Thai rice plan could hit global market

Reuters: Thailand’s new rice policy that aims to pay farmers hefty premium could cost it customers, while making Asia’s staple food costlier, say experts.

Speculation ahead of the Government intervention scheme has already pushed the benchmark rice export price up 30 per cent since the end of May to $ 650 a tonne. It could go far higher, adding to the worries of Asian policymakers already grappling with slower economic growth and rapid inflation.

From Friday, Thailand’s new Government will fulfil a promise that helped Prime Minister Yingluck Shinawatra win the rural vote and pay millions of its farmers 15,000 baht ($ 480) a tonne for paddy rice, double the price before the July election.

That could translate into an export price of $ 850 a tonne for the benchmark 100 per cent B grade white rice, which would be an increase of 64 per cent on last year’s average of $ 517.

“Prices might stay around current levels or edge up to $ 700 a tonne, let’s say for around a month,” said Chookiat Ophaswongse, Honorary President of the Thai Rice Exporters Association. “After that, prices could jump above $ 800 a tonne due to the higher cost of paddy.”

Chookiat said exporters would not try to compete with the Government. “That means a lot of rice could be left in the market, waiting for the Government to buy. I expect it would need to buy up to nine to 10 million tonnes of paddy this crop.”

The main crop could total 25.1 million tonnes this year. Naturally, the plan is going down well in the provinces.

Rival rice-exporting countries are watching closely. Prices in Vietnam, the world’s second-biggest exporter, have been pulled higher but it can still nibble away at Thai market share.

Its prices had risen five to seven per cent by September from the end of 2010, depending on the export grade, and around 19 per cent from a year before.

A jump in the price of rice, a staple for half the world’s population, could be inflationary across parts of Asia and squeeze the budgets of millions living near the poverty line. Even though the prices of other commodities such as corn and oil are falling because of the deteriorating world economy, the trend in rice will worry governments struggling to contain inflation.

In the Philippines, rice accounts for about nine per cent of the CPI basket and imports supply 17 per cent of the rice consumed by its 95 million people.

Two strong typhoons have recently damaged 760,000 tonnes of unmilled rice. The country has no immediate need to import more but it may be forced to do so eventually.

“We may face a double whammy,” said Angelito Banayo, Head of the State grain procurement agency, the National Food Authority (NFA), referring to the prospect of higher prices and the possible need to replenish reserves.

“But we will wait for the opportune time to buy,” he said. “Whether they (Thailand) can sustain that political decision, we’ll have to wait and see.”

One wild card is the return of India as an exporter after it relaxed a ban in place since 2008, although it is currently only permitting shipments of two million tonnes.

Pawan Kumar, a Singapore-based analyst at Rabobank, said India would probably sell some rice to Indonesia, at far lower prices than Thai rice commands. “But it still cannot satisfy the whole market, at a global level, which Thai rice goes for,” he warned.

Thailand’s intervention price was bound to add to regional inflation, he added, even if some governments adjusted import duties and relaxed other rules to offset the impact.

The rise in Thai prices has already sparked a row between Indonesia and Thailand. The new government refused to go ahead with the sale of 300,000 tonnes tentatively agreed between Indonesia and the outgoing administration in August. Bangkok wanted a higher price. Jakarta insisted it would not renegotiate.

That could be a taste of things to come. Some exporters forecast that uncompetitive prices could cut in half Thailand’s normal annual exports of nine million to 10 million tonnes.

Vietnam is already catching up: its Agriculture Ministry forecast on Wednesday that exports this year could hit a record 7.5 million tonnes.