Thailand's rice traders shift focus

With a profit margin as low as 10 cents to the dollar, the rice business is increasingly unattractive for Thailand's legendary rice traders.

Thailand's historic rice-trading area on Bangkok's Songwad Road may not be permeated by the smell of grain and rice dust much longer, as exporters diversify to protect their businesses from market fluctuations and politically shifting government policies.

The property, energy and service businesses are popular sectors they have moved into to capitalise on higher margins. In particular, office buildings or condominiums in Bangkok's prime areas generate high income at an average of Bt80,000-Bt100,000 per square metre. Such prices create profit of at least 10-20 percent for investors.

Soon Hua Seng Group, once the Thailand's biggest rice exporter, has turned away from the rice business to focus mostly on pulp and paper through its Double A printing-paper brand and is now pursuing a new challenge as a small power producer. Rice and other crops no longer form the group's core business.

In another example, Hong Yiag Seng (Thanapornchai Rice) has shifted to other lucrative business, particularly TPI Polene, a cement manufacturer.

The diversification of the industry has relegated the Thailand's Rice Trading Road to legend status. For nearly 100 years, Songwad Road was not only the country's biggest rice-trading area but also the heart of the Chinese community in Bangkok, where the wealth of many well-known Chinese-Thai families was generated.

This changing environment raises questions on whether it will undermine Thailand's status as the world's biggest rice exporter. In addition, severe competition from export rivals, particularly Vietnam, Cambodia and Burma, as well as the regional integration through the Asean Economic Community by 2015 will affect Thailand's rice business.

The business diversification has occurred over the past 20 years as rice traders sought to avoid not only high risk but speculation. In addition, rice exports generate low margins despite large sales volumes.

"With these factors, Thai rice exporters have to explore other businesses to secure their profits," said Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association. Chookiat is also managing director of Huay Chuan Rice, a pioneer rice exporter on Songwad Road. The family now has also undertaken such businesses as a hotel in Phuket, manufacturing Pheasant bicycles, and plastic manufacture.

Charoen Laothamatas, president of Uthai Produce, pointed out that continuing in the rice business was very difficult now amid tougher competition both in the country and overseas. The business has not attracted the young generation, who like working with digital technology and modern facilities.

Meanwhile, rice millers have developed to become exporters, playing an important role in maintaining Thailand's place as the world's No 1 rice supplier.