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15 Jul 2020

Econ Digest

The import of rice under AFTA (May 1st-September 30th of each year) helps food processing operators in managing raw materials and controlling production costs

        The Ministry of Commerce held a meeting in June 2020 to revise the Announcement of the Ministry of Commerce on the Importing of Rice into the Kingdom of Thailand under the ASEAN Free Trade Agreement B.E. 2553 (2010), aiming to ensure that the import of rice into Thailand properly complies with the ASEAN Free Trade Agreement (AFTA) and at the same time contributes to national economic stability. The principle of the draft Announcement of the Ministry of Commerce on the Importing of Rice into the Kingdom of Thailand under the ASEAN Free Trade Agreement B.E. 2563 (2020) is that imported rice must be used as a raw material in the food processing industry by food manufacturers, with the exception of the mill processing industry (rice milling) and animal feed. The public hearing on this draft was conducted during June 23rd to July 22nd, 2020.   
         KResearch believes that the draft announcement will not affect rice production in Thailand when it becomes effective, because the import period is set to avoid the period when rice output normally enters the market. The new import period is specified as one single period over May 1st – September 30th of each year (which was originally divided into two periods, i.e. from May 1st – July 31st and August 1st – October 31st), coinciding with the period when domestic rice production decreases due to seasonal factors of drought and dry spells; therefore, it would be better to adjust the start of the ban on importing of rice to October, the month the rice output continues to flood into the market. At the same time, the prices of rice are seasonally high during the proposed import period, reflected by the average price during May to October being higher than the average price for the rest of the year. Overall, the import of rice during the proposed period will have no significant impact on farmers’ income, due to being a low produce season and the fact that most imported rice falls into the hands of rice mills or rice distributors. In addition, the import of rice will not affect the production of other forage crops in the country, such as forage maize, cassava, soybean, etc.       
         In terms of processed food manufacturers that use rice as a raw material (accounting for 12% of domestic consumption), such as for snacks, rice noodles and rice bran oil, it is expected that they may benefit from rice import during the specified period. This is because there is often a shortage of raw materials to feed plants during such periods, causing competition over the acquisition of raw materials between manufacturers, resulting in uncertainty of raw material supply. Although the low produce season is during May to October, rice processed food manufacturers are still able to increase production, indicating that there is no shortage of raw materials as the gap can be filled by imports. Therefore, allowing the import of rice for processing during such periods should help processed food manufacturers to continuously and systematically manage raw materials and effectively control production costs, because rice can be purchased at a cheaper price during periods when the price of rice is usually high. However, the import of rice under the AFTA may affect those who store rice in advance, in particular rice mills in production chains of the food processing industry.         
         However, there are still some concerns, for instance the lack of limits on import quantity (Quota), which may affect the production and prices of rice in the country when a large number of requests for import incurs, as well as the problem of illegal rice smuggling along the border. In addition, a close eye shall be kept on the quality inspection of rice at quarantine stations, while genetic editing of plants and diseases/pests  require inspection at various import points. In the past, Thailand’s import of rice under the World Trade Organization (WTO) framework was levied at 30% tariffs for imports within the quota and 52% for imports exceeding the quota, and the rice imported has mainly been rice varieties that cannot be produced in the country, such as Japanese rice (short-grain rice) and Indian basmati rice for use in the restaurant business, while the proportion of rice imports is small compared with the total rice trade in Thailand.   

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