In spite of the plunge in the price of palm oil, the Commerce Ministry insists on not intervening in the market.
It will only call on companies to help farmers by purchasing palm nuts at a price not much below the current market price.
The government will also promote more consumption of palm oil in the energy industry and help cut the cost of production for farmers.
After a meeting yesterday with palm oil enterprises, farmers, the Agriculture Ministry, biodiesel operators and the Electricity Generating Authority of Thailand (Egat), Commerce Minister Chatchai Sarikulya said that in the short run, buyers will help purchase palm nuts directly from small farmers having less than 50 rai of land, at market price and above the cost of production.
Starting on Thursday, fertiliser traders have been asked to reduce their prices by 5-10 per cent to help farmers for six months, while palm oil for biodiesel production will be raised from B3 to B7.
Egat will increase palm oil for its electricity production from 3,000 tonnes to 12,000 tonnes per month.
In the long run, the government will propose a plan to balance supply and demand for palm fruits to avoid the glut plaguing the industry now.
"The fall in the price of palm-oil nuts resulted from the huge increase in production area and oversupply in the market. The government will cooperate with farmers and the private sector to draw up a sustainable plan to promote palm-fruit farming and marketing in the long run," he said.
Wiwan Boonyaprateeprat, secretary-general of the Thai Oil Palm and Palm Oil Association, said the plummeting price was the result of a greater supply of palm fruit in Thailand, Malaysia and Indonesia, while the quality of the oil in the palm nuts has deteriorated due to the drought.
China and India, the two major importers of palm oil, have scaled back their demand for this year, which has also caused prices to slide in the world market. Palm-oil producers and refiners would have purchased palm oil at market price if the quality of the oil had met the standard, he said.
According to the ministry, the average price of fresh palm nuts has dropped to Bt3.60-Bt3.90 per kg this week, while the cost of palm-fruit production is Bt3.38 per kg.
Preecha Pratnakhon, treasurer of the Chumphon Palm Oil Cooperatives Federation, said farmers are afraid of the price dropping during the harvest season from May-June.