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Published on September 10, 2007

The scandal over President Agri Trading has had a domino effect on Thailand's rice industry, causing the government to lose Bt2 billion at its rice auction last week and thereby bringing down the local rice price.

A rice-trader commented that the rice auction held last Thursday by the Foreign Trade Department had seen lower bids than the current market price. This will prompt rice-traders and exporters to seek lower prices from rice mills and farmers.

The current problems will affect the price for the main rice crop, which will be harvested in November and December.

The government should find an appropriate way to deal with the suspected corruption related to missing government rice stockpiles kept with cash-strapped President Agri Trading, which failed to fulfil export contracts to Iran and Indonesia and also to lift the rice it had won in auction from government warehouses.

"The government's auction [last week] of more than 500,000 tonnes of rice sent a wrong signal to the market that immediately affected local rice prices," said the rice-trader, who asked not to be named.

Last Friday, the market price of 5-per-cent white rice (B grade), which was the main type on offer at the ministry's auction a day earlier, dropped from Bt1,040 per 100-kilogram sack to Bt1,020.

In addition, bidders at the auction offered Bt8,300-Bt8,900 per tonne for this grade of rice, compared with the latest average market price of Bt10,350.

"The lower offer will automatically pressure the domestic market price to drop," the trader said.

The rice on auction was seized from President Agri Trading, which had won it in bidding in 2005 but failed to remove it from government warehouses. Under an agreement, the ministry is compensated by the price gap between what was offered by the winning bidder (Bt9,500-Bt11,000 per tonne in this case) and the price offered when the rice is put on auction again.

The source said it was unfair that President Agri Trading had to pay the compensation to the ministry since it claimed that it had not removed the rice it had bid for due to its poor quality.

Winners of the rice auction last week have to export the rice instead of selling it locally. However, the rice-trader said the government should not have limited its sale to exports and allowed the winners more leeway to release their rice stock.

"If they [the winners] cannot export the rice in a short time it will put a greater burden on them and drop the local price when the new main crop enters the market in the next few months," the trader said.

Meanwhile, President Agri Trading has been accused of embezzling 30,000 tonnes of rice meant for government-to-government export deals with Iran and Indonesia. The trader pointed that the rice stock missing from its warehouse had not been caused by the company but by on-site officials of the Public Warehouse Organisation (PWO).

"The rice could have been sold anywhere along the way to warehouse," the trader said.

On the other hand, the company could have made an illegal deal with the miller who

had to supply the rice to the company's warehouse. In this case, PWO officials would provide documents certifying that the miller had delivered the stock without it actually doing so. The company would then export its own rice stock instead of the government's rice under the pledging programme, with connivance from PWO officials, who have to check the stock before it is shipped.

This tactic also requires cooperation from Commerce Ministry officials to provide the export document.

Under the government's rice-pledging programme, the PWO plays the key roles of checking both the quantity of rice entering government stocks and its quality.

Pranpree Bahiddhanukara, former chairman of the PWO board, said the organisation's management structure and the working practices of its officials needed to be changed.

The corruption in the government's price-intervention programme is common, but the government does not have an effective system of checks to find wrongdoers and take legal action, Pranpree said.

For instance, the PWO has yet to report the details of the pledging programme in 2001. Also there are many cases that the PWO has filed against offending parties that it has not pursued.

Pranpree said the most important factor was political intervention in the PWO. Politicians, particularly the commerce minister, can directly order the organisation to do what they want.

The government has tried setting a reference market price as a guideline for rice-traders and exporters when buying from farmers. This also allows farmers to plan their output.

The strategy has not succeeded due to political interference, Pranpree said.

Achara Pongvutitham

 The Nation