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24 Jul 2009

Agriculture

Rice Price Guarantee: Impact on Rice Market (Business Brief No.2573)

The Cabinet meeting on July 21, 2009, resolved to adjust the government rice policy in many respects that may have wide-ranging impacts on domestic and international rice markets. One major change is seen in the government's price intervention program for the 2009/10 crop year. The rice pledging system has been superseded by a new price guarantee program approved in principle by the National Rice Policy Committee on July 17, 2009.
Even though the price guarantee program may help ease the government's burdens in maintaining huge stockpiles and minimize rent-seeking behavior, the measure may require a larger budget. In addition, trade in rice may experience occasional instances of oversupply and price slumps, especially if farmers continue to produce rice as substantially as they did in the past. In addition to the proviso that farmers must register for the guarantee program, the government may have to control rice production as they did with the paddy mortgage program.
Careful consideration should be given to setting the (minimum) guaranteed price. If guaranteed prices are set above market prices, problems related to the government pledging program will remain unresolved. Price guarantee management will be more difficult. While the paddy mortgage scheme helped absorb rice from the market at established prices, it incurred losses as a result of inappropriate management. With the price guarantee program, rice supplies in the market will remain there, which may result in price volatility under certain market conditions at home and abroad. This may eventually affect the budget for the price guarantee program.

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