What could happen to Thai rice market after election?
Thailand, the world's biggest rice exporter, holds a general election on Sunday and the two leading parties both have policies designed to win over the 24 million people who depend on rice for a living out of a population of 67 million.
The Democrat Party, led by Prime Minister Abhisit Vejjajiva, pledges to maintain its "price guarantee" scheme, under which the government pays farmers the difference if they sell paddy to millers at prices lower than a set level, currently 11,000 baht ($358) per tonne.
Puea Thai Party, controlled by former premier Thaksin Shinawatra, promises more aggressive intervention, saying it will buy paddy directly from farmers at 15,000 baht ($488) per tonne, well above current market of 7,000-8,000 baht.
Here's what might happen if either of these win on Sunday.
Would Thaksin's party price Thailand out of the market?
Traders reckon the price of 15,000 baht per tonne that Puea Thai is offering could push Thai export prices up to $850-$870 a tonne, way above the current $525.
That would inevitably push buyers towards Vietnam, which has cemented its position as the world's second-biggest exporter by undercutting Thailand. Its rice is currently below $500 a tonne.
"Intervention on rice prices at that high level is bad because the prices will be pushed up by fake demand and buyers will turn away," said Rakesh Sodhia, managing director of Fortuna International Ltd, an Indian trading firm based in Bangkok.
Some traders said a jump in export prices to above $800 a tonne because of government intervention could cut Thai annual exports by up to 5 million tonnes.
Thailand exports 8-10 million tonnes each year of rice, which generates around $6 billion annually to the economy and is a major part of the country's farm sector that makes up 12 percent of GDP.
Cutting that by 5 million means it would be overtaken by Vietnam, which already exports around 6 million tonnes a year.
"It would mean a collapse in Thai rice exports as no one will buy from us. They'll turn to other origins," said Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association.
Rice accounts for only about 3 percent of exports and though the direct hit on the economy would not be big, there could be ramifications such as the cost of storing the grain if the government had to buy it, the losses when it is finally sold and the impact on a sector that is vital for the rural poor.
What if the democrats win?
The Democrat's price guarantee scheme has been welcomed by exporters as it allows prices to be set by the market, which in turn enables exporters to offer competitive prices.
"This policy would help exporters compete in the free market as normal, where you can see that we can sell 8 to 10 million tonnes a year," said Korbsook Iamsuree, president of the Thai Rice Exporters Association.
At the same time, the policy would support farmers, she said.
One problem: farmers have not really taken to the scheme, in part because of the paperwork involved.
After protests, in a messy compromise, Abhisit's government has allowed the guarantee scheme and direct intervention to run side by side, buying grain directly from some farmers at 11,000 baht per tonne.
When will any new policy come in?
Neither party is likely to win an outright majority, so there will probably be a period of horse-trading before a coalition emerges.
Under Thai election law, the parties have up to 60 days to form a government, so it could be early September before there is a new administration. In practise, it should be much shorter.
Either way, any change in policy is unlikely to have an immediate impact on the export market, even if it is implemented quickly.
"The impact on the rice market would be seen in November at the earliest," said Korbsook.
The next main harvest will start in November and the government normally implements support schemes at that point, when new supply starts pushing prices down.
Thailand produces around 23 million tonnes of paddy in its major crop.
What happened to rice prices in the lead-up to the polls? Thai rice prices, which have fallen around 5 percent so far this year, jumped to $560 a tonne in June -- up 8 percent in that month -- as local traders and millers hoarded rice, hoping to resell to the government after the polls if aggressive intervention is implemented. The prices retreated this week to $525 a tonne, as high prices forced buyers to switch to rice from other origins and cut demand.
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Thailand, the world's biggest rice exporter, holds a general election on Sunday and the two leading parties both have policies designed to win over the 24 million people who depend on rice for a living out of a population of 67 million.
The Democrat Party, led by Prime Minister Abhisit Vejjajiva, pledges to maintain its "price guarantee" scheme, under which the government pays farmers the difference if they sell paddy to millers at prices lower than a set level, currently 11,000 baht ($358) per tonne.
Puea Thai Party, controlled by former premier Thaksin Shinawatra, promises more aggressive intervention, saying it will buy paddy directly from farmers at 15,000 baht ($488) per tonne, well above current market of 7,000-8,000 baht.
Here's what might happen if either of these win on Sunday.
Would Thaksin's party price Thailand out of the market?
Traders reckon the price of 15,000 baht per tonne that Puea Thai is offering could push Thai export prices up to $850-$870 a tonne, way above the current $525.
That would inevitably push buyers towards Vietnam, which has cemented its position as the world's second-biggest exporter by undercutting Thailand. Its rice is currently below $500 a tonne.
"Intervention on rice prices at that high level is bad because the prices will be pushed up by fake demand and buyers will turn away," said Rakesh Sodhia, managing director of Fortuna International Ltd, an Indian trading firm based in Bangkok.
Some traders said a jump in export prices to above $800 a tonne because of government intervention could cut Thai annual exports by up to 5 million tonnes.
Thailand exports 8-10 million tonnes each year of rice, which generates around $6 billion annually to the economy and is a major part of the country's farm sector that makes up 12 percent of GDP.
Cutting that by 5 million means it would be overtaken by Vietnam, which already exports around 6 million tonnes a year.
"It would mean a collapse in Thai rice exports as no one will buy from us. They'll turn to other origins," said Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association.
Rice accounts for only about 3 percent of exports and though the direct hit on the economy would not be big, there could be ramifications such as the cost of storing the grain if the government had to buy it, the losses when it is finally sold and the impact on a sector that is vital for the rural poor.
What if the democrats win?
The Democrat's price guarantee scheme has been welcomed by exporters as it allows prices to be set by the market, which in turn enables exporters to offer competitive prices.
"This policy would help exporters compete in the free market as normal, where you can see that we can sell 8 to 10 million tonnes a year," said Korbsook Iamsuree, president of the Thai Rice Exporters Association.
At the same time, the policy would support farmers, she said.
One problem: farmers have not really taken to the scheme, in part because of the paperwork involved.
After protests, in a messy compromise, Abhisit's government has allowed the guarantee scheme and direct intervention to run side by side, buying grain directly from some farmers at 11,000 baht per tonne.
When will any new policy come in?
Neither party is likely to win an outright majority, so there will probably be a period of horse-trading before a coalition emerges.
Under Thai election law, the parties have up to 60 days to form a government, so it could be early September before there is a new administration. In practise, it should be much shorter.
Either way, any change in policy is unlikely to have an immediate impact on the export market, even if it is implemented quickly.
"The impact on the rice market would be seen in November at the earliest," said Korbsook.
The next main harvest will start in November and the government normally implements support schemes at that point, when new supply starts pushing prices down.
Thailand produces around 23 million tonnes of paddy in its major crop.
What happened to rice prices in the lead-up to the polls? Thai rice prices, which have fallen around 5 percent so far this year, jumped to $560 a tonne in June -- up 8 percent in that month -- as local traders and millers hoarded rice, hoping to resell to the government after the polls if aggressive intervention is implemented. The prices retreated this week to $525 a tonne, as high prices forced buyers to switch to rice from other origins and cut demand.
The Democrat Party, led by Prime Minister Abhisit Vejjajiva, pledges to maintain its "price guarantee" scheme, under which the government pays farmers the difference if they sell paddy to millers at prices lower than a set level, currently 11,000 baht ($358) per tonne.
Puea Thai Party, controlled by former premier Thaksin Shinawatra, promises more aggressive intervention, saying it will buy paddy directly from farmers at 15,000 baht ($488) per tonne, well above current market of 7,000-8,000 baht.
Here's what might happen if either of these win on Sunday.
Would Thaksin's party price Thailand out of the market?
Traders reckon the price of 15,000 baht per tonne that Puea Thai is offering could push Thai export prices up to $850-$870 a tonne, way above the current $525.
That would inevitably push buyers towards Vietnam, which has cemented its position as the world's second-biggest exporter by undercutting Thailand. Its rice is currently below $500 a tonne.
"Intervention on rice prices at that high level is bad because the prices will be pushed up by fake demand and buyers will turn away," said Rakesh Sodhia, managing director of Fortuna International Ltd, an Indian trading firm based in Bangkok.
Some traders said a jump in export prices to above $800 a tonne because of government intervention could cut Thai annual exports by up to 5 million tonnes.
Thailand exports 8-10 million tonnes each year of rice, which generates around $6 billion annually to the economy and is a major part of the country's farm sector that makes up 12 percent of GDP.
Cutting that by 5 million means it would be overtaken by Vietnam, which already exports around 6 million tonnes a year.
"It would mean a collapse in Thai rice exports as no one will buy from us. They'll turn to other origins," said Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association.
Rice accounts for only about 3 percent of exports and though the direct hit on the economy would not be big, there could be ramifications such as the cost of storing the grain if the government had to buy it, the losses when it is finally sold and the impact on a sector that is vital for the rural poor.
What if the democrats win?
The Democrat's price guarantee scheme has been welcomed by exporters as it allows prices to be set by the market, which in turn enables exporters to offer competitive prices.
"This policy would help exporters compete in the free market as normal, where you can see that we can sell 8 to 10 million tonnes a year," said Korbsook Iamsuree, president of the Thai Rice Exporters Association.
At the same time, the policy would support farmers, she said.
One problem: farmers have not really taken to the scheme, in part because of the paperwork involved.
After protests, in a messy compromise, Abhisit's government has allowed the guarantee scheme and direct intervention to run side by side, buying grain directly from some farmers at 11,000 baht per tonne.
When will any new policy come in?
Neither party is likely to win an outright majority, so there will probably be a period of horse-trading before a coalition emerges.
Under Thai election law, the parties have up to 60 days to form a government, so it could be early September before there is a new administration. In practise, it should be much shorter.
Either way, any change in policy is unlikely to have an immediate impact on the export market, even if it is implemented quickly.
"The impact on the rice market would be seen in November at the earliest," said Korbsook.
The next main harvest will start in November and the government normally implements support schemes at that point, when new supply starts pushing prices down.
Thailand produces around 23 million tonnes of paddy in its major crop.
What happened to rice prices in the lead-up to the polls? Thai rice prices, which have fallen around 5 percent so far this year, jumped to $560 a tonne in June -- up 8 percent in that month -- as local traders and millers hoarded rice, hoping to resell to the government after the polls if aggressive intervention is implemented. The prices retreated this week to $525 a tonne, as high prices forced buyers to switch to rice from other origins and cut demand.
