Bank for Agriculture and Agricultural Co-operatives to increase its estimates for rice-related loans
Monday, April 28, 2008

BAAC preparing for boom in rice-related lending

Soaring rice prices over the past two months have led the Bank for Agriculture and Agricultural Co-operatives to increase its estimates for rice-related loans this year by as much as 50%.

With rice prices now quoted at more than $1,000 per tonne in the global market, farmers across the country are gearing up to expand their plantation areas to cash in on the boom.

Demand for credit from the state-owned BAAC as a result has jumped sharply, with bank executives now estimating that rice-related loans could reach 100 billion baht this year, or double last year's figure.

The BAAC had originally projected new loans of 325 billion baht for the 2008-09 fiscal year starting earlier this month. Of the total, 67 to 70 billion baht was budgeted for supporting rice farmers.

But in recent days, the bank has moved to reserve another 20 to 30 billion baht to support rice lending, after loan demand estimates were increased to more than 100 billion baht for the year. The bank extended 53 billion baht in rice-related loans last year.

The budgeted funds cover loans for fertiliser, seeds and pesticides, as well as for irrigation projects to support new plantations.

Officials at the Agricultural Economics Office last week estimated the plantation area for rice would reach 71 million rai for the upcoming crop, the largest in two decades. Up to 800,000 rai of abandoned fields, mostly in the central provinces, are being revived to plant rice, while another 11 million rai in the central plains that already have irrigation systems would be tapped for second crops.

Prasit Boonchuey, the president of the Thai Farmers Association, said that while rice prices were surging, land prices in provincial areas had yet to jump.

''Prices haven't moved up much since no one knows how long the rice price boom will last,'' he said.

''In addition, most farmers don't have the cash on hand to buy land to expand their crops. If they borrow the funds, it's hard to cover the interest expenses.''

He said production costs averaged 5,600 baht per rai, with each rai yielding around 700 kilogrammes of paddy. ''So for every two rai, you need 11,200 baht to cover costs out of which your revenues may be around 19,600 baht, leaving you a profit of 8,400 baht total. If you have to pay interest, it's just not worth it,'' Mr Prasit said.