Thai government proposals to pay above market prices to rice farmers could complicate Cambodia’s goal of becoming a major milled rice exporter, according to industry insiders.

Pheu Thai party leader Yingluck Shinawatra has announced plans to buy rough rice for a guaranteed price of 15,000 baht (US$505) a tonne, more than 50 percent above current rates.

The price hike could send Thai rice millers and exporters looking into neighbouring countries such as Cambodia for paddy to process and export, say Cambodian millers.

“When Thailand purchases a lot of rice from Cambodia, there will be price competition,” said Chan Vuthy, general manager of Phnom Penh’s Golden Rice Company.

“It will affect the policies of the Kingdom’s rice-export project when there is too much rice flowing into Thailand.”

Cambodia has targeted exports of 1 million tonnes of processed rice by 2015. Ministry of Commerce statistics show the Kingdom exported 80,442 tonnes in the first half of this year.

Prices for Thai rice exports climbed more than 8 percent during July in anticipation of the new policy.

Thai Rice Exporters Association Vice President Charoen Laothamatas said if Thai exporters cannot buy expensive rice to mill for export, they may opt for cheaper rice from countries such as Vietnam, Cambodia and Burma.

“With the ASEAN free-trade agreement, such an alternative would be possible,” he said.

Cambodia’s millers say they worry about being out-competed by Thai millers looking for paddy to process.

Battambang Province Rice Millers Association President Ngi Lyheng said that area merchants often export paddy to Thailand to be processed and shipped abroad, often competing with the province’s millers.

“If there’s a high demand for rice from Thailand and that causes prices to go up, we will have to take into consideration how much we purchase because our spending capital will remain the same,” he said.

Chan Vuthy said Cambodia faces several challenges when competing with Thai rice producers, such as storage capacity. However, he noted there was strong government support in Cambodia to develop a larger rice export industry.

Ministry of Commerce Secretary of State Chan Nora said there were presently about 10 international-quality rice mills in the Kingdom, though the government worked to increase the number.

ADDITIONAL REPORTING BLOOMBERG AND BANGKOK POST