Rice prices in Thailand, the biggest exporter, may jump 50 percent by the end of the year under a plan by the party favored to win the July 3 election to buy the grain directly from farmers, said millers and traders.
Yingluck Shinawatra’s Pheu Thai party plans to reinstate a policy introduced by her brother, fugitive former leader Thaksin Shinawatra, to buy unmilled rice at 15,000 baht ($496) per metric ton, twice the current level. That would raise costs for exporters and boost the price of shipments to about $750 per ton from $500, according to a survey of eight millers and traders.
Rice has lagged behind gains in foodstuffs such as corn and wheat over the past year and the grain may be “the commodity which is separating us from a food crisis,” the United Nations Food and Agriculture Organization said in March. A jump in prices in Thailand may boost demand for cheaper grain from Vietnam, the second-biggest shipper, and India.
“If this measure is taken, world prices will definitely increase as Thailand represents one-third of world trade and cannot be ignored,” said Mamadou Ciss, chief executive officer of Singapore-based broker Hermes Investments Pte, who correctly predicted in 2006 that prices would double. “In the past, these programs had a direct effect on the market. Of course there will be resistance from the buyers, but at the end of the day it’s rice or no rice.”
Rough-rice futures in Chicago have climbed 32 percent in the past 12 months to $14.645 per 100 pounds as corn more than doubled and wheat rallied 74 percent. Thai rice-export rates have dropped 10 percent this year, with the benchmark 100 percent, grade-B variety set at $499 per ton on June 1.
“It makes no sense that every agricultural product in the world has gone up except for rice,” said Pichai Naripthaphan, a candidate for the opposition Pheu Thai party and former deputy finance minister. “When Pheu Thai becomes the government, we’ll urgently implement the rice-pledging and farmer-credit policy. This is our key policy to win votes, not only this time but in every election.”
Pheu Thai is a successor to parties loyal to Thaksin that won the past four Thai elections. Pheu Thai would win 43 percent of the vote if elections were held now, compared with 37 percent for Prime Minister Abhisit Vejjajiva’s Democrat party, according to a Dusit Poll that surveyed 4,694 people from May 23 to May 28.
In 2008, when Thaksin’s allies were last in power and the government had a similar policy, it bought 5.4 million tons of rice from about 700,000 farmers, according to the Internal Trade Department. Local prices rose to a record 17,000 baht per ton in April that year and export rates hit an all-time high of $1,038 per ton the following month after India, China and Vietnam curbed shipments, spurring unrest from Haiti to Egypt.
Under Thaksin’s plan, purchases were designed as collateral for loans to be redeemed when market prices advanced. Instead, rice ended up sitting in warehouses, boosting stockpiles to a record 6.1 million tons in 2009, according to the U.S. Department of Agriculture. Yingluck hasn’t said how much rice her government may buy if Pheu Thai wins.
Thailand is on pace to export 10 million tons of rice this year, compared with global shipments of 31 million tons, according to the U.S. Department of Agriculture. World rice production will total 451.6 million tons this year, outpacing consumption of 448.4 million tons and helping replenish inventories by 3.4 percent to 97 million tons, an eight-year high, according to the USDA.
“The increase in Thai prices will make Vietnam and all competitors very happy,” Concepcion Calpe, senior economist at the FAO, said by phone from Rome. “Certainly there will be an impact on the world price. Prices will be higher, but I don’t expect them to jump as there is abundant supply.”
Global food prices reached a record in February, driving 44 million more people into extreme poverty, the World Bank said that month. That’s helped boost inflation from Beijing to Brasilia, forcing central banks to raise interest rates and contributing to unrest across the Middle East and North Africa.
“There will be a great impact in the world market” if Pheu Thai’s policy is implemented, said Sumeth Laomoraphorn, chief executive officer of C.P. Trading Co., Thailand’s fourth-largest exporter. “Pheu Thai believes that Thailand should be acting as a worldwide price leader.”
Other millers and traders in the export-price survey were Kiattisak Kanlayasirivat, director at Novel Commodities SA’s Thai office, who correctly forecast a rally late last year; Sermsak Kuonsongtum, director of Chaiyaporn Group, the third-largest exporter; Chookiat Ophaswongse, honorary president of Thai Rice Exporters Association; Wichai Srinawakul, vice president of the Thai Rice Mills Association; Korbsook Iamsuri, president of the Thai Rice Exporters Association; and Banjong Tungjitwattanakun, vice president of the Thai Rice Mills Association.
Banjong forecasts Thai export prices would immediately rise 10 percent after a Pheu Thai victory, and climb to $800 per ton by the end of the year.
“Although the use of the pledging scheme could provide a degree of upward price pressure in the international market, in itself a large and growing stockpile could also be quite bearish,” Darren Cooper, a senior economist at the London-based International Grains Council, said in a May 27 e-mail.
Pheu Thai plans to talk with rice-exporting nations about forming a cartel to control global supply, Pichai said. The party will also give credit cards to farmers to buy seed and fertilizer, he said.
About 35 percent of Thailand’s 67 million people made their living growing crops last year, according to data from the Office of Agricultural Economics. Agriculture accounts for about 10 percent of Thai gross domestic product, which the finance ministry expects to grow at 4.5 percent.
Abhisit ended Thaksin’s rice-buying program after he took power in 2008, and adopted a system under which the government paid about 4.2 million farmers the difference between the market price and the guaranteed level of 11,000 baht per ton.
“Most farmers support the income-insurance scheme because it is the first policy where all farmers can benefit,” Abhisit said in a May 28 interview. Thaksin’s policy “distorted the market and made Thai rice exports less competitive.”
Abhisit has pledged to increase the guaranteed price level to 12,000 baht if his party wins the election.
Pheu Thai’s plan “would be a strong incentive for farmers to supply paddy to the government, but could distort the market,” said Cooper from the International Grains Council.
“I’ve been working so hard but I’m still in debt,” Patcharin Prasertsin, a 34-year-old mother of two, said as Abhisit campaigned in Yasothon province where her husband grows rice. “Pheu Thai can make the price higher as it did before. Good prices will generate more income than the compensation policy.”