FACTBOX-How the Thai government's rice intervention works

March 28 (Reuters) - Thailand intervenes in the rice market each year to support millions of farmers, but the scheme launched by the government in October 2011 guaranteed prices so generous that they have caused huge stockpiles, hit exports and strained finances.

The government pays 15,000 baht ($510) per tonne for benchmark 100 percent B grade white rice, twice the market price in the run-up to the July 2011 election, when the scheme helped ensure millions of rural votes for Prime Minister Yingluck Shinawatra's Puea Thai party.

It has made Thai rice far more expensive than grain from rivals and exports have fallen sharply. In 2012, Thailand lost the title of the world's biggest rice exporter for the fist time in three decades, overtaken by India and Vietnam.

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Here is how the intervention scheme works:

- Farmers bring paddy to a government buying centres at milling houses that have signed up for the programme.

- Millers measure moisture in the paddy, with higher levels bringing lower prices.

- Millers provide certificates stating the tonnage delivered, the deduction for moisture content and payment due.

- The farmers take the certificates to the state-owned Bank of Agriculture and Agricultural Cooperatives to get paid, technically in the form of a loan.

- At season's end, farmers may either sell their crop on the market and repay the loan or more commonly, sell it to the government, which then pays back the loan. This year, even more farmers are taking up the second option, given low market prices.

- Millers process the paddy for the government and the milled rice is held in state warehouses.

- The previous Democrat-led government in power until July 2011 sought to introduce a price guarantee scheme in which the state paid farmers the difference between the market price and a guaranteed minimum, but many farmers resisted.

The more traditional scheme was allowed to run side by side with the guaranteed minimum.

(Reporting by Apornrath Phoonphongphiphat in BANGKOK; Editing by Alan Raybould)