Neighbouring Vietnam, which is currently the world's second largest exporter of rice, last week put a temporary ban on all rice exports after contracted volumes hit a government cap set for this year.
Subsequently prices on the domestic market have been steadily falling, in line with plummeting market demand. Generally prices across the country are reported to have fallen by up to 10 per cent as leading suppliers race to off load stocks on domestic buyers.
"This is a question of supply and demand," said Jef Jordaens for international rice brokers Schepens . "Because there is no demand from importers rice prices are falling as domestic suppliers seek out better deals in the face of the falling competition. Obviously this will help to increase rise stocks in the country but it is not a good situation for the rice producers who will be losing out to markets such as Thailand."
Earlier this week the Vietnam Ministry of Trade announced that it had approved the resumption of sticky and fragrant rice at a restricted volume of 10,000 tonnes per month. But as these exports only make up a tiny proportion of the market - around 2 per cent - it is not thought the move will have a significant impact.
"Vietnam has only just entered into the market for fragrant rice and is up against tough competition from the established leader, Thailand," said Jordaens. "The quality of the Vietnamese fragrant rice is highly regarded on the international markets, but with Thailand able to produce the same sort of quality in much higher volumes, Vietnam still has a long way to become a serious competitor in this area."
The Vietnamese government ordered the export ban at the end of July, after the Vietnam Food Association revealed that the country had signed up to export 3.5 million tones of rice. The government said it had stepped in in an effort to help boost dwindling domestic supplies and to rein in soaring food prices. Meanwhile trade ministers say that export limits should be raised to around 3.8 million tons after the next rice harvest, which should be completed in early Autumn.
The government move has come in for heavy criticism from rice exporters, who claim that other measures could have been more effective and less damaging to their business. Thai exporters are not complaining though, with exporters there currently riding a high.
"This is a very good situation for Thai exporters," said Jordaens. "Demand is constantly increasing for their exports, whilst prices are rising as the market feels the effects of the reduced supply. Meanwhile, until Vietnamese exporters can resume trading this is a very uncertain situation for them."