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15 May 2008

Agriculture

Government’s Rice Buying Program: Success Lies in World’s Rice Prices (Business Brief No.2165)

In response to farmers' widespread protests against unfair rice prices offered by millers, the Ministry of Commerce is going to propose a rice buying program to the National Rice Committee and Farmers Assistance Policy Committee on May 15, 2008. This will ensure that farmers will get fair prices for their grain. The Cabinet has endorsed the preliminary fixed prices for the program, i.e., Hom Mali paddy at THB19,000-THB20,000/ton, regular-grade white rice paddy at THB14,000/ton and sticky rice paddy at THB9,000/ton. All types of paddy are required to have not more than 15 percent moisture content. However, the limits and timeframe in purchasing rice under this program have yet to be established by the government. Shortly after the implementation of the scheme, these grains are expected to be released onto the market, domestically and for export. The government is also providing millers with special loans granted by the Bank for Agriculture and Agricultural Cooperatives (BAAC) for the purchase of sticky rice paddy. Meanwhile, the government plans to lift a ban on rice farmers selling their produce across restricted zones to protect farmers from being taken advantage of by millers, offering unusually low prices for their grain.
The move initiated by the Ministry of Commerce is regarded as a positive step in assisting farmers. Even so, the effectiveness of this measure will rest upon global rice prices. If rice prices in the global marketplace soar, all parties concerned will stand to benefit, i.e., farmers will get better prices for their grain while millers and exporters will be drawn to accept rice purchase and release it onto the market.

In the international market, paddy futures at the Chicago Board of Trade –hitting record highs around the end of April into early May – has lately been a downward trend since the US Department of Agriculture forecast a record surge in rice output for the 2008/09 crop harvest and Vietnam is said to be increasing their rice exports. Given this, local millers and exporters are concerned that the government's purchase of rice at higher prices in contrast to the global trend may put them at risk in stockpiling rice for exports. At the same time, most importing countries have adopted a wait-and-see stance, expecting a clearer price trend later on. For the local market, the only positive factor in sight is Malaysia's deal for Thai rice. Domestic consumers may continue to be affected by soaring rice prices. However, what should be monitored is practical guidelines for the rice buying program after meetings of the National Rice and Farmers Assistance Policy committees. Among the issues to be deliberated upon would be the registration of participating millers, fixing rice prices according to grade and moisture content, rice varieties to be included in the program as well as the length of time for the scheme. These factors will help determine proper rice prices. If the guaranteed prices are higher than global market prices, the government will again face rising stocks and may end up making rice shipments to foreign governments or accepting losses by selling the grain to private buyers. While the implementation of the program gets underway, Vietnamese rice may re-enter the market after their previous ban on rice exports is lifted. This will pressure global rice prices, inevitably.

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