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Published on April 10, 2008

When the price of rice rises, the government should use the opportunity to adjust the rice market systematically by, for instance, setting up a price range according to production costs, to avoid price slumps of the staple commodity. The government should also require millers and exporters to report the amount of rice in stock on a regular basis to avoid possible shortages and hoarding, which could distort the rice market. At present, the government lets the price of rice move according to the market. The absence of a suggested base price works when the price rises. However, the commodity is vulnerable to fluctuations and factors such as weather conditions. Therefore, the government should help stabilise the situation by setting a suggested base price. The effect of the recent remark by Commerce Minister Mingkwan Sangsuwan that the jasmine-rice price might hit Bt30,000 per tonne shows how government policy can influence the market.

Exporters and traders all agree that the timing for the government to stabilise the price for long-term benefit could not be more perfect. If the rice market slumps, no one will buy the idea of a base price. Farmers would then be forced to sell in line with the market trend. Of course, market intervention of any kind is not beneficial to consumers. But farm produce is a special area that requires an effective mechanism to ensure sufficient supply for long-term food security. After all, the majority of the Thai population is in the farming sector. Due to the unpredictable nature of agriculture, farmers should be assured they will be able to receive the benefits of upward market trends. The government should play its part in assisting them by providing technical support and creating a market environment where farmers do not face too much risk.

At present, the rice stock is estimated at 4.2 million tonnes, around half of which is government stock. But the government does not require the private sector to report rice stock on a regular basis. Stock checking should guarantee the supply of rice on the market. Otherwise, whenever a crisis looms, the government might be tempted to release its buffer stock, which is meant to ensure food security. The absence of required stock-checking and reporting might encourage the private sector to speculate by hoarding rice, with the expectation of price rises. Speculators tend to dump rice on the market when they feel demand is declining.

The current price rises are attributed to various factors such as drastic weather fluctuations in Vietnam and the fact that a large portion of rice land has been turned over to "energy crops" to meet the rising demand for bio-fuels. The decision by India and Vietnam to curb rice exports has exacerbated the crisis. Concerns over the upward trend of rice prices on the world market are likely to linger for a while, with the UN Food and Agriculture Organisation predicting a 3.5 per cent shortfall. World Bank president Robert Zoellick warned food prices will likely remain high in the long term due to strong world demand and the increasing use of bio-fuels for alternative energy.

The prospect of continuing price increases is good for Thai farmers. But unnecessarily sharp price rises don't bode well, as they could create a secondary effect of pushing up the rate of inflation. Once food prices rise, the overall inflation rate goes up, too. If controlled rice trading is in place, the rice price should become stable. And people in agriculture will be better able to manage their businesses. The timing could not be better; the government should take this opportunity to act for the long-term good.

The Nation