Thailand said Wednesday that it would slash the price paid to rice farmers under a controversial scheme that caused the kingdom to lose its place as the world's top exporter of the commodity last year.

The country has paid its farmers around 50 percent more than the market value for rice since 2011 in an effort to boost incomes in the rural heartlands of the ruling party.

The government tries to sell the rice in world markets but faces stiff competition from rival producers such as Vietnam and India, and lost about 137 billion baht ($4.5 billion) from the scheme in the year to January.

In an effort to reduce the cost, the price paid will be reduced by 20 percent, to 12,000 baht ($388) per ton, according to Prime Minister Yingluck Shinawatra's office.

"We have to lower the price because this scheme has cost a lot of money," said Varathep Rattanakorn, a minister attached to the PM's office.

While the policy has proved popular in impoverished rural areas, political opponents say the scheme is designed to curry favour with farmers in northeast Thailand whose support helped sweep Yingluck to power in 2011.

Her older brother Thaksin Shinawatra, who was ousted as prime minister by royalist generals in a coup in 2006, is hugely popular in rural Thailand thanks to his populist policies while in power.

Corruption allegations have also swirled around the rice scheme amid claims some farmers have not received full payment.

This year Thailand is forecast to buy 22 million tons of the grain at a cost of up to 500 billion baht, a cabinet statement said.

A cap of 500,000 baht will be introduced for each family per harvest.

The government has previously said it is confident that it can find buyers for its rice on world markets at a price that will raise the living standards of its farmers.

It says it has signed deals to sell rice directly to other countries, but exporters have reported a glut of unsold stocks.

Since Thailand began buying rice at inflated prices it has been overtaken by both India and Vietnam as a global rice exporter.

But a government spokesman denied the scheme had hurt growth or been a failure.

"The price revision is due to the fluctuation of the global economy and the weakening of the baht," Teerat Ratanasevi told reporters.