Thailand's position as the world top rice exporter—a serious decision, considering the mounting anxiety over the size and stability of the global food supply.

Thai farmers are certainly worried about their business. In the rice paddies near Ayutthaya, a former Siamese capital that 17th century emissaries from Louis XIV compared with Paris in its wealth and importance, Payao Ruangpueng must battle an infestation of rice planthoppers that are munching their way through the paddies. That's not all. "We're suffering from a rice price slump, crop damage, and lower-than-expected production," she says, standing on the edge of a rain-soaked paddy. "Production costs are higher than income. We can't afford to continue planting."

In March the Thai government stated its intention to eliminate a third planting this year to improve rice quality and to combat the hopper, which dies if deprived of rice plants for 25 days. The plan may eventually reduce annual exports by 2 million metric tons, or about 20 percent of Thailand's shipments.

Thai officials say they want the industry to focus on fancier grades of rice that fetch higher prices. While Thai rice shipments have increased 33 percent in the past decade, Vietnamese exports are up 70 percent in the same period to 6 million tons, according to the U.S. Agriculture Dept. Cambodia and even Myanmar are also emerging as global rice powers, says Pramote Vanichanont, honorary president of the Thai Rice Mills Assn. and a member of the National Rice Policy Committee. Thailand, following the classic curve of development, has priced itself out of much of its own market, he says. Land prices have shot up, as well as the cost of tractors and the wages of farmhands.

The government also plans to turn the country into the warehouse, finance, and marketing hub of Southeast Asia's rice trade. The Agricultural Futures Exchange of Thailand, the nation's government-backed rice and rubber bourse, is rolling out a new futures contract on Apr. 29 intended to be a regional benchmark for standard quality rice.

This long-term strategy may not be good for global food needs. The U.N. expects world food demand to rise 70 percent by 2050, and its Food and Agriculture Organization in February urged Thailand and its neighbors to grow more rice. Reductions in Thailand's production may end up hurting poor consumers in Africa and elsewhere while doing little for Thai prices, says Kiattisak Kanlayasirivat, a director at the Thai office of trading company Novel Commodities. "I doubt whether it is a good policy, as cutting the supply may lead to food shortages," says Kanlayasirivat, whose firm trades about $600 million of rice a year.

The Vietnamese may not even have the resources needed to replace major cuts in Thai production. "I personally think that Vietnam doesn't need to become No. 1 in rice exports," says Nguyen Van Bo, president of the Vietnamese Academy of Agricultural Science. "To export a lot, Vietnam will have to exploit a lot of land, use a lot of fertilizers. That could cause degradation of natural resources."

The bottom line: While Thailand is the world's top rice exporter, falling prices and rising competition may lead to a strategic decision to abandon that role.

Bjerga is a reporter for Bloomberg News in Washington.
Suwannakij is a reporter for Bloomberg News.

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