The government last week scrapped its second attempt in less than a month to sell rice from its stocks, citing "unacceptably low" bids from exporters.

It also vowed not to sell any rice stocks over the next 3-4 months to curb falling prices, which have weakened since rumours spread that the government would sell up to 2 million tonnes from its rice stocks over the next few months.

An industry veteran said there are rumour-mongers who want to batter the rice prices and dismantle the government's price insurance programme for farmers in order to force a return to the previous rice pledging or intervention scheme.

The incumbent government first introduced the crop insurance or options programme for the 2009-10 harvest season to manage key crop prices and guarantee farmers' incomes.

It replaces a pledging scheme, used by successive governments, which offered high prices and proved to be politically popular in rural communities.

The new price insurance scheme represents income support paid directly to farmers. Payments will be based on the difference between insured prices and benchmark prices, regardless of the market prices farmers receive when they sell their crop.

The insured prices are based on average production costs and a profit margin of 30% to 40%. The benchmark prices were based on weighted average wholesale prices of rice in Bangkok equivalent to paddy with less than 15% moisture content.

The benchmark price will be set on the first and sixteenth days of each month.

The programme is designed to benefit all farmers, particularly small-scale farmers. Compensation will be transferred directly to farmers by the Bank for Agriculture and Agricultural Co-operative (BAAC).

Farmers will manage their own sales decisions in terms of when to capitalise on the spread between the insured price and the benchmark price.

"Such rumours are possibly set up collaboratively by traders, millers and politicians who want to foil the government's crop insurance plan and force it to turn back to traditional intervention programme," said Nipon Wongtrangan, honorary president of Thai Rice Millers Association and ex-president of Thai rice Millers Association.

"As we saw in the previous week, the prices of local paddy has significantly reduced to as low as 6,000 baht per tonne in certain areas, opening room for certain groups of millers to buy local grain at cheaper prices.

"Once the prices fell, a group of farmers immediately staged a rally that was well equipped with loudspeakers and amplifiers. The farmers' rally seemed to be too well-organised."

Mr Nipon said the farmers protested even though they were fully aware that the government offers them 9,000 to 10,000 baht per tonne of paddy under the crop insurance programme.

Mr Nipon said declining prices also benefit investors in the futures market, as they could buy the futures cheaply and profit once the prices rose.

"We believe the rice prices will gradually increase after the market realises the rumours are not true," said Mr Nipon. "The National Rice Policy Committee has insisted the government would not sell 500,000 tonnes from its rice stocks to curb supply."

Rice prices are unlikely to be on a par with last month, when milled rice fetched 16,000 to 17,000 baht per tonne, as the market realised second-crop harvests from Thailand, Vietnam and India would come out during March. Milled rice is currently quoted at about 15,000 baht per tonne.

Mr Nipon predicted rice prices would rise from the middle of the year, as El Nino is expected to cause dry spells and cut crop output.

Source: Bangkok Post