Thailand is set to sell half-a-million tonnes of rice on world markets at a loss, as it scrambles to offload a record stockpile deteriorating in quality in warehouses filled with grain bought under a government scheme.

The two-year old policy to pay farmers more for rice than it is worth on international markets is straining the country's finances, has cost Thailand its spot as world's top exporter.

The government is looking at measures to stem ballooning losses so far estimated at $6 billion.
A Thai official this month also said the government might cut the price it pays to a level closer to the value of rice in international markets, causing an angry response from farmers. Bangkok may also stop buying lower quality strains of rice.

Rival producers such as India and Vietnam, who have stepped into the vacuum caused by the exit of Thai exporters from the market, are watching closely in case Thailand is forced to dump millions of tonnes of rice onto well-supplied world markets, causing prices to slump.

A Commerce Ministry official said Thailand planned to release up to 500,000 tonnes from older crops onto the market by April, and that the sale would be based on market prices.

"We accept that some of the rice is from the previous crop which is quite old and the quality is not very good, so it’s impossible to ask for very high prices," said Thikumporn Nartworathus, deputy director of the foreign trade department of the Commerce Ministry, adding it would be sold via a tender or government-to-government deals.

Traders and industry officials say the government will suffer big losses if it sells now with plentiful supplies from India and Vietnam, and with the baht hitting a 16-year high this month, making Thai rice more expensive in dollar terms.