Fifty years ago, the company traded rubber. Then it became one of Thailand's foremost rice exporters, a role it maintained for decades. Now, Huay Chuan Rice has reached another turning point and will become a property developer, in order to escape the hardships of commodity trading and, basically, to make some money.

"The trading environment has been changing rapidly, due to globalisation. This has brought severe competition from newcomers who have set up bigger-sized businesses and forced small companies out of this very low-margin business," says deputy managing director Chookiat Ophaswongse.

Huay Chuan has cut down its rubber-trading business because of business difficulties, including low returns and the high bargaining power of middlemen. Rice exporting is now a core business from which Chookiat seeks to escape. Surprisingly, he is also president of the Rice Exporters' Association, but the wider industry perspective does not persuade him to persevere.

The company, a pioneer in Thailand's rice trade, was established by Chookiat's father, Samarn. It has done business for more than half a century in Bangkok's Songwat Road area in Chinatown, famous for its rice trading, where about 10 of the country's top rice exporters conducted business in buildings with old-style architecture. At one time, small piers on the bank of the Chao Phya River provided for efficient shipments and stockpiling. Most of the companies had been formed by Thai-Chinese businessmen.

Now, the narrow streets of the old rice-trading area have all but destroyed its logistics. Most of the pioneer rice traders have moved to modern buildings to house their growing businesses.

Huay Chuan has never been more than a medium-sized company. There have been no expansion plans. Instead, it tries to maintain a trading volume of 150,000-160,000 tonnes a year, making it Thailand's 15th-largest rice exporter.

Chookiat says that in the past, the company was among the country's top three rice exporters, but today's companies with this ranking ship more than 1 million tonnes of rice per year.

"Rice exporting is a high-risk business in which exporters must focus on short sales by purchasing and then delivering. If domestic prices drop, exporters will enjoy higher profits," he says, adding that companies without close market monitoring risked making losses.

Moreover, rice exporters are facing problems from the current exchange rate. The stronger baht has caused all exporters to suffer, and only those with big export volumes are able to avoid high export losses, he says.

Having graduating with a master's degree in business administration from Portland State University in Oregon, Chookiat began working for Huay Chuan the day after returning to Bangkok. He was 25 years old, and his salary was Bt5,000 a month.

He took responsibility for expanding the company's customer base in Europe and Africa. The first Thai rice exporters had to cut their prices heavily to win orders, he says, and today's successful businessmen are walking a rosy path created by the early traders.

"Even now, despite realising higher costs, we still must offer discount prices to very tough buyers and shoulder the losses," he says. "We experience the same things day after day, and we're very tired of doing that. Commodity trading also needs very good decision-making to ensure returns at a very low margin. We've decided to let other, more aggressive exporters penetrate potential markets."

In the early years, it took Chookiat most of a decade to modernise Huay Chuan from traditional manual trading to computerisation. In particularly, he established a first-in first-out stock-management system to facilitate exports and achieve quality control.

Now, Chookiat, 53, looks forward to the day when the Ophaswongse family business can end its reliance on commodities and explore new business opportunities.

"Some major pioneer rice traders have reduced or stopped rice trading because of the low margins," he says. "Some of them may have income from warehouse rentals."

Huay Chuan Rice plans now to invest in the property sector, particularly in apartments, because of rising demand in Bangkok.

Chookiat is studying the construction of residential apartments on company land on Rama III Road adjacent to the Chao Phya River, where the firm's warehouse is presently located. If the project goes ahead, it will require an investment of Bt1 billion.

Already, the company manages the Metropole Hotel in Phuket, its first venture into the property sector.

"We must focus on business that makes us higher profits than rice," Chookiat says. "We don't have aggressive management for rice trading any more, and we may stop the business," he said, adding that the company's results had fallen each year, dropping into the red last year because of the stronger baht.

From his position as president of the Rice Exporters' Association, Chookiat expounds the great risks he sees in trading in primary products.

He says 90 per cent of costs in the business rely on raw materials. Commodities are also closely related to politics, which means farm prices can go up but not down.

Commercial banks also impose stringent borrowing restrictions, in order to avoid risks from hedging. As a result, the amount of hedging allowed to rice exporters is both limited and inflexible.

Achara Pongvutitham,

Petchanet Pratruangkrai

The Nation