The government has stepped up efforts since July to dispose of inventories even at a loss to free up storage space and raise funds, the United Nations agency said in its quarterly report on the global market. The reserves, described as huge, will still climb to 20.4 million metric tonnes next year even as exports rebound 26% to 8.5 million tonnes, the FAO said.
Prime Minister Yingluck Shinawatra's administration, which fended off violent demonstrations across Bangkok over the past week by protesters seeking her removal, started its rice-buying programme in 2011. The policy, designed to boost rural incomes, spurred the buildup of record stockpiles as output rose and exports fell. The International Monetary Fund (IMF) said last month the programme should be replaced, warning that left unchanged it would hurt confidence in public finances.
"The government continues to face significant pressure over the financial implications of its high price-support policy,'' the FAO said. "There have been renewed efforts by the Thai authorities to offload supplies from public granaries to secure funds for the continuation of the programme.''
The price of Thai 5% broken white rice, an Asian benchmark, tumbled 23% to US$450 (14,400 baht) a tonne this year, helping to cut global food costs. Rice prices will probably come under increasing downward pressure as the government tries to reduce the stockpiles and global supplies rise, said the FAO.
While the comments from the IMF were rejected by ministers, they followed Moody's Investors Services remarks in September that the programme heightened risks for Thailand achieving its goal of a balanced budget by 2017. A committee representing World Trade Organisation members asked for more information earlier this year after the United States, European Union, Australia and Canada questioned if Thailand was breaching support limits.
The expansion of Thai stockpiles will help global milled reserves gain 2.6% to 179 million tonnes in 2013-2014, rising for a ninth year, said the FAO. World rough-rice production will expand 1.1% to a record 741.1 million tonnes, with Thai output rising 3.9% to 38 million tonnes.
"Greater competition resulting from an increase in Thai supplies in the world markets is expected to come to the detriment of a number of suppliers,'' said the FAO, citing India as the most at risk. India will be the world's largest exporter this year, according to the US Department of Agriculture.
While there has been meek interest from potential buyers in the 1.1 million tonnes offered for sale by Thailand since July, signals of the Thai authorities willingness to accept sales at a loss were enough to weigh heavily on market sentiment, said the Rome-based agency.