New Thai rice program causing global instability

A populist policy aimed at boosting the incomes of Thai farmers has raised fears of global rice price turbulence, and experts say the kingdom could just be hurting itself.

Thailand, the world’s biggest rice exporter, has vowed to boost the minimum price farmers receive by buying unmilled rice directly at 15,000 baht ($485) per metric ton starting in October. The current price is about 10,000 baht.

The move, part of an array of promises that helped propel former Prime Minister Thaksin Shinawatra’s sister and allies to victory in a July election, has fueled speculation that world prices could surge.

Rice is the staple food for more than 3 billion people, about half the world’s population, and Thailand produces about one-third of global exports, with China, Bangladesh, the Philippines, South Africa and Nigeria among its major customers.

The rice export price has jumped from $500 per metric ton in early July to around $600 as Thai farmers withheld stocks to take advantage of the rice deal, according to analysis from Capital Economics.

The Thai Rice Exporters Association, concerned that the country could lose its position as the biggest global exporter, has warned that prices could hit $800 per metric ton.

Vichai Sriprasert, head of Riceland International, said last week the move could push Thai prices “higher than anybody.”

“Any government in the world when they subsidize their commodities (it is) to be more competitive, but Thailand just did the opposite,” he said.

The United States Department of Agriculture predicts Thai exports, projected at 10 million metric tons this year, will slump by 20 percent in 2012, although global trade is predicted to drop just four percent from a 2011 record high.

In a report earlier this month, it said Vietnamese exporters had already used their competitive advantage over Thailand to up sales, leading to a 4 percent rise in their price quotes since August as supply tightened.

At a recent meeting in the northern Thai city of Chiang Mai, export representatives from Thailand and Vietnam — the world’s second biggest supplier — warned of the effect on consumer prices.

“Vietnam is worried that the high price of Thai rice will cause their rice for domestic consumption to increase,” said Chookiat Ophaswongse of the Thai Rice Exporters Association, referring to Vietnam’s double-digit inflation.

A report from Famine Early Warning Systems Network last month said Asian rice prices had risen “significantly” since July, driven mainly by the Thai government proposal.

The report said the bill for the scheme could be high, which suggests “the government will be keen to pass at least some of the cost to consumers. But it also suggests that the scheme may not be in place for very long.”