Almost one year after Thailand’s government promised farmers a fixed price for their rice harvests, early concerns the system would boost world rice prices may be unwarranted as experts now forecast a price drop.
The government recently announced it was selling 753,000 tons of surplus rice, stockpiled under the programme, in an open bid set to end on 28 August, according to international media.
In an effort to boost farmer incomes, in 2011 the government started paying paddy farmers 15,000 baht (US$420) per ton - a 60 percent increase over 2010. Thailand exported less in 2012 because at the higher price its rice was less competitive.
Since 2005, Thailand's rice reserves have grown to more than 10 million tons, but the government has committed to paying above-market prices for the 2012 paddy crop to be harvested in October.
“Now that the government is to release part of these stocks, prices may fall, especially if the 753,000-ton tender is followed by [others],” Concepción Calpe, a senior economist with the UN Food and Agriculture Organization (FAO), told IRIN. “When there is a supply surplus, normally, prices have to fall so as to stimulate demand and consumption, and bring the market back into balance.”
A year ago, Samarendu Mohanty, head of the Social Sciences Division at the Philippines-based International Rice Research Institute (IRRI), forecast increased global rice prices as a result of Thailand’s scheme, on the assumption that stockpiling would decrease the supply of rice on the market, which would then increase demand and prices. But India lifted its four-year-old rice export restrictions in 2011, which stabilized the amount of rice on the market - and prices - Mohanty said.
In July 2012, FAO reported that international rice prices were “surprisingly stable”.
“A drop in international rice prices would be a great relief for the world, especially as maize and wheat supplies have thinned,” Calpe noted.
The US, the world's largest producer of maize, is expected to bring in its smallest crop since 2006/07, the US Department of Agriculture said in its August forecast. Prices for yellow maize, used mainly as feed for livestock, are already above US$300 per ton, and are now projected to exceed $350 per ton in the coming months and into 2013. Maize prices climbed by 23 percent in July alone, according to FAO. A drought in Kazakhstan and Russia, two of the world's largest producers and exporters of wheat, threatens to drive up wheat prices.
Where prices will go from August 2012 onward is still uncertain, according to FAO, and depends in part on whether the Indian government reinstates export restrictions. The agency noted that such restrictions contributed to the 2008 price hike.
*This article was amended on 23 August. The original report erroneously stated in the lead an expert forecast of lower returns rather than a price drop.