Prices of rice are going up : the trap is closing on the government

Rice will cost consumers Bt3-Bt5 more a kilogram after the Commerce Ministry committed itself to boosting the local price to the export level for the benefit of farmers.“We want to give more benefits to farmers while balancing the impact on consumers,” said Deputy Prime Minister and Commerce Minister Mingkwan Sangsuwan yesterday. The ministry would also take into account rising fertiliser prices. (TNA)

That’s a freaking HUGE increase.

Check the prices with Tesco Lotus (here, then click on the left “Dry grocery”, then “Agricultural Products”).
Jasmine rice = 22 THB per kilo
Fragrant rice = 15 THB per kilo

Therefore, the hikes could be from 10 to 20 % or 13 to 33 % !

The situation about rice is a cas d’ecole that shows the deadly trap in which the thai authorities are.

Some facts :

-the demand on the world markets has exploded, therefore the prices have surged.

-meanwhile, the thai authorities were willing to boost rice exports in order to boost GDP (with other components depressed like consumption and investments).

-therefore, the thai exports of rice have litteraly exploded since october 2007


[value on left scale, volume right scale, source BOT]

-but the price of rice on domestic market is controled.
Before it was higher than export, due to a policy of subsidy to boost income of farmers (policy initiated by Thaksin).

-the problem now has reversed : the prices on domestic market are inferior to those on the world market !

-And meanwhile, the costs to produce rice have increased too (fertilizers, transports etc.)

-Inflation is surging

So now we could face risks… of shortage, black market, smuggling etc.

It’s Economy 101.

Why farmers would continue to sell their rice on the domestic market, at a price inferior to export, and with increased costs ?

Confronted to this problem, the thai government has only one solution : to accept a hike on the local market.

They try in a very pathetic way to present this as a deliberate policy to help farmers…

The truth is : they have no choice.

And by doing so… it will seriously backfire on the inflation front (no need a drawing to understand that rice is consumed by the entire thai population).

As I wrote many times : the game is over, the party is over.

The current situation of the world economy is volatile. Policy makers can not continue to hope to win on every front : boosting exports with a weak currency, and meanwhile keep inflation low, helping farmers and meanwhile continue with price controls, decreasing oil consumption and meanwhile keeping subsidies etc.

Choices must be made. And this is precisely what the authorities don’t want to do. Because it’s obviously too painful (on a political level).

1 Response to “Prices of rice are going up : the trap is closing on the government”

  1. 1 Bedwyr 27 March 2008 at 5:57 am

    Good point about USA. I think the problems of Iraq and their general war-mongering, together with the recession are going to make USA much less relevant in SE Asia. Then of course there is the snarling face of Chinese growth, already having a large impact on Thai exporters who are finding they just cannot compete.

    The time when we are all treated to the smug Thai businessman is drawing to a close as they get their asses increasingly kicked. Without the USA to support them despite their undoubted strategic importance to USA.


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Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.

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