Thailand Rice traders harvest new businesses

New generation turns away from historic Songwad Road to find more lucrative opportunities Profit margin as low as 10 cents to the dollar is making the rice business increasingly unattractive for Thailand's legendary rice traders. The Kingdom'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 per cent for investors. Soon Hua Seng Group, once the Kingdom'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 Kingdom'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. "The rice business has no textbook to teach you how to manage it, but one has to do it with heart, sense and serious intention. In addition, there is a lot of political interference," he said. "Rice trading does not make a lucrative profit as in the past. Now, you have to be satisfied with a 10-per-cent margin on an order." Charoen suggested that if |anyone wants to succeed in rice export, the scale of investment should be at least Bt1 billion. He noted that political intervention |in the government price-subsidy programme had caused a lot of problems along with severe price competition from export rivals. Inevitably, Charoen has also entered the hotel service business, opening Dheva Mantra last year with an investment of Bt800 million. It is a premium resort and spa in Kanchanaburi with full facilities. Chockchai Sethiwan, an executive of Thai Hua (2511), said Songwad Road was now just a rice-trading legend. There is only small-scale trading of beans and cereals at present instead of the crowded bargaining environment between brokers and traders as in the past. While the history of the area is preserved in the form of a few historic buildings still owned by pioneer rice exporters, the businesses themselves have moved into modern offices, Chockchai said. He noted that the fluctuating rice price was the most important factor forcing rice exporters to explore new business opportunities. Chockchai's property business has focused on office buildings, service apartments and residences. Its latest interest is to form a joint venture with a Thai partner to set up a solar-energy business. The companies carry on with their rice export business parallel with diversified business not only to reduce risk but to accommodate their older staff who have accumulated long experience in the rice business. While the future for the old way of business may not be bright, the way has been paved for new enterprises, creating business opportunity for newcomers. 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.