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Rice trading grinds to a halt in anticipation of new rice policy likely to drive rices higher in Thailand as well as world.
The rice market is frozen as traders worry that the revival of the rice mortgage policy by the new Pheu Thai-led government could jack up prices of white rice in the global market to as much as US$850 a tonne.
Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association, said millers had stopped buying paddy and were adopting a "wait and see" stance as they monitor price trends.
At the same time, exporters have stopped taking orders from international buyers, especially for shipments to be delivered in August and September, as they are afraid of losing money.
"All parties are waiting to see the details of implementation guideline of the rice mortgage policy under the new government. So Thai rice exports will certainly be reduced over the next two to three months," he said.
The Pheu Thai policy to reinstate mortgaging by purchasing paddy into government stocks at 15,000 baht a tonne ($488) would increase the FOB price of white rice by $330 a tonne.
The current price of 5% white rice is $520 a tonne so the new price will be $850 immediately. This jump in price, instead of a gradual rise, would be difficult for buyers to accept," said Mr Chookiat.
A survey by Bloomberg News indicated that rice prices in Thailand may rally 56% by year-end to $810 a tonne.
"It isn't only Thai prices that will go up, the rest of the world will have to follow," the agency quoted Mamadou Ciss, CEO of Geneva-based Hermes Investments Pte, as saying.
"The price may jump $100 a tonne within two months and peak at $700," said Mr Ciss, who correctly predicted in 2006 that prices would double.
Export prices will probably rise 10% in a month, said Wichai Srinawakul, vice-president of the Thai Rice Mills Association. When the price-pledging scheme is implemented, it will lift the price further, probably to $830 per tonne by the end of this year.
With higher rice prices foreseen, Mr Chookiat is concerned that buyers might turn to other countries, especially arch-rival Vietnam, or they might be more self-sufficient countries.
He urged the new government to make sure it does not repeat the mistakes made under earlier rice mortgage programmes, which were widely criticised as corrupt. For example, farmers had to pay certain sums to participate in the scheme while politicians sought benefits from rice millers and exporters.
As well, governments ran up large losses for storing rice for months or even years in the hope that export prices would rise. In the end, most of the rice was sold for less than the government had paid originally.
Mr Chookiat also said the government needed to ensure that cheaper paddy from neighbouring countries is not smuggled into Thailand to take advantage of high pledging prices.
"The private sector still sees no solutions to the problems because these are endless issues," he noted.
Thailand exports approximately one million tonnes of rice a month. But the projection for July is 700,000 to 800,000 tonnes as exporters still have orders in hand.
The projection has been reduced to 500,000 tonnes in the next two months. Overall exports for this year may be around 10 million tonnes, instead of 11 million.
The Democrat-led government replaced the mortgage scheme with an insurance programme under which farmers were compensated directly if their selling prices were below agreed benchmarks set every two weeks.
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