How Thailand became the world's largest rice exporter

Thailand has been the world's leading exporter of rice for decades, and the close links with Hong Kong traders have been crucial.

The country then lost its number one ranking in 2012 due to a disastrous aid programme by the government of Yingluck Shinawatra.

Like many successful Chinese-Thai businessmen, Vichai Sriprasert was introduced to the Chinese work ethic at an early age.

"My grandmother used to say:

Be honest, work hard and don't spend anything," says 75-year-old Vichai.

He grew up with his grandmother in Bangkokwhile his parents worked in the province ofAyutthayaHe was the head of his family's rice mill in central Thailand.

Despite his grandmother's maxim, the family was willing to spend money on education and sent Vichai to the US, where he studied economics at the University of Michigan.

He returned to Thailand to help his father's rice business in the 1970s.

He persuaded his father to export parboiled rice instead of ordinary white rice or jasmine rice.

"What I learned in school was product differentiation," says Vichai.

"You have to do something to make sure your product is not the same as your competitors."

Parboiled rice is soaked in hot water and then steamed so that the starches gelatinise in the rice grain, giving it a translucent appearance and a hard texture that makes it durable.

Vichai introduced US-based parboiling technology to Thailand and began exporting parboiled rice to new markets.

"I controlled the South African market for decades by substituting American parboiled rice because our rice was about USD 100 cheaper per tonne," says Vichai.

"I made a lot of money."

Thailand is now a major exporter of parboiled rice, which accounts for almost a third of the country's annual shipments of between 10 and 11 million tonnes.

Export markets include Africa, Europe and the Middle East.

Thailand is the world's largest rice exporter

Thai Buddhist monks walking through a rice field

For decades, the country was the world's largest exporter of rice.

It replaced Myanmar after 1962, when General Ne Win staged a coup and turned Burma's once thriving economy into a socialist affair, crippling the rice export sector in the process.

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Although the country is the world's third largest rice exporter in 2020, Thailand has long had a rice surplus of around 10 million tonnes per year.

This is due in part to the large dams built in the 1950s and 1960s that feed an irrigation system into the lush central plains, as well as the business acumen of its rice exporters.

Long before that, dating back to the mid-19th century, Thailand exported rice to southern China.

The rice trade, like most lucrative activities, was a royal monopoly until the enlightened reign of King Mongkut (1851-1868).

King Mongkut, a scholar, liberalized the rice trade at the beginning of his reign and opened the kingdom to international trade with the Bowring Treaty in 1855.

Rice has spawned many Sino-Thai fortunes, such as those of the Wang Lee (banking), Bulakul (property), Trivisvavet (construction) and Assakul (glassmaking) business clans, all of which started out in the rice business.

"The first rice merchant Wang Lee was based in Swatow (today's Shantou)," said Sanan Wanglee, general manager of Lhong 1919, a former port and warehouse depot on the Chao Phraya River in Bangkok that has recently been turned into a tourist attraction.

"He started trading rice from Hong Kong for sugar from Swatow and, after he became a shipowner, he started trading rice from further afield, from Thailand."

The Wang Lees migrated to Thailand in the 1850s and eventually became a major player in the rice trade.

"Chinese soldiers would come here with tea, silk and ceramics and leave with rice," says Sanan.

The Wang Lee family then diversified into finance, first to manage remittances from Chinese workers in Thailand, and then to establish the Wang Lee Bank, later renamed Nakornthon Bank.

Wanglee still exports rice and is one of the oldest members of the Thai Rice Exporters Association (TREA), a largely Sino-Thai club, whose members are responsible for about 90 % of Thailand's rice exports.

When Thailand began to develop its rice exports in the 1960s, its first major export market was Hong Kong, where trade was facilitated by language.

Many Hong Kong rice importers are Teochew(speakers of Teochew or Chiu Chow come from Fujian Province or the eastern part of Guangdong Province in southern China).

Vichai, President and CEO of Riceland International, is a fourth generation Chinese Teochew.

"Most rice importers in Hong Kong remain in the Sheung Wan district on Hong Kong Island," said Charoen Laothamatas, President of TREA.

"They have an association of rice importers there and I would say half of them are Teochew."

The Bangsue Chia Meng rice mill, for example, has been exporting jasmine-scented rice to Hong Kong for 60 years under its Golden Phoenix brand.

"Hong Kong was our first export market," said the company's managing director Vallop Manathanya.

"We have two important clients in Hong Kong and my uncle can speak Teochew with them so they can communicate."

Bangsue Chia Meng is now a major exporter of jasmine rice to the world.

"The Hong Kong market was good for our reputation," said Vallop.

"Our customers are Chinese people who have migrated around the world and when they want good rice from Thailand, they ask their connections in Hong Kong."

How Thailand lost its 1st place

Thanks to its good connections in Hong Kong, Vallop was able to survive the collapse of Thailand's rice export sector under the Thai government's "populist rice purchase programme" from 2011 to 2014.

This programme was led by Yingluck Shinawatra, sister of Thaksin Shinawatra.

Thaksin is a business tycoon turned politician who now lives in exile, as does his sister Yingluck.

In September 2017, Yingluck was sentenced in absentia to five years' imprisonment for negligence in the rice purchase scheme that promised Thai farmers to buy "every grain of rice" at prices 40-50 % above market rates.

The policy has cost the country around 600 billion baht (€15 billion) and was one of the justifications given by the military for its 2014 coup, which ended the country's civilian government.

This policy also led to the fall of Thailand, which had long been the world's largest rice exporter, and was replaced by India in 2012.

Thai rice exporters have not been able to compete on the world market.

Exports fell to around 7 million tonnes in 2012 and only returned to the previous level of 10-11 million tonnes in 2014.

During the Yingluck years, Thailand's share of the Hong Kong rice market fell from 90 % to 45 %.

Since then, it has gone up, but it will never be the same again.

"Before (Yingluck Shinawatra's policy), Hong Kong's high-end market never bothered to buy jasmine rice from neighbouring countries like Vietnam and Cambodia, because they didn't trust the quality," says Chookiat Ophaswongse, honorary president of TREA.

"But they were forced to buy during the operation because our price was too high.

Vietnam controlled 20-25 % of the jasmine rice market in Hong Kong in 2018, and Cambodia is also on the rise.

Needless to say, TREA was not a supporter of the guaranteed rice price programme, nor of any of the other populist policies involving rice cultivation, which still employs about seven million Thais, a significant voter bloc.

"Politicians like to spend money on raising the price of rice, but not on the production side," said Chookiat.

"As a private sector association, we have become much more involved in agriculture than in the past.

We can't rely on the government, so we try to help ourselves.

Under Charoen, TREA distributed soft variety rice seeds, popular in Hong Kong and China, to Thai farmers in the central plains in 2018 with the aim of diversifying Thai rice production.

They pay farmers above the market price for new varieties.

Vallop did something similar with jasmine rice growers in north-eastern Thailand in 2014, offering them better quality seed and introducing a new, more economical sowing method.

Its farmers were able to increase their income by 40 %, which helped Bangsue Chia Meng recruit nearly 2,100 farmer families into the programme in 2018, up from 53 in 2014.

While Thai rice exports face increasing competition from their neighbours - India, Cambodia, Myanmar and Vietnam - global warming, soil degradation or the use of modern cultivation methods seem to be an additional challenge.