An option programme will be used to manage rice prices starting with the 2009-10 crop season, as the government attempts to wean farmers and processors off costly state price supports.

Reference or insurance prices will be based on farmers' production and transport costs as well as a profit margin. Prices would be based on types of rice from glutinous to Thai Hom Mali, paddy and second-crop rice.

The Agriculture Ministry is expected to propose prices within two weeks to the National Rice Policy Committee.
"Higher-than-market prices in the conventional rice pledging programme have caused the government to lose about 50 billion baht over the last eight years,'' Deputy Prime Minister Korbsak Sabhavasu said.

"We hope the new programme would reduce pledges, cut state stockpiles and help support market prices by limiting supply distortions.''

Under the new programme, the government would announce reference prices for farm products every 15 days.
"In case the prices fall below the market prices and traders are reluctant to buy products from farmers, the government may opt to buy the products and export them and/or apply simultaneously the mortgage programme offering lower-than-market prices to absorb supply into government stocks,'' he said.

Suwanna Tulyawasinphong of the Thailand Development Research Institute (TDRI) said that in principle, price-risk insurance would alleviate the losses of farmers if prices slumped.

"By this means, rice would no longer be a political product and the vicious circle of manipulation by politicians would be broken,'' said Ms Suwanna. "There would be only farmers and insurance registrars.''

Chookiat Ophaswongse, president of the Thai Rice Exporters Association, agreed the programme would allow rice to circulate in the market, not in the hands of the government.

High pledging prices draw huge supplies into state stocks, distorting the market. When the government attempts to sell the rice, it often loses money

Source: Bangkok Post