The current drop in domestic paddy prices reflects flaws in the government's price insurance scheme, which lacks supplementary measures to set minimum insured prices, according to Charoen Pokphand Group, Thailand's largest food conglomerate.

Sumeth Laomoraphorn, chief operating officer of C.P. Intertrade Co, said minium insured prices were necessary to help push up prices in international markets as exporters can use them as guidelines to quote export prices.

If market prices drop below these minimum insured prices, the government should start buying paddy to offer alternatives to farmers and ensure that the price would not drop below that level, he said.

For example, the current market price of paddy is 8,900 baht a tonne so the minimum insured price should be 9,500 to 10,000 baht.

The government currently sets an insured price so farmers do not worry about their selling prices as they will get the compensation for the price difference. However, under this system, traders can also press down prices, which is one of the reasons for recent declines. even though the government last week announced it would increase the insured price of paddy to 11,000 baht a tonne from 10,000 baht.

"When there are minimum insured prices, traders in the global market will have a reference price to quote when placing an order. This will result in higher rice prices," said Mr Sumeth, whose company is a major exporter.

Thai rice prices, the benchmark for Asia, fell to the lowest level in more than four months yesterday as demand declined, while new crops from Vietnam came onto the market, according to the Thai Rice Exporters Association.

The price of 100% grade-B white rice dropped 1.7% to $519 a tonne, said association spokesman Pisanu Sangyoo. The price of 25% broken rice fell to $472 a tonne from $480 a week earlier, he said after the group's weekly price-setting meeting.

As of Tuesday, Thailand had exported 2.46 million tonnes of rice worth 42.66 billion baht, up from 1.75 million tonnes worth 35.5 billion baht in the same period in 2010.

Mr Sumeth said the average FOB price of 5% white rice during the first two months was $485 a tonne but exporters predicted that the price would recover to $600 in the third quarter.

He said the country should be able to export up to 10 million tonnes of rice this year as demand was still strong with at least 4-5 million tonnes expected to be ordered by the Philippines, Indonesia and Iran.

Montri Congtrakultien, president of the Crop Integration Business Group, also predicted rising prices for most of farm crops such as plam oil, sugarcane, tapioca, maize and soybeans.

However, the suitable price of rubber should be 100-120 baht a kilogramme as global demand this year would closely match the supply of around 10.9 million tonnes.

Rubber was trading as high as 180-190 baht a kilogramme a few weeks ago but prices have slumped since then. The industry has proposed that the government try to ensure that prices don't fall below 120 baht.

In another development, CP vice-chairman Ajva Taulananda said the Chinese government had invited the company to invest in a modern mixed agriculture venture in Cixi on an 8,000- rai site to produce foods to serve 100 million people around Shanghai.

The first phase covering 2,000 rai would grow vegetables in greenhouses. The total investment is estimated at 10 billion baht. It is also studying the potential for similar projects in Xinjiang, Liaoning, Tianjin and Beijing.

Source: Bangkok Post