Smuggling Rice to Thailand: Like Coals to Newcastle

[buksida]

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

A populist program to support prices has led to the Thai government paying its farmers almost double prevailing prices in Cambodia and Burma. Farmers and traders in the neighboring 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 tons of milled rice is being smuggled into Thailand a year, mainly from Cambodia and Burma, 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 Kiattisak Kalayasirivat, managing director at 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 ($480) per ton after she took power in 2011, to please her farmer vote-bank.

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 ($9.59 billion) this fiscal year, is struggling to fund the multibillion-dollar program and find buyers for the grain. Ratings agency Moody’s warned in June that “populist measures” were a risk to financial discipline.

The government said last month that losses from the scheme amounted to $4.4 billion in the crop year that ended in September 2012.

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

It is mostly holding on to the stocks since it will make a huge loss if the rice is sold. The intervention price of $480 per ton of unmilled rice translates to $750 a ton for milled rice. Milled rice is quoted around $475 a ton in Thailand’s open market and around $400 a ton in Vietnam, traders said.

From No.1, Thailand has dropped to 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.

Because of that, the spread between 5 percent and 100 percent broken rice available in Thailand has narrowed to just $30 a ton currently from $60 a ton in June last year and $85 in 2011. “The spread has tightened up very dramatically,” said Ben Savage, managing director of London-based Jackson Son and Co, a rice broker since 1860.

Cat Running After Mouse
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 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 tons of rice. There’s bound to be more that we can’t prevent.”

Noppadol Thetprasit, head of a customs post in the Aranyaprathet district of sa Kaeo, said he recently intercepted 30 tons 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,” Noppadol said.

The smuggling is happening on a far bigger scale than the talk of villagers and 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 tons of unmilled rice, or paddy.

“Clearly shipments (to Thailand) started going up since the intervention scheme started,” Cooper said. “It is highly attractive for the neighboring countries to try and get as much rice across to Thailand as possible and supply into the scheme.”

The United States Department of Agriculture put Thai rice imports at 600,000 tons a year in the first two years of the scheme, jumping from 200,000 tons in 2010/11.

Blind Eye
In Cambodia the authorities turn a blind eye to the smuggling. Khung Vun, president of the Rice Millers Association in Banteay Meanchey province on the border, says customs and police officials will wave grain through as long as a general export permit can be produced.

In 2012, legal rice exports to all countries by Cambodia amounted to 205,717 tons, according to its official data.

Thon Virak, director of Cambodian state-owned rice exporter Green Trade, estimated up to 300,000 tons of paddy rice was smuggled into Thailand in 2012 and a similar amount in 2011.

“This year, the number will decline because crossing points have been closed,” he said in Phnom Penh, referring to stepped-up border policing on the Thai side.

In Burma, a shortage of good-quality mills restricts demand for legal exports and encourages smuggling out.

Aung Kyaw Htoo agribusiness manager at cargo surveyor SGS in Rangoon, estimated around 120,000 tons of rice was smuggled into Thailand in 2012, most of it lower-quality broken grain.

He said he understood the rice was sold into the intervention scheme, although other analysts said some of it could have been bought by noodle makers and feedstuff producers who, because of state buying, find Thai grain scarce or costly.

Commerce Ministry Sacked
Thailand announced it would cut the intervention price to 12,000 baht per tonne last month, but reversed the decision on the day it took effect, giving in to farmers who had threatened protests.

Before rowing back on the cut, Yingluck sacked Commerce Minister Boonsong Teriyapirom after public criticism that he had failed to be credible or transparent about the costs of the scheme.

New commerce minister Niwatthamrong Bunsongphaisan says the government will sell up to 1.5 million tons of rice a month for the rest of year through tenders and will also try to sell to other governments.

It is unclear how he will do that without offering grain at cut-rate prices to exporters or governments, and that may lead to charges of dumping. The United States and others have already sounded warning noises at the World Trade Organization because of Thailand’s lack of transparency on sales and stocks.

Source: Irrawaddy

Thought: Meanwhile there are still people on the planet starving ...

[usual suspect]

Thanks Buksi for the 'simplified version' of this rice scam.
I very quickly add the title 'Scam' to this story because since it's introduction a couple of years ago there must be so,so many members of Yingluck's government creaming Baht from the scheme, not to mention hundreds of
rice-traders (middle men)...who (I suspect) are the folk implementing the wave of rice coming over the borders into Thailand.
Again how can issues like this one ever be brought under control when every M.P. employed by Yingluck is on the take..?
Plus while the rice problem is making news, then other areas of corruption are being left out of the picture.
(Anyone want to buy a new Merc?)

[huahinjim]

(Anyone want to buy a new Merc?)

Will trade for a few gold(en) amulets

[Takiap]

Personally I don't see why tax payers should be financing rice farmers in the first place. If rice isn't a profitable commodity to farm, then farm something else. If there is a shortage of rice, the price will go up anyway, and more people will farm rice. Nature's way of balancing things. Then again, I don't proclaim to be an expert on such matters.

[STEVE G]

Personally I don't see why tax payers should be financing rice farmers in the first place. If rice isn't a profitable commodity to farm, then farm something else.

I don't agree with subsidies either but one problem is that there are large areas of Issan which are too dry to really farm anything profitably and you're basically left with a situation where people would be thrown into poverty without some kind of support.
The big fault of these schemes is that the money tends to go the big rice traders and not the farmers.
One thing which has improved things up there is that better roads combined with the problems in Bangkok such as flooding are making the area more attractive to industry which gives people manufacturing jobs to replace farming. Seeing as huge numbers of factory workers around Bangkok come down from Issan anyway, there is a certain sense to moving manufacturing nearer to the workforce.

[usual suspect]

Good point there Steve..I've seen a steady rise in the number of feed-mills, textile companies etc all putting up new buildings along Hwy 24 from Sikiou to Nang Rong..must be a plus for the local youngsters needing work.

[Bamboo Grove]

Do you think these factories can compete with the neighbouring countries? Usually the next step from industrialization (well, yes industrialization comes after the agrarian society is ready to take the next step and this is what obviously is happening in Isan) would be the work force moving towards services. There was a program on TV not so many days ago about the textile and other factories moving away from China because Cambodia and Bangladesh have cheaper labour force. I can't see Thailand being able to compete with these kind of factories as the minimum wages in Thailand, as in China, are steadily going up.

I'm not saying building roads and opening factories wouldn't be a good thing, on the contrary, just wondering will opening new factories solve the problems in the long run. Also Thailand had these factories elsewhere in the 80's and 90's so Isan is about 20-30 years behind in doing this.

[Takiap]

The area in Isaan where my in-laws come from has very few rice paddies these days. There was rice growing everywhere when I first went up there, but now most are farming rubber instead. My wife's grandparents have likewise swapped to rubber, although they do still farm some rice for themselves and etc.

They also raise a few cows which seems to be a nice little money spinner, especially since their living expenses are so minimal.


A short while ago we had the pineapple farmers demanding money down here in Prachuap, and again, my thinking is, if pineapples are not profitable, then stop farming them.


As far as the actual land conditions are concerned.........I've read several acounts of both Thais and Farang who have turned dead land into good land, and that includes land in Isaan. It can be done, but not from the comfort of one's hammock.

[Roel]

For those who are against subsidizing rice farmers. I think we have a misunderstanding here. The scheme is set up to please the farmers and secure their votes. Nothing else.

By co-incidence it happens to be in the form of some sort of subsidy. An improvement compared to the old days if I may say so. You do not have to drive around in the Isaan for weeks handing out 500 Baht notes and bottles of lao khao. Moreover the money that is generated in the process by manipulating and using the system to your advantage is also a good thing as that extra money goes exactly where it is supposed to go: to the rich. Vote buying disguised as a governmental plan to help the poor and a system that finances itself. And then some people dare say it is not a success.

[STEVE G]

Do you think these factories can compete with the neighbouring countries?

It depends on what you produce, Seagate making computer hard drives in Khorat are very successful and CPF are exporting processed poultry all over the world from factories in the NE.
From an economic point of view, manufacturing generates real wealth for a community compared with services which are just moving money from one person to another.

[buksida]

You do not have to drive around in the Isaan for weeks handing out 500 Baht notes and bottles of lao khao. Moreover the money that is generated in the process by manipulating and using the system to your advantage is also a good thing as that extra money goes exactly where it is supposed to go: to the rich. Vote buying disguised as a governmental plan to help the poor and a system that finances itself.

Spot on, shame the reds can't see it that way.

[buksida]

Burmese smugglers get rich on Yingluck Shinawatra's Thai rice subsidies
For the rice smugglers of Myawaddy, business has never been better.

A scrappy, dusty Burmese border town, Myawaddy has long been notorious as an illicit trading hub for drugs, guns and precious gems.

Now, Myawaddy has become a centre for the trafficking of a more nutritious but scarcely less profitable product, as rice smugglers take advantage of the substantially higher grain prices on offer in neighbouring Thailand.

In Myawaddy, 50 kilos of rice sells for £16. But in Thailand, the same amount is worth £30, a consequence of the ruling Pheu Thai Party’s controversial subsidies to the rice farmers who make up much of its support base.

Known as the “rice-pledging scheme”, the populist policy has cost the government more than £13 billion, prompting the IMF to warn that the scheme is undermining the economy.

But the rice subsidies are also a huge source of anger among the largely middle-class anti-government protesters who have taken to the streets of Bangkok to try and topple Prime Minister Yingluck Shinawatra and her Pheu Thai party from power.

They allege that not only has taxpayers’ money been squandered to buy votes for Pheu Thai, but that millions has disappeared into the pockets of the politicians and officials overseeing the scheme.

Last month, Thailand’s National Anti-Corruption Commission (NACC) announced a probe into the rice-pledging policy, only adding to the pressure Ms Yingluck is under.

Full Story: The Telegraph

[buksida]

China cancels deal to buy Thai rice due to graft probe
China has canceled a deal to buy 1.2 million tonnes of Thai rice after Thailand's anti-corruption agency launched investigations into a state rice-buying scheme, the Thai commerce minister said on Tuesday.

The cancellation will add to the pressure on Thailand's government, which is struggling to secure funds for the rice scheme at a time when farmers who have not been paid are protesting in the provinces.

"China lacks confidence to do business with us after the National Anti-Corruption Commission started investigations into the transparency of rice deals between Thailand and China," Niwatthamrong Bunsongphaisan told reporters.

The deal between Thailand and Chinese state enterprise Beidahuang was signed on November 20, for delivery starting in December. The shipment was delayed, however, after Prime Minister Yingluck Shinawatra dissolved parliament in December.

Full Story: Reuters

Thought: Yet another failed attempt by PT to buy off its vote base.

[charlesh]

Maybe they should try China. Talk about the pot calling the kettle black when it comes to the old sideways fling!


China has canceled a deal to buy more than a million tons of rice from Thailand due to a probe into the beleaguered Thai government's subsidies for rice growers.

Thai Commerce Minister Niwattumrong Boonsongpaisan told a news conference Tuesday that a Chinese state company, Pei Ta Huang, terminated a contract to buy 1.2 million tons of rice out of concern it would run into problems due to an investigation by Thailand's National Anti-Corruption Commission.

The commission last month pressed charges against ex-Cabinet ministers and some government officials involved in negotiations to sell rice to two Chinese state enterprises as part of government-to-government deals. The agency is also investigating Prime Minister Yingluck Shinawatra for negligence as chairwoman of the National Rice Policy Committee.

The rice scheme is a flagship policy of Yingluck's embattled caretaker government, aiming to woo votes from millions of farmers across the country.

Critics say the policy of buying rice from growers at above market prices has accumulated losses of at least $4.46 billion and has been dogged by corruption.

The scheme's losses and alleged lack of transparency are one of the complaints of anti-government protesters whose weeks of street demonstrations against Yingluck's government led to her dissolving the parliament and calling elections that were held Sunday. Ten people have been killed and nearly 600 injured in the protests.

Rice is Thailand's staple grain and one of the country's main exports. India and Vietnam surpassed Thailand as the world's top rice exporters in 2012 as the Thai government stockpiled rice to avoid even bigger losses.

The government has been unable to keep up with payments to farmers and in recent weeks thousands of people have blocked main roads in the provinces in protest.

Niwattumrong said the government will try to sell more of its rice stockpile to resolve the problem of delayed payments to farmers.

"Please don't worry. The Commerce Ministry is trying its best," Niwattumrong said.

Money from current rice sales will be paid to farmers and the Finance Ministry is seeking additional loans so payments can be made, he said.

[PeteC]