Thailand moves to support rubber farmers, futures surges

[Bangkok] Thailand's government has announced a series of measures to support rubber farmers reeling from a slump in global prices to five-year lows, helping push up futures in Tokyo and Shanghai by almost 5 per cent at one stage on Friday.

The steps announced late on Thursday include nearly $1 billion to finance rubber purchases by the state-run Rubber Estate Organisation, which oversees stockpiles in the world's biggest producer and exporter of the commodity.

This would be the first state-sponsored intervention in commodity markets by the military-led government that seized power on May 22.

The military has said it wanted to wean farmers off the expensive buying schemes used by previous administrations that had left Thailand struggling to sell bloated stockpiles.

Disgruntled rubber farmers have threatened protests over low prices, which would be a challenge to a government running the country under martial law, with a ban on political gatherings. "We believe (the steps) will increase rubber prices within the next couple of months so they do not fall below 60 baht per kg," Deputy Prime Minister Pridiyathorn Devakula told reporters on Thursday. Unsmoked rubber sheet, which farmers sell to factories, was quoted at 48 baht per kg on Friday.

Benchmark Japanese rubber futures ended Friday's session up 3.6 percent at 189 yen per kg, after touching 191 yen, while Shanghai futures ended 2.7 per cent higher at 12,740 yuan a tonne. Both touched their highest in nearly a month, after falling more than 30 per cent this year on worries over a slowing economy in top buyer China. "We hear some voices questioning whether or not these new steps by the Thai government will really work, but the news is supporting the market at least today as prices had come down so much," said Hiroyuki Kikukawa, general manager at Nihon Unicom Inc in Japan.

Pridiyathorn said the state agricultural bank would provide around 20 billion baht (US$619 million) to the Rubber Estate Organisation (REO) to buy rubber from the market for resale. Another 10 billion baht would be given to rubber cooperatives to buy rubber from farmers and then sell it to the REO.

Pridiyathorn denied the plan would drive up stockpiles. "Once they start buying, farmers' minds can be at ease as we already have sale orders for next month and every other month. I guarantee we will not have any left in our stocks," he said.

The government said it sold half its existing 200,000 tonne stockpile last month, but details remain murky.

Soft loans were among measures worth 30 billion baht announced to help rubber companies and cooperatives last month after farmers threatened to stage protests. "That 30 billion baht is an old project that we have already processed. Yesterday's measures are new," Amnuay Patise, an adviser to the agriculture minister, told Reuters.

Pridiyathorn said small rubber farmers would also receive a subsidy of 1,000 baht (US$31) per rai (0.16 hectare) of land farmed, capped at 15,000 baht. Around 850,000 farmers would receive the handout, at a cost of 8.5 billion baht, he said.

Soft loans will also be made available to rubber companies and to farmers with smallholdings.

In another initiative, Commerce Minister Chatchai Sarikulya met with the country's top rubber companies on Friday to discuss how to improve domestic demand for the commodity. "The private sector understands that we want to push up demand for rubber prices to improve," he told reporters.

Anan Pruksanusak, managing director of Siam Sempermed, the top producer of rubber gloves in Thailand, said his company would increase the use of natural rubber in its products to 60 per cent from 50 per cent, reducing synthetic rubber.

Farmers dismissed the government measures, saying they would not address an imbalance between supply and demand. "It's nonsense," Perk Lertwangpong, former head of the Rubber Growers Cooperative Federation of Thailand, told Reuters."This does not work, it does not address the right issue." Farmers have lobbied the government for a minimum guaranteed price for their rubber, which has been rejected.

Earlier this year rubber farmers joined in demonstrations that undermined former Prime Minister Yingluck Shinawatra, whose government was finally ousted by the military in May.

Coup leader and Prime Minister General Prayuth Chan-ocha has promised fiscal discipline and an end to what he sees as the populist vote-buying policies of the previous government.

In Malaysia, the government has allocated 100 million ringgit (US$30.5 million) to encourage rubber growers to keep tapping, after estimates that 30 per cent of farmers had stopped.

The subsidy will be activated if the price of SMR20 grade rubber falls to 4.60 ringgit per kg, the government said.

It was quoted at US$1.50 on Friday for November delivery, around 4.92 ringgit.

Thailand, Indonesia, Malaysia, Vietnam and Cambodia have agreed to urge growers not to sell rubber below US$1.50 per kg, which has helped stabilise prices, although cargoes are still being sold below the minimum. REUTERS