THAILAND: Experts warn against pledging scheme for rubber

Thanavath Phonvichai, director of the Economic and Business Forecasting Centre at the University of the Thai Chamber of Commerce (UTCC), said the price of rubber would drop further in the first half, but the government should not set up a pledging scheme yet because the slump will not be too severe.

"The government should not rush into setting up a pledging scheme or it will politicise the product. It will encourage other farmers and traders to pressure the government into subsidising other farm crops, which would bring on huge expenditures for the country," he said.

The comment came after Agriculture Minister Theera Wongsamut recently announced that the government would intervene in the rubber market by pledging the price of rubber at Bt120 per kilogram. The move came after rubber growers from the South rallied outside Government House last week to demand that the government help shore up prices.

Initially, the government plans to spend Bt10 billion on 200,000 tonnes of rubber.

Growers say the price of rubber dropped to just Bt89 per kilogram late last year from more than Bt180 at the start of 2011. Farmers are suffering, while middlemen continue enjoying high profit margins as the world market price is still high at Bt140 per kilo.

However, Thanavath warned the government to not step in to shoulder rubber prices by setting up a pledging scheme because farmers have not faced any major losses yet.

According to a UTCC study, the production cost for a kilogram of rubber is Bt60. Therefore, Thanavath said, the government could consider intervening if the price falls to Bt70 per kilogram. He pointed out that the price of rubber has been dropping because demand from China, one of the largest importers of rubber, has been low recently.

The country's economic growth is expected to slow from 9 per cent last year to 8.5 per cent this year. Demand for automobiles and rubber is also expected to drop due to slower economic growth. However, China should recover in the second half of the year and bring back the demand for rubber, Thanavath said.

The price of rubber in the second half of this year is expected to hit Bt110-Bt120 per kilogram.Source: Daily "The Nation", Bangkok; 16 Jan 2012(Syed Rashid Ali, Karachi, Pakistan)