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 tonne from October. The current price is about 10,000 baht.
The move, part of an array of promises that helped propel former premier Thaksin Shinawatra’s allies to victory in a July election, has fuelled speculation that world prices could be set to surge.
While it is unclear what effect the policy might have on global consumers, prices have already risen and observers fear a spike could pile further pressure on poor importer nations.
Rice is the staple food for more than three billion people, about half the world’s population, and Thailand produces about one third of global exports, with China, Bangladesh, Philippines, South Africa and Nigeria among its major customers.
Export prices for Thai rice on world markets have jumped from $500 per tonne 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 out to competitors, has warned that prices could hit $800 per tonne.
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 subsidise 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 tonnes 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 four percent rise in their price quotes since August as supply tightened.
But government spokeswoman Anuttama Amornvivat said Thailand did not expect the move to affect the kingdom’s dominant status in the market.
“We are confident we can export the same amount of rice but will earn more,” she said, adding that Thailand expects 3.7 million farming households to benefit from the scheme.
Export representatives from Thailand and Vietnam — the world’s second biggest supplier — warned of the effect on consumer prices at a recent meeting in the northern Thai city of Chiang Mai.
“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 the USAID-affiliated Famine Early Warning Systems Network last month said Asian rice prices had risen “significantly” since July, driven mainly by the Thai government proposal.
“Unless trade in rice is disrupted by national policies, prices should remain relatively stable,” it predicted, forecasting that world production would increase slightly ahead of consumption in 2011/12.
“If, however, rice prices were to increase, this development would have an adverse impact on food security in low-income, food-deficit countries, especially in the context of high oil prices and a global slowdown in economic activity.”
Capital Economics said prices were still unlikely to reach “anywhere near” their 2008 level, when they peaked at around $1,000 a tonne amid export curbs in India and rocketing oil prices.
It said high forecasts were based on assumptions that Thailand would stockpile a large amount of rice, adding it could instead choose to sell at a discount.
Economists said the bill for the scheme could be significant, 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.”
The rice project is similar to one set up under Thaksin — who was ousted in a 2006 coup and lives abroad to avoid a jail term for corruption — and is part of a raft of measures, including a rise in the minimum wage, aimed at his poor and rural support base.
Thai economist Ammar Siamwalla, who said he “had a hand in” the last government’s rival rice income guarantee subsidy that paid farmers when prices hit a base level, warned the scheme was open to corruption.
He told the Foreign Correspondents Club of Thailand this week that research into a similar 2005 programme showed farmers received only 37 percent of the total project expenditure.