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NEWS UPDATES Asean Affairs           20   July  2011

New Thai rice policy pushes government role

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The new Pheu Thai–led government will leverage the agricultural futures market and government stockpiles to help push rice prices higher in line with the party's campaign promises.

Pheu Thai will push for the small Agricultural Futures Exchange of Thailand to be merged with the much larger Stock Exchange of Thailand to improve liquidity in the futures market.

The party is pushing an ambitious plan to more than double market prices to 15,000 baht per ton for rice paddy and 20,000 baht per tonne for hom mali rice. It also vowed before the July 3 election to scrap the Democrat Party's price insurance programme in favour of a return to a mortgage scheme where farmers pledge their crops as collateral against loans from state banks.

One Pheu Thai executive said the state-owned Bank for Agriculture and Agricultural Cooperatives (BAAC) and the Marketing Organisation for Farmers would be the main instruments to help manage rice supplies.

Rice mills and exporters will be able to bring their orders to sell into a new futures market for rice, minimizing the potential financial risks for the two state agencies in serving as an intermediary in the market.

Pheu Thai will also push for the merger of the Agricultural Futures Exchange of Thailand, the country's main agricultural derivatives market, with the much larger Stock Exchange of Thailand to improve liquidity in the futures market.

The party's crop management strategy hinges on the government serving as a main buyer in the rice market. When market prices are low, the government will purchase rice directly to build up official stockpiles and remove supply from the market, thereby influencing prices.

"This strategy also is a way of building up the country's food security. If the country lacks rice, where would we buy it from, considering that Thailand already is the largest exporter in the world?" the Pheu Thai executive said.

"As a result, building up a stockpile of 4-5 million tonnes is critical for our food security. And once we build up these stocks, rice in the spot and forward markets will rise as well."

Under the Democrat-led government of Abhisit Vejjajiva, authorities moved away from being direct players in the commodities market in favor of a price insurance scheme under which farmers are compensated for any gap between market prices and fixed benchmark prices. Officials insist that price insurance is superior to the previous mortgage schemes in terms of market efficiency, while it minimizes costs for the government in terms of logistics and storage.

Pheu Thai insists that its plans, which will tie in bank credit to specially issued, interest-free credit cards usable by farmers to purchase farm inputs such as seed, fertilizer and chemicals, will ultimately prove superior in terms of raising farm income.

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This year in Thailand-what next?

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It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

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