The government's delay in paying farmers for rice earmarked for the pledging scheme has resulted in declining domestic paddy prices, say traders.
The average local paddy price is now only 6,500 to 8,000 baht a tonne, far lower than the 15,000 baht offered by the government.
Manat Kitprasert, president of the Thai Rice Mills Association, blames this on two reasons.
One is the government's delay in paying farmers. The other is the new rule limiting each farmer to a maximum amount pledged, no more than 350,000 baht's worth per household, prompting them to sell the grain outside the scheme.
Rice millers are normally happy to buy cheap paddy to turn a profit, but they are also suffering since prices of milled rice are dropping too, he said.
Paddy with 15% moisture content now goes for 8,000 baht a tonne compared with about 10,000 baht over the past couple of months.
"Paddy fresh from the field with high moisture content is lower, 6,500 to 7,500 baht a tonne," said Mr Manat.
He said many vouchers are being held by farmers waiting to cash them in at the Bank for Agriculture and Agricultural Cooperatives (BAAC), the creditor of the rice-pledging scheme.
The government set a fund of 679 billion baht to buy 42 million tonnes of paddy starting in October 2011.
Grain being bought for 40% above market price for two years has hurt the competitiveness of Thai rice and resulted in a large state stockpile, estimated at 16-17 million tonnes.
That volume is the biggest Thailand has held at any one time and is proving problematic for the government to release, considering the stagnant global rice market.
Some academics and traders peg losses from the scheme at more than 250 billion baht, stemming from lower selling prices than the pledging level together with rampant corruption.
Cheap paddy from neighbouring countries has been smuggled in to sell to the scheme for large profits.
The burden has forced a scheme revision, and one solution is the new curb on the amount farmers can pledge.
As well, slow exports of pledged rice by the Commerce Ministry has prompted the government to return some of the money to the BAAC for use as a revolving fund for the next pledging season, another reason for altering the scheme.
However, Mr Manat said 2 million tonnes of paddy have been bought in the 2013-14 season, and he cannot tell how they will enter the market.
Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association, said the export price of Thai rice has come down very close to that of Vietnam.
"We're offering 5% white rice at about US$400 a tonne, only $15 more than the same type of rice quoted by Vietnam," said Mr Chookiat.
Normally, Thai rice is about $100 higher.
Prices may be cheap, but foreign buyers are opting to wait for them to fall even more.
They know Thailand has a large stockpile of rice, that the scheme is broke and the government will unavoidably have to sell it for cheap prices.
As well, domestic rice prices are expected to worsen further after a recent survey indicated high production levels of Hom Mali rice, totalling about 6 million tonnes.
The Commerce Ministry, which has returned to the BAAC 140 billion of the 679 billion baht it borrowed for the 2011-12 and 2012-13 harvest seasons, is scheduled to return another 10 billion by year-end.
It plans to sell 300,000 to 400,000 tonnes of rice from those two crops this week to find more money to return to the BAAC.