After the electoral promises, the facts arrived. On Friday, the Thai government began interventions to support the country's farmers by buying the first quantities of unpolished rice at a price of 15 baht per ton, double the market values recorded in June. On international markets, the move, announced by Prime Minister Yingluck Shinawatra - who built on it the victory in the elections held in July - has so far exerted a relative impact.
Indeed, at the Chicago Board of Trade the contract on unmilled rice has lost 14% in the last four weeks, moving away from the three-year record of 18,17 cents per centiweight set on 12 September. Previously, however, the future had traded strongly, especially when compared to other cereals: in fact, from the beginning of the year until Friday evening, the future on wheat lost 24,6%, that on corn fell by 3,3%. while rice gained 10,1%.
What the reaction to Bangkok's move might be is not certain, but some strengthening is very probable, in consideration of the fact that Thailand is the world's leading exporter of rice and that its government does not intend to abandon the pro-farmers plan, at the cost to take over the entire production between now and next February. A first effect on export prices was already seen over the weekend, with values going from 650 to 670-680 dollars per ton in a few hours, while at the end of May they were below 500 dollars.
On paper, analysts comment, it is a populist measure, which favors the achievement of a better standard of living in rural Thailand. But when fully operational, the price of exportable rice will rise to 850 dollars per ton and will undoubtedly cause a surge in inflation in many Asian countries and a sharp drop in Bangkok's sales abroad. Exporters will be reluctant to dispute the cereal, to wrest it from government purchases, and will probably wait to understand the final destination of the commodities that will be withdrawn from the market. State purchases of the next harvest could reach 10 million tons, out of a total production that Bangkok expects to be at least 25 million tons of unpolished rice.
Vietnam, the world's second largest exporter, will be able to take advantage of this, as well as India, which could loosen the constraints that reduce the availability of rice for export. Instead, the whole area of large importers, led by the Philippines, risks a jump in inflation, if not serious food problems. For the time being, the impact on consumer prices will be mitigated by the delicate phase of the world economy, which has reduced the prices of other cereals, as seen for corn and wheat.
However, in Manila we are already looking at the possible consequences: rice represents 9% in the local basket of inflation and imports normally cover 17% of consumption. Its inflation in September was estimated at 4,8%, and a 10% increase in rice prices would bring inflation to 5,6%. The situation is similar in Indonesia, where a casus belli has already been reported in recent days: a sale of 300 tonnes, previously agreed upon, was blocked by Bangkok because it believes that the price needs to be revised, upwards naturally, while Jakarta is of a different opinion.
