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25 Apr 2008

Agriculture

Escalating Rice Prices: Beware of Price Fluctuations(Business Brief No.2146)

The skyrocketing rice prices in the local market at all levels have resulted in the following scenario:
- Exporters have avoided accepting purchasing orders from buyers for fear of future losses. Thai Rice Exporters Association estimates that exports of Thai rice may drop by 25-30 percent in 2Q08.
- Local consumers have inevitably faced dramatic increases in rice prices.
- Farmers are opting for expanding their cultivation areas for the second and third crop plantings to increase their white rice production. In 2Q08 and 3Q08, the prices of white rice may increase less dramatically than Hom Mali grain, which will enter the market late this year. In 4Q08 – the time of harvest for the main rice crop – rice outputs will likely have increased considerably due to farmers' investments in new farming equipment as well as fertilizer and pesticides, irrigation facilities and various other developments, etc. to ensure higher yields per rai.
Among the watchful factors that may affect rice prices in the final quarters of 2008 and 2009 are:
- Rice auctions in Indonesia and Iran that have not made any purchase this year. The move may result in runaway rice prices globally.
- Rice auctions to be held in the Philippines on May 5, 2008 where the participation of Vietnamese bidders should be closely monitored, both in terms of their bid prices and supplies they will be offering.
- Whether or not Vietnam will re-enter the market in June 2008 which is the harvest time for their summer rice crop and the end of a ban on their rice exports.

Other factors that should be monitored in the last quarter of 2008 – the start of 2008/2009 crop year include rival countries' increased rice production for exports, driven by attractive surges in prices. Among the countries under special watch are Vietnam and India, whose rice export policies will largely determine Thailand's competition in the global arena from 4Q08. Meanwhile, Thailand's trade partners have adopted the policy of rice production expansion to ensure their national food security, which may lead to ebbing demand for imported rice. Other downside risks may include natural disasters, plus harms from diseases and pests – which are factors beyond our control but potentially catastrophic to rice production.

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