(Updates with government comment in 11th paragraph.)
Oct. 6 (Bloomberg) -- Thailand’s plan to buy rice at above- market rates will allow farmers “to make a living” and boost growth in Southeast Asia’s second-largest economy, Prime Minister Yingluck Shinawatra said.
“This is a significant policy of the government to boost crop prices and increase rural income, which will help spur domestic spending and stimulate economic growth,” Yingluck said today in Bangkok.
Yingluck aims to insulate the country of 67 million people from a global slowdown and the nation’s worst flooding in half a decade by lifting incomes of poorer Thais who propelled her party to victory in a July election. The plan to guarantee rice prices may boost export rates by 20 percent to $735 a metric ton and erode Thailand’s share of the global market, according to a Bloomberg News survey of exporters, millers and traders.
“Thailand will be the last resource for buyers when there is no rice left elsewhere,” said Kiattisak Kanlayasirivat, a local director with Novel Commodities SA, which trades about $600 million of rice a year. “The government may be lucky to see the rice price climbing to $800 a ton without having to spend a lot of budget as floods across the region cut supply.”
Thailand, which supplies about 30 percent of world rice exports, plans to buy grain at 44 percent above local market rates, according to calculations based on data from the Thai Rice Mills Association. The finance ministry last week cut its 2011 growth forecast to a range of 3.8 percent to 4.3 percent, from an earlier estimate for a 4 percent to 5 percent expansion.
The government’s plan to pay 15,000 baht ($482) per ton for white rice and 20,000 baht per ton for jasmine rice is “appropriate because they take into account production costs and profits that are enough for farmers to make a living,” said Yingluck, who took power two months ago.
The policy has already helped fuel a 26 percent rally in global food prices in the past year. The price of 100 percent grade-B Thai rice, the benchmark for Asia, has gained 18 percent to $615 a ton since Thailand’s July 3 election. Rice futures have climbed 12 percent in Chicago this year, boosted by the Thai policy and a smaller crop in the U.S.
Thailand’s export price may rise to $735 a ton, according to the median estimate in a Bloomberg News survey of six exporters, millers and traders on Oct. 5.
“We can expect global prices to rise if Thailand decides to sell at a price that will cover costs of procurement,” Samarendu Mohanty, a senior economist at the International Rice Research Institute, said on Sept. 30. “If the Thai government sells rice at subsidized prices, it may lower global prices.”
The government hasn’t said when it may sell stockpiled rice.
“That has to be closely watched,” Commerce Minister Kittiratt Na-Ranong said today. Kittiratt last week said he’s “confident” that Thailand will be able to sell the grain through government-to-government contracts.
“The plan may increase government stockpiles and potentially increase government control of the rice trade,” Mohanty said. “The more we see the government intervention, the more uncertainty will be in the market.”
Indonesia’s state food company agreed to buy 100,000 tons of Thai rice through a tender, President Director Sutarto Alimoeso said today. A government-to-government deal to purchase 300,000 tons was scrapped last week because of disagreement over prices, Kittiratt said on Sept. 26.
Rice exports from Thailand may fall to 8.5 million tons next year, from an estimated 10.3 million tons in 2011, according to the United Nations Food & Agriculture Organization. Vietnam will ship about 7.3 million tons.
“Exports from Vietnam could come even closer to those of Thailand, or even match them by 2013,” Concepcion Calpe, a senior economist at the FAO, said by phone from Rome.
Shipments from India, which last month lifted a ban on exports of non-basmati rice, may make up some of the shortfall, and Thai rates “will be a ceiling for international rice prices,” Anthony Lam, vice chairman at Hong Kong-based trader Golden Resources Development International Ltd., said yesterday.
The government has said it will spend as much as 410 billion baht on the program between Oct. 7 and Feb. 29. It may buy about 15 million tons of unmilled rice, Kittiratt said.
“The program does create much uncertainty, especially as many view its implementation as unsustainable in the longer term because of the huge financial resources that the government would have to make available to procure very large volumes and to keep them in storage,” the FAO’s Calpe said.
Thailand has about 3.3 million rice-farming households and total plantation area of 60 million rai (9.6 million hectares), according to the farm ministry.
The ministry yesterday cut its forecast for production from the main harvest by 12 percent to 22.73 million metric tons after floods damaged crops. About 3.07 million tons of rice may be damaged, it said.
Yingluck today urged officials involved in the process to guard against corruption and smuggling.
“The plan has influenced plantings and could increase annual production to a record if there is no major setback,” the FAO’s Calpe said. “Smuggling from neighboring countries will take place, as the price differential will make this very attractive.”
--Editors: Tony Jordan, Jake Lloyd-Smith
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