Rice packers are warning of retail price increases in the next two months as stocks dwindle while the industry waits to see if the new government will make good on its promise to increase crop prices.

"Rice millers are waiting for policies from the new government, which is lowering rice volume in the market and affecting packers substantially," said Somkiat Makcayathorn, president of the Thai Rice Packers
Association.

One of Pheu Thai's key campaign promises was to bring back rice pledging with a commitment to pay 15,000 baht a tonne for white rice paddy, and 20,000 baht for Hom Mali fragrant paddy.

Those prices are far above current market rates, and millers have been stocking up on paddy in the hopes of earning windfall profits later this year.

"It's hard to get rice from millers to repack for sales," Mr Somkiat said.

Domestic prices are already edging up in response to the expected return of pledging. Fragrant rice is selling for 30-32 baht a kilogramme, up from 28-30 baht the week before the election. The industry estimates rice prices could increase by as much as 60% by the end of the year if Pheu Thai keeps its promises.

Pheu Thai's promise to increase the minimum wage to 300 baht a day will also affect the rice-packing industry.
Wages account for 8% of the cost of rice, and analysts say a wage increase would raise that proportion to 11%.

"We may have to raise retail prices in August and make revisions early next year if a new wage is applied," said Mr Somkiat.

The association will ask the new Commerce Minister to protect packers by capping retail rice prices to conform with changing costs. The capped prices are currently 90-125 baht for a five-kilogramme bag of white rice and 150-190 baht for five kilogrammes of Hom Mali.

The pledging plan would replace the income guarantee programme that allows farmers to mortgage paddy to the state and redeem the grain when the market price is higher.

But there have been no records of redemption because past pledging prices were normally high, creating a stockpile of 6 million tonnes of paddy in 2009 from the previous programme.

The paddy is largely kept at millers' warehouses, costing the government more money. High pledging prices also induce traders and millers to buy low-priced grain smuggled in from neighbouring countries to earn windfall profits.

Source: Bangkok Post