The government will begin auctioning 2 million tonnes of rotten rice by the end of November, looking to offload stockpiles of the staple grain built up under the rice-pledging programme.
The world's second biggest rice exporter after India is holding about 13 million tonnes of rice bought at higher-than-market prices to help farmers, a scheme that cost the country hundreds of billions of baht.
Some 2 million tonnes of the stored rice that has been judged unfit for human or animal consumption is to be auctioned away for such industrial uses as producing ethanol.
"Within this week the Foreign Trade Department at the ministry will announce the terms for selling the ruined rice," said Chutima Bunyapraphasara, the Commerce Ministry's permanent secretary.
It will be the first time rotten rice has been sold from Thai stockpiles strictly for industrial uses.
Of the 13 million tonnes still in state warehouses, around half is "below-standard or rotten", said a Commerce Ministry statement.
The ministry plans to start this month's auction in lots of between 1,000 and 6,000 tonnes, Ms Chutima told reporters, with interested buyers able to inspect the stocks and submit their bids by the end of the month.
Analysts have said the rotten rice would be sold for far less than edible stocks.
Since last year, the government has auctioned off 5 million tonnes of rice through several tenders, with sales worth about 5.2 billion baht, the ministry said.
Thailand accounts for about a quarter of the global rice trade and so far this year has exported around 8 million tonnes, earning the country around 127 billion baht. The goal of exporting 10 million tonnes this year to regain the crown as the world's top exporter likely will not be met, said the Commerce Ministry.
India was the top rice exporter in 2014, eclipsing Thailand after its multibillion-dollar subsidy scheme led to a massive build-up of rice in storage.