Thai rice prices, a benchmark for Asia, may jump 50 per cent by the end of the year under a plan by the party favoured to win the July 3 election to buy the grain directly from farmers, according to 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 (Dh1,806) per metric tonne, twice the current level. That would raise costs for exporters and boost the price of shipments to about $750 (Dh2,754) per tonne 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 Organisation 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 per cent in the past 12 months to $14.645 per 100 pounds as corn more than doubled and wheat rallied 74 per cent. Thai rice-export rates have dropped 10 per cent this year, with the benchmark 100 per cent, grade-B variety set at $499 per tonne 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 per cent of the vote if elections were held now, compared with 37 per cent for Prime Minister Abhisit Vejjajiva's Democrat party, according to a Dusit Poll that surveyed 4,694 people from May 23 to May 28.
High export rates
In 2008, when Thaksin's allies were last in power and the government had a similar policy, it bought 5.4 million tonnes of rice from about 700,000 farmers, according to the Internal Trade Department. Local prices rose to a record 17,000 baht per tonne in April that year and export rates hit an all-time high of $1,038 per tonne 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 tonnes in 2009, according to the US 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 tonnes of rice this year, compared with global shipments of 31 million tonnes, according to the US Department of Agriculture. World rice production will total 451.6 million tonnes this year, 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. "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."