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Thai rice failure hitting Cambodia

While last year was full of good news for Cambodian rice exports, which hit a record-breaking 378,800 tons, 2014 is getting off to a much slower start.

Observers say Thailand's disastrous rice scheme is largely to blame.

Thai Prime Minister Yingluck Shinawatra’s controversial pledge to pay farmers above market rates for their rice is coming to an end this month, and it has been wreaking havoc on global markets.

Stockpiles accumulating since the scheme was introduced in 2011 have risen to record levels, and an anticipated fire sale has buyers holding out in anticipation of cheap rice flooding the market. Cambodia and other countries are taking the hit.

In January 2012, Cambodia exported 9,700 tons of rice. A year on and exports for the same period in 2013 jumped to 25,700. But in January this year, the pace has not been maintained, with only 21,500 tons leaving the country.

“Buyers are anxiously waiting to see how Thai prices could deflate further as the Thai government rice scheme is expiring this month," said David Van, deputy secretary general for the Alliance of Rice Producers and Exporters of Cambodia. "And regional exporters are monitoring whether the Thais would dump prices to unload their huge stockpile and that would impact upon the global rice trade."

A public tender last month for the sale of close to 150,000 tons of Thai government-purchased rice fetched bids of between 7 and 19 per cent below market prices, according to a January 28 report from the US Department of Agriculture.

With unrest mounting from farmers owed money, the Thai government plans to sell 1 million tons a month for the first quarter of this year, Bloomberg reported yesterday.

More rice on the market means greater competition and lower prices.

“Before, Thai rice stood at $1,169 per ton, but now, they sell for only $950, the same price as Cambodia's rice, and they tend to sell it even in lower prices to get the overstock of rice out to the market,” said Khan Kunthy, CEO of Battambang Rice Investment, referring to costs for Cambodia’s fragrant rice variety, a strong competitor with Thailand's jasmine rice.

Kuthy expects February to be another slow month for exports. The prospect of meeting Cambodia’s future rice targets, he said, is largely reliant on Thailand’s decision making.

“The growth of our rice exports is now so much dependant on the outside market,” he said.

Mey Kalyan, a senior adviser on the Supreme National Economic Council, says that short term pain is inevitable with such a large supply entering the market.

He added that for Cambodia, increased productivity and greater quality will help support growth in the longer term, once the situation in Thailand settles down.

“If we produce good products, people will buy from us,” he said.

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