BANGKOK – Thailand’s rice exports this year will reach an estimated 5.8 million tons, earning the country some US$3.4 billion, the lowest level in 20 years, industry sources say.
Thailand held the rank of the world’s leading rice exporter for almost four decades before first losing the title in 2012, thanks to a disastrous populist rice price support scheme under then-Prime Minister Yingluck Shinawatra (2011-2014) that boosted Thai rice prices paid to traders 40% above market prices.
Since then Thailand’s rice exports have been further undermined by stiffer competition from India and Vietnam and two years of drought. But the latest challenge to Thai rice competitiveness may be longer-lasting – a fast appreciating baht currency.
The baht has appreciated more than 6% against the dollar since July 20, 2020, when it was 31.8/$1 (compared with 29.8/$1 on December 17). That’s making not only rice but a host of other export products less competitive on global markets.
“It’s not that the Thai baht is too strong, but that the US dollar is too weak,” Stanley Kang, president of the Joint Foreign Chambers of Commerce Thailand (JFCCT), said. “The Federal Reserve in the US is printing money and the amount of money they are printing is even more than during the 2008-2009 crisis, so the volume of US currency is challenging.”
To weaken the baht, other than via outright currency manipulation, Thailand needs to transform its current account surplus into a deficit, which it could do by increasing imports either to supply materials and machinery for oft-delayed infrastructure projects or for private investments, economists say.
Another tactic might be to encourage more private consumption of foreign-made goods, although this seems a bit of a long shot with household debt already at 84% of GDP by 2Q20 and on the rise.
Jitipol Puksamatanan, senior vice-president at Chief Investment Office, SCBS, has argued that the Bank of Thailand should stop worrying about the strong baht’s adverse impact on Thai exports and refocus on its benefit for Thai importers and consumers.
“My theory is that we should shift a bit, and focus on common people,” Jitipol said. “If common people think their purchasing power has increased 10% a year with the strengthening of the baht, I think they will increase their individual investment, their individual consumption, the lifestyle will shift from buying cheap phones to more expensive iPhones. I think they will eventually turn into another growth engine of the economy instead of just exports.”
That may be too radical an idea for Thailand’s conservative, export-focused policymakers and in a country where rice production is still seen as the agrarian soul of the nation.
The price of Thai rice has risen this year due to both drought-induced supply shortages in the main November-February harvest season and a comparatively strong baht-dollar rate to an average of $520 per ton, compared with $370 per ton for the same grade Indian rice and about $500 per ton for Vietnamese rice.
India will export a record-breaking 13.7 million tons this year, Vietnam 6.7 million, while Thailand will rank third at 5.8 million. Last year, Thailand exported 7.5 million tons of rice, earning the country $4.2 billion.
But a Covid-caused shortage of shipping containers is also hampering rice exports.
“The problem now is that we are short of containers, because a lot of containers have been stuck in the USA and Europe,” said Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association.
Thailand has enjoyed a trade surplus with the world for years, resulting in an annual imbalance in freight with more exports being shipped abroad than imports shipped in, meaning many containers arrive in the kingdom empty.
Covid-19 has exacerbated the problem. The pandemic has slowed freight handling in the US and Europe, and the global slowdown in trade has prompted many shipping lines to just keep their containers at home ports.
Thailand is facing a shortage of more than 1.5 million containers this year, according to estimates received from the private sector by the University of Thai Chambers of Commerce (UTCC).
This container shortage means that freight charges have risen in the time of Covid by as much as 30%, and in some cases there simply are no containers available for Thai exporters.
Many Thai rice exporters have not been able to meet orders in the November-December period due to the lack of containers to ship the commodity.
“We are losing our opportunities,” Chookiat said. “Normally Nov-Dec are good months for Thai rice exports. We normally ship 800-900,000 tons a month now, but this year it will be only 600,000 tons a month.”
Thailand’s overall exports are expected to contract by 7.4% in 2020, better than the 8.2% contraction initially predicted by the Bank of Thailand (BOT).
After an abysmal 1H20, which included two months of lockdowns in April-May, both exports and domestic consumption started to pick up in 3Q20, prompting the BOT to lower its forecast for gross domestic product (GDP) contraction to 6.6% from an initial 7.8%.
“Exports are doing better, even though the baht is struggling,” said Kang.
While exports, particularly of electronics and automobiles, saw a slight recovery in 2H20, the persisting challenges of a strong baht and weak demand in Thailand’s traditional markets in the US and Europe mean prospects for the first half of 2021 are also dim.
“There are second waves of Covid in the US and some European countries, and it will get worse in the wintertime in these countries,” said Kang, who is in the textile business. “That means that the 1Q21 is gone and 2Q21 will not be back yet, so half the year is gone. It’s like everyone is hibernating. We have to become a big bear.”
Economists expect overall exports to grow by 4-5% next year, hinging on the vaccines being distributed in advanced markets and a hoped-for revival of global consumption. “Exports will only recover to the pre-Covid level by 2022,” predicted Kirida Bhaopichitr, research director for International Economics at Thailand Development Research Institute (TDRI), a Thai think tank.
Exports still comprise about 70% of Thailand’s GDP, so until shipments are back on track the economy will struggle. The complete collapse of the foreign tourist market (accounting for 12% of GDP) has guaranteed that growth will be flaccid in 2021 (the latest estimate is that 5.5 million foreign tourists will arrive in 2H21, down from 6.7 million in 2020 and 40 million in 2019).
A second outbreak of Covid in Thailand, which seems to be underway, will likely keep the tourism industry in the doldrums in 2021.
The collapse of airlines’ passenger traffic has also had an impact on cargo rates, providing yet another blow to Thailand’s export engine, although one suffered by the rest of Asia as well.
“The airlines are making money because of cargo, and the air cargo price has gone up three times,” Kang said. “When the price goes up three times while the oil prices are still low, it means that they are making money and because cargo requires less staff, they are making a lot of money.”
As with shipping freight, most of the Asian airplane cargo in the time of Covid is one-way, and China is the main customer.
“Exports from China to the USA are going up, because more people are staying at home because of Covid, so they will work from home and they just spend their money on buying household products via e-commerce and all these electronic goods are made in China, or other Asian countries,” Kang added.
Vietnam has also benefitted from the shift in demand during Covid, especially in the US market.
Vietnam’s trade surplus grew to about 9% of GDP in 2020, with much of it accounted for from exports to the US. In the first 10 months of 2020, its trade surplus with the US hit $56 billion.
“The surge has been driven by a jump in exports of these so-called stay-at-home goods, particularly to the USA,” said Michael Kokalari, chief economist at Vina Capital, a private equity fund. “Vietnam’s exports to the US in the first 10 months were up by 24%.”
In punitive response, the US Treasury Department on December 17 designated Vietnam as a currency manipulator, as it met the three conditions of having a trade surplus in excess of $20 billion with the US, notching up foreign currency intervention exceeding 2% of GDP and a current account surplus of more than 2% of GDP.
In the same report Thailand was placed on the US Treasury Department’s “monitoring list,” having met two of the conditions with a trade surplus of $21.7 billion with the US in the first 10 months of 2020, and its current account surplus this year, while on the decline, should well exceed 2% of GDP (it was 7% of GDP in 2019).
The warning shot for Thailand, perhaps a parting blow from the outgoing administration of President Donald Trump, comes at a time when the BOT is struggling to keep the baht from appreciating excessively against the US dollar, in what appears to be a doomed battle.
The government’s successful 50/50 co-pay scheme – in which the government pays for 50% of a purchase via a smartphone app to registered vendors – has shown that domestic consumption is still an engine of economic growth, albeit now a state-subsidized one.
“Household debt may be 90%, but it’s a different story if you look at interest rates,” Jitipol said. “Ten years ago the interest rates were 5-6% on a car purchase, or house purchase. Now the mortgage interest rate is below 2%, so the cost, even with larger debt, is not harmful.”