Thailand: With or against the grain

Despite criticism from economists, a new national rice policy committee, chaired by Thailand’s recently appointed Prime Minister, Yingluck Shinawatra, and approved by her new cabinet, is moving ahead on a promise to buy rice from farmers at well above global prices.

Having won a vote of confidence in the parliament on August 5, Yingluck is beginning to turn campaign promises into policy so as not to alienate her supporter base, a significant part of which is located in rural areas. A key plank in Puea Thai’s campaign platform was a commitment to increase prices paid to the country’s rice growers, with a promise given that the wholesale buying floor would be raised to around $504 a tonne for white rice and $670 a tonne for jasmine rice, up to 77% higher than current rates.

This policy of price pledging was floated during the campaign to counter a promise put forward by the then ruling Democrat Party, which had vowed to maintain an income support scheme. While it proved popular with farmers, the policy did not address the concerns of those in the export trade.

Chookiat Ophaswongse, the honorary president of the Thai Rice Exporters’ Association (TREA), has warned that when the scheme is fully implemented, the policy could price locally produced rice out of the international market. “Pledging prices that are too high will push up the export price of Thai rice to more than $850 a tonne, from a current price of $490-500 a tonne,” he said in an interview carried by The Phuket News on July 29. “Thailand will lose its export competitiveness to rivals such as Vietnam.”

Such is the significance of Thai rice production to the world market that the uncertainty over the new government’s policy has impacted on global prices, with tariffs edging up in the weeks following Yingluck’s victory. This increase has been caused in part by the withholding of products from the market by farmers, who are keeping back their crops until the expected new price regime is announced. This has resulted in some shortages in the longer-term market, though spot trading requirements are being met.

The Ministry of Commerce has been quick to downplay any suggestions that the reserving of rice by growers in anticipation of higher prices will result in local shortages or a drying up of exports. Recent figures from state agencies put the state’s stockpile of rice at about 2m tonnes, believed to be more than adequate to meet immediate needs.

This statement has not necessarily allayed concerns of Thailand’s traders, with reports that exporters are looking to build their stockpiles by buying rice from neighbouring countries to ensure they can meet the orders on their books, according to TREA’s vice-president, Charoen Laothamatas.

“If Thai exporters cannot buy such expensive rice for export, they may opt for much cheaper rice from Vietnam, Cambodia or Burma, as they must maintain their market bases and customers,” Charoen told The Bangkok Post on July 28. “With the ASEAN free trade agreement, such an alternative would be possible.”

Concerns over the cost and availability of Thai rice have spread beyond the business community. In a statement issued in early July, the UN’s Food and Agriculture Organisation (FAO) warned that rice costs were continuing to rise, which the agency said reflected “strong import demand and uncertainty over export prices in Thailand”.

Thailand exported 6.3m tonnes in the first six months of 2011, generating revenue of $3.6bn, a 33% increase over the same period of 2010, and maintaining its position as the world’s leading rice exporter. Though producers are expecting a near-record harvest, raising expectations of exports of between 10m and 12m tonnes for the entire year, the concern remains as to whether Thailand could price itself out of some of its lucrative markets.

With the FAO forecasting on August 3 that worldwide rice harvest for 2011 will be up 2.5% on last year’s production – coming in at a record high of 718.3m tonnes – Thailand may also need to be careful that it does not find itself losing its importance in the global rice trade if other countries are able to better serve the market.

Ahead of Oct. 7, when the policy went into effect, middlemen were withholding their stocks in anticipation of the government buying “every grain” at the promised price. This issue has far reaching implications for Thailand’s agriculture sector, the economy as a whole and the world grain market.

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