BANGKOK: A populist policy aimed at boosting the incomes of Thai farmers has raised fears of global rice price turbulence, and experts say the kingdom could just be hurting itself.
Thailand, the world's biggest rice exporter, has vowed to boost the minimum price farmers receive by buying un-milled rice directly at 15,000 baht ($485) per tonne from October. The current price is about 10,000 baht.
The move, part of an array of promises that helped propel former premier Thaksin Shinawatra's allies to victory in a July election, has fuelled speculation that world prices could be set to surge.
While it is unclear what effect the policy might have on global consumers, prices have already risen and observers fear a spike could pile further pressure on poor importer nations.
Rice is the staple food for more than three billion people, about half the world's population, and Thailand produces about one third of global exports, with China, Bangladesh, Philippines, South Africa and Nigeria among its major customers.
The rice export price has jumped from $500 per tonne in early July to around $600 as Thai farmers withheld stocks to take advantage of the rice deal, according to analysis from Capital Economics.
The Thai Rice Exporters Association, concerned that the country could lose its position as the biggest global exporter, has warned that prices could hit $800 per tonne.
Vichai Sriprasert, head of Riceland International said last week the move could push Thai prices "higher than anybody".
"Any government in the world when they subsidise their commodities (it is) to be more competitive, but Thailand just did the opposite," he said.
The United States Department of Agriculture predicts Thai exports, projected at 10 million tonnes this year, will slump by 20 percent in 2012, although global trade is predicted to drop just four percent from a 2011 record high.
In a report earlier this month, it said Vietnamese exporters had already used their competitive advantage over Thailand to up sales, leading to a four percent rise in their price quotes since August as supply tightened.
At a recent meeting in the northern Thai city of Chiang Mai, export representatives from Thailand and Vietnam -- the world's second biggest supplier -- warned of the effect on consumer prices.
"Vietnam is worried that the high price of Thai rice will cause their rice for domestic consumption to increase," said Chookiat Ophaswongse, of the Thai Rice Exporters Association, referring to Vietnam's double-digit inflation.
A report from the USAID-affiliated Famine Early Warning Systems Network last month said Asian rice prices had risen "significantly" since July, driven mainly by the Thai government proposal.
"Unless trade in rice is disrupted by national policies, prices should remain relatively stable," it predicted, forecasting that world production would increase slightly ahead of consumption in the 2011/12 period.
"If, however, rice prices were to increase, this development would have an adverse impact on food security in low-income, food-deficit countries, especially in the context of high oil prices and a global slowdown in economic activity."
Thailand's dominant position has raised concerns that world prices could surge as high as in 2008, when they peaked at around $1,000 a tonne amid export curbs in India and rocketing oil prices.
But Capital Economics said they were unlikely to reach "anywhere near" the 2008 level. It said high forecasts were based on assumptions that Thailand would stockpile a large amount of rice, adding it could instead choose to sell at a discount.
The report said the bill for the scheme could be significant, which suggests "the government will be keen to pass at least some of the cost to consumers. But it also suggests that the scheme may not be in place for very long".
The rice scheme is similar to one set up under Thaksin -- who was ousted in a 2006 coup and lives abroad to avoid a jail term for corruption -- and is part of a raft of measures, including a rise in the minimum wage, aimed at his poor and rural support base.
Thai economist Ammar Siamwalla, who said he "had a hand in" the last government's rival rice income guarantee subsidy that paid farmers when prices hit a base level, said a number of major rice farmers were far from poor.
He warned the scheme was open to corruption and told the Foreign Correspondents Club of Thailand this week that research into a similar 2005 programme showed farmers received only 37 percent of the total project expenditure.
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