Business in trouble

The Puea Thai party, which leads the new government in Bangkok, has refused to continue the rice agreement that was signed with Indonesia in August. In a shift of government policy Thai Commerce Minister Kittirat Na Ranong told reporters that since he didn't sign the MOU he was not obliged to implement it.

Indonesia's state procurement body, Bulog, was taken by surprise. It CEO denied receiving any official communication on the issue and had requested more details.

Bulog CEO Alimoeso told Reuters that he was not aware the government-to-government deal had been scrapped.

Experts expect the cancellation to add to the controversy surrounding the Thai government's rice policy. The present government came to power only last month.

Commerce Minister Kittirat Na Ranong explained the reasoning behind the decision with reference to the fact that the agreed price did not match the price the new government was committed to guaranteeing for farmers. He said he hoped Indonesia would understand the decision.

Promise made

In Thailand an estimated 24 million people out of the population of 67 million depend on rice for a living and the new government has made it a priority to raise living standards.

It has promised farmers 15,000 baht ($481) a tonne for paddy from October. That compares with a market price of 8,000 baht in August. The previous government had guaranteed 11,000 baht.

Exporters warned that the move could price Thai rice out of the export market, to the advantage of regional rivals such as Vietnam. Economists worry about the cost to the state budget and its impact on inflation in Thailand as well as the rest of Asia.

Vietnam cuts in

Vietnamese experts believe that Indonesia could now turn to Vietnam to make up for its loss of rice from Thailand. A trader at a foreign company in Ho Chi Minh City said Vietnam had sufficient stocks to fill new orders.

Using Vietnam Food Association data a state-run newspaper said on Tuesday that exporters have 1.4 million tonnes of rice in stock and only have to load 1.1 million tonnes for existing deals. Vietnam is the world's second-largest rice exporter after Thailand.

Rice is the staple food for more than three billion people, about half the world's population, and Thailand produces about one third of global exports, with China, Bangladesh, Philippines, South Africa and Nigeria being its major customers.

Author: Marina Joarder (Reuters, AFP)
Editor: Grahame Lucas