Thailand, the world’s largest rice supplier, plans to establish a global benchmark price by allowing buyers and sellers to bid for shipments through a privately run centralized auction, the government said.

“The market will provide an opportunity for buyers to meet sellers and to set a price that reflects demand and supply,” Wichai Phochanakij, deputy director general of the Internal Trade Department, said in an interview.

Under existing rules, rice buyers seek bids directly from suppliers and prices for individual transactions aren’t published, he said.

Establishing a benchmark price may help ease volatility in trading of the grain, the staple food for half the world. Rice futures have surged more than 43 percent in Chicago from last year’s low as governments boosted stockpiles to curb rising domestic prices that contributed to protests in North Africa and the Middle East. The price has dropped 3.6 percent this year.

“With this central market, producers of packaged rice who demand about 10 million tons a year and importers, such as the Philippines and Indonesia, will have access to the market, buying directly from millers,” Wichai said. “Once trading volumes become sizable, prices from this market can become the country’s benchmark and ultimately the global benchmark.”

Thailand exports almost half of the 20 million tons of milled rice it produces each year. The country’s shipments, which represent about one-third of the world’s total rice trade, may increase as much as 5.2 percent to 9.5 million tons this year, according to the Ministry of Commerce.

Competing Benchmarks

The Thai Rice Exporters Association sets a weekly benchmark price for exported rice that takes into account fluctuations in currencies, and supply and demand. The nation’s millers conduct a daily survey to formulate a domestic benchmark price.

The country’s benchmark export price has fallen 6.5 percent this year, and was at $519 a ton on March 16, according to the Thai Rice Exporters Association. The price surged to a record $1,038 a metric ton in May 2008, when food shortages sparked riots from Haiti to Egypt.

Thailand held its first centralized auction of white rice on March 20 in Nakhon Sawan province, the country’s largest rice-producing area. A total of 20 millers, exporters and traders took part, said Wassana Assaranurak, managing director of Chaopraya Tha Rua Kumnun Song Co., the closely held company that operates the market.

Jasmine Rice

Sellers offered 3,000 tons of rice, and received bids for 1,000 tons, Wassana said. Buyers purchased 30 tons of 100- percent white rice at 14 baht per kilogram ($462 a ton) and 30 tons of Chainat white rice at 20 baht a kilogram.

“It was a satisfactory kick-start that hopefully will attract more participants,” Wassana said.

Chaopraya Tha Rua Kumnun Song operated a centralized market for rough-rice trading from 1991 to 2004, before the government of former Prime Minister Thaksin Shinawatra began to purchase grain directly from farmers to boost local prices. Trading volume reached 5,000 tons a day during the market’s peak, Wassana said.

“The market will increase opportunities for millers to sell products at a price that reflects demand,” said Komkrit Thammarattanakul, vice president of the Thai Rice Mills Association.

The successful development of the white-rice market might prompt the establishment of a second bourse for trading jasmine fragrant rice in Thailand’s northeast, a key production area for the premium grain, Wichai said.

Source: Bloomberg