Market and product

The surge in farm commodity prices, especially rubber and palm nuts, has prompted traders to propose a price stabilisation fund to help farmers when prices fall.

However, making sure the benefits really reach the farmers will be the main challenge, say economists.

Yiam Thavarorit, acting chief executive of International Rubber Consortium Ltd, believes now is a good time to set up a stabilisation fund while prices of rubber are at historic highs.

But Nipon Poapongsakorn, chairman of the Thailand Development Research Institute (TDRI), is sceptical, saying that new funds to stabilise farm prices would just give state officials more power and politicians more opportunities to meddle.

He supports direct subsidies to farmers in trouble only when prices drop, as the money will reach them directly and the cost will be lower.

An industry executive agreed with Dr Nipon, noting that the government already has state enterprises - the Public Warehouse Organisation and the Marketing Organisation for Farmers - that it uses to intervene in the farm market. Their records have been less than impressive.

Previous intervention programmes have cost taxpayers tens of billions of baht because of poor management of crops in state stockpiles or poor timing of purchases and sales.

The executive, who asked not to be named, said the state agencies had demonstrated little capability to unload stocks and make money.

He said authorities needed to stress to rubber and oil palm farmers that current skyrocketing prices stemmed largely from external factors, strong oil prices and demand from China. Prices cannot stay this high forever.

Local traders believe rubber prices in the first quarter will continue to stay high, driven by high demand from the automotive industry and for other rubber products, while output is expected to fall with the dry spell from March to May.

Thai rubber prices rose on Friday to all-time high above 160 baht a kilogramme for ribbed smoked sheet No. 3 (RSS3), compared with 104.80 baht a year earlier.

Mr Yiam cited a the report from LMC International, an independent consultant for the agribusiness sector, estimating global passenger car output last year at 53.8 million units, up 15.7% from 2009. Car sales in China alone were estimated at 17 million, up 3.5 million units from 2009.

Demand from the tyre industry has been rising accordingly. China in the first 10 months of 2010 imported 1.5 million tonnes of rubber, up 6.2% year-on-year.

He said natural rubber prices in the main commodity markets of Shanghai and Tokyo would remain high in the first quarter as high oil prices pushed up the cost of synthetic rubber.

Oil is expected to trade this year between US$80 and $85 a barrel but has approached $95 in recent days. Crude in the final quarter of 2010 averaged at $80 per barrel, up from $78.71 in the first quarter.

In the 11 months to last November, world output of rubber was 9.77 million tonnes, up 7.1% year-on-year, while consumption was up 7.6% to 11.32 million tonnes, pushing down stockpiles to a low level of 1.13 million tonnes.

World production this year is projected at 10.73 million tonnes against consumption of 10.66 million.