The strange case of disappearing rice and
disappearing rice exporting company:
The saga of President Agri

Thailand is the top rice exporter in the world (See chart on right).

So the profits from exporting rice must be quite large, one would think.

Last year's big rice export controversy was a mystery that was never solved or resolved.

Furthermore, the company involved in this controversy seems to have returned under a new identity. Spooky, like a ghost story, maybe.

This time the mystery company has bid for all the rice, every last grain, in the latest batch of export rice offered up by the government. 

Bidding by exporters on the first batch of government rice

This year's bidding for government rice by exporters has begun.

The government put 3.1 million tonnes of milled rice up for sale in a tender held on Nov 5.

Expected losses on government rice sales run as high as 33 billion baht. There is a big difference between what the government paid for the rice and what exporters are prepared to pay for the rice:


Why are the prices bid by exporters so much less than the current market price?

Prices are expected to fall further over the next few weeks. Due to the global economic downturn all commodity prices have been falling, so demand is weak. Even 10 million tonnes of exports by year end may not be achievable.

The supply of rice on the market also jumps after each harvest as large quantities of rice enter the market. This month alone around 23.8 million tonnes of rice are expected to enter the market.

Problems with government rice auctions

Auctioning off government rice has been plagued by different sorts of problems in the past.

First, manipulation of the bidding procedures by government officials who do not make bid prices public can provide opportunities for corruption and rent-seeking.

Second, rice exporters have not paid the government for the rice they bought (payment defaults).

One way of protecting against rice traders not fulfilling their contract is to ask for a large deposit or guarantee up front. Currently, only a five percent deposit is required.

This year companies have to pay in full for rice before they take it away from government warehouse. According to Commerce Minister Chaiya: "We're thinking of a new approach which requires that the winners place bank guarantees in full for all the rice they have taken away from the government's warehouses. Rice withdrawals may be made in lots to ease the financial burden of the exporters."

A couple of weeks ago the news was that government warehouses were not big enough to hold all the new rice purchases. Doesn't Mr. Chaiya's new plan require even more warehouse space than last year?

An even bigger problem seems to be knowing whether rice has left government warehouses or not. This was the key issue in last years's biggest rice export dispute, as we shall see.

The ghooost of rice exporter President Agri? 

Last year President Agri Trading, at that time Thailand's largest rice exporter, got involved in a big dispute with the government over rice missing from government warehouses. President Agri seems to have returned this year under a new identity.

The company Siam Indiga, an alleged subsidiary of President Agri Trading, has offered to buy up all of the three million tonnes of milled rice currently offered for sale by the government at an average price of 15,200 baht per tonne.

Another obvious question: Where did President Agri go? Did the company just disappear? This company was the largest rice exporter last year. Strange.

Where did that rice go? No one knows....

Last year President Agri was accused of embezzling 34,000 tonnes of government rice worth more than 300 million baht.

President Agri was allocated 65,000 tonnes of government rice for delivery to Iran and 20,380 tonnes to Indonesia.

President Agri later notified the government that it could not deliver this rice to Iran and Indonesia.

President Agri claimed that government warehouse officials from the Public Warehouse Organisation (PWO) had probably made a mistake and overstated the amount of rice delivered to President Agri's rice warehouse.

President Agri claimed that its warehouse was simply not big enough to hold all the rice that the PWO claimed it had delivered: "the Samut Prakan warehouse, with 4,444 square metres, was far too small to hold 45,000 tonnes as alleged, considering that three tonnes typically required one sq m of space."

At about the same time President Agri was also the subject of lawsuits by creditors seeking repayment of 12 billion baht in loans in default.Strange.

To summarize, the problem was that PWO claimed President Agri had removed the rice from government warehouses and President Agri claimed that it never removed the rice.

Who's lieing?

Obviously, someone is lieing. Is it the PWO or President Agri?

Can't the police investigate and solve this mystery?

Commerce Minister Chaiya's new system of exporters paying in full before taking rice from government warehouses won't solve this problem.

Will there be more mysteries like this in the future?

(Source #1: Bangkok Post, business, Changes to state rice bid rules urged, 12-11-08, link)
(Source #2: Bangkok Post, business, Singapore trader proposes big corn buy from state stocks, Phusadee Arunmas,11-11-08, link)
(Source #3: Bangkok Post, business,  President Agri faces fresh fraud charges, Phusadee Arunmas, 05-09-07)

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Vocabulary:

a saga - a very long story
a controversy - an issue that people argue about a lot with great emotion
resolve a controversy - solve the disagreement that people are arguing about
spooky - frightening (makes you feel like there are ghosts around)
a grain of rice - one little piece of rice
a batch - a collection of things of the same kind
put up for sale - offer for sale
a tender - a formal offer with a price
a rice price support programme - a government programme to keep the price of rice at a certain level to help farmers
plagued by Y - suffer from problem Y
an auction - a sale where people offer what the price they are willing to pay, the highest price wins and gets to buy
make bid prices public - the different prices offered in the auction are made public
rent-seeking - In economics, rent seeking occurs when an individual, organization or firm seeks to make money by manipulating the economic and/or legal environment rather than by trade and production of wealth.
payment defaults - failing to make a payment on time
fulfilling a contract - doing what is required of you in a contract
a deposit, a guarantee - a percentage of the full price paid when you agree to buy (if the full payment, to be made later, is not paid the buyer loses the deposit)
up front - when a payment is made in advance (so that the money can be seen)
pay in full - pay all the money for a purchase now (instead of spreading it over several payments)
alleged - claimed but not yet proven (may never be proven)
embezzle - take something placed in your care and use it illegally for gain
Public Warehouse Organisation (PWO) - the government agency that stores rice bought by the government
overstate - say that it is more than it really is
lawsuits by creditors - when lenders try to get back the money from borrowers through the courts and legal system

Posted by Jon Fernquest at 03:35 PM | Permalink | Comments (0)