Rice price hike possible due to new Thai policies

Rice price hike possible due to new Thai policies
By Ryan Huang | Posted: 20 July 2011 2237 hrs

SINGAPORE: Thailand is expected to roll out policies to help its rice farmers get higher prices by the end of the year.

And there are some concerns this might affect importing countries like Singapore.

Some industry players said this might drive prices up by around 50 per cent, but some analysts said there is no need to panic yet because the eventual impact from the plans may not be significant.

Thailand's rice farmers can expect to earn more when a new policy to guarantee them higher prices comes into force by year end.

Giving farmers a minimum price to sell their rice was one of the key policy changes for Thailand's incoming government. Prime Minister-elect Yingluck Shinawatra had pledged to buy unmilled rice or paddy from growers at 15,000 baht, about 50 per cent above current prices.

But this has raised concerns because it will mean rice exports from Thailand could cost more in the future.

Under the proposed policy, farmers can sell their rice to the government for at least 50 per cent above current prices.

And even before it has been rolled out, there has already been some impact on the market.

Andrew Tan, Chairman of Singapore General Rice Importers Association, said: "A lot of rice millers in Thailand are anticipating this price increase. So they are keeping their paddy, resulting in a (lesser) supply of rice in the market, and causing prices to increase.

"So far rice prices have been going up by about 5 to 10 per cent from the Thailand side. And Singapore importers are currently absorbing this cost; two reasons - because of the strong Singapore dollar, and second, we have been buying rice and stockpiling them in the warehouse before this announcement."

Thailand's rice-export benchmark was set last week at US$555 a tonne, according to the Thai Rice Exporters Association.

And some industry players have raised the alarm that prices could surge to about US$810 a tonne by the end of the year, according to the median estimate of six millers, exporters and traders in a survey by Dow Jones.

But some analysts said it is still early to be overly concerned.

Santitarn Sathirathai, an economist at Credit Suisse, said: "There are two important points to consider. First point is that the government has to buy a large share of produce each year in order to have a big influence on the price. Given that Thailand produces as much as 30 million tonnes per year, that's going to take a lot of money from the government in order to buy up a huge amount.

"By way of reference, back in 2008 when rice prices already peaked, the government already bought as much as 30 per cent of rice at 20 per cent above market price, and that didn't really prevent the price from falling.

"Second point, we are not sure if it's even in the government's interest to bump up the market price of rice too much. After all a lot of the poor people in Thailand are net buyers of rice, which means an increase in price rice would hurt them as well, and inflation in Thailand is already a problem.

"So what we might see is that the government may choose to act as an intermediary where they buy rice at a higher price and sell it to the wholesalers and the exporters' market at a lower price, therefore subsidising farmers and the consumers at the same time, and bearing the loss the fiscal balance on the state-owned bank's balance."

Singapore retailers like Sheng Siong Supermarket said they are monitoring the situation closely.

"It is too early to tell whether prices of Thai rice will be affected. We also source our rice supplies from Vietnam," said a spokesperson for Sheng Siong Supermarket.

There will be other factors that will have an impact on rice prices as well. This includes the strength of the Singapore dollar, and whether markets such as India and Vietnam match any price increases.

There will be a clearer picture when Thailand reveals more details of its policy, which is not expected to be rolled out at least until November.

Any potential price increases could be capped by a move by India on Monday to offer cheaper alternatives on the export market.

India approved its first rice export in three years, giving the green light to export of 1 million metric tons of non-basmati rice from private companies. This will be sold at a minimum price of $400 a tonne.

Analysts said the move could help ease the pressure on global prices in the short term, but longer term prices will still be shaped by details on Thailand's new policy.

"While it remains unclear how quickly the new government will implement the campaign promise, impact on the importing economies, Singapore in particular will be notable. Thailand is one of the main rice suppliers for the Republic and an increase there could percolate to local supplies here," said Radhika Rao, Regional Economist at Forecast.

"In our view, a few offsetting measures will cushion the full impact of higher external prices. Supermarkets could use existing stockpiles to temper sharp increases; local sourcing companies could seek alternative suppliers - Vietnam, Cambodia India, Bangladesh to name a few," she added.

- CNA /ls

- wong chee tat :)