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[BANGKOK] Eight months after Thailand's military junta started selling rice into an oversupplied global market, the officers are taking a different tack amid a rubber glut.
But this approach by Thailand, the world's biggest exporter of both commodities, may cause as many problems in global markets as the old one, analysts say. That's because while the rubber purchases revived domestic prices that touched a five- year low in October, they're failing to cut a global production surplus that is entering its fifth year, according to data from the International Rubber Study Group.
Demand is slowing in China, the world's top buyer and tire exporter, and natural rubber faces stiffer competition from synthetic material made from crude oil, which costs half what it did a year ago. Rubber prices are down more than 70 per cent from their 2011 peak as trees planted in Asia over the past decade matured and flooded the market.
That hurt farmers and cut costs for users of the raw material, including Goodyear Tire & Rubber Co and Michelin & Cie.
"Thailand's approach is just pushing the problem down the road," Colin Hamilton, head of commodities research at Macquarie in London, said by e-mail on March 20.
"The market needs supply to exit, not be encouraged."
To some observers, the junta may be supporting rubber farmers to ensure political stability. The growers who backed General Prayuth Chan-Ocha's takeover have successfully lobbied for subsidies as prices slumped, said Ambika Ahuja, a London- based analyst at Eurasia Group, a political-risk adviser.
In addition to buying at above-market prices, the government makes direct payments to growers and helps with borrowing costs. While the junta has ruled out purchasing rice, it also makes payments directly to farmers and subsidizes loans to help millers and growers with storage.
Former Prime Minister Yingluck Shinawatra was overthrown last year and now faces criminal charges related to her administration's rice-buying program, which the finance ministry estimates lost US$16 billion. The junta began selling off record stockpiles, prices have tumbled, and the country is reclaiming its place as the world's biggest exporter.
Yingluck's opponents say the rice programme was part of a pattern of corruption by politicians allied with her brother, Thaksin Shinawatra, who was deposed as prime minister in 2006. Since his ouster, the country has been divided between Shinawatra family loyalists - mostly farmers in the north and northeast - and urban and middle-class opponents. Yingluck denies the corruption charges.
Southern Thailand is home to 70 per cent of domestic rubber output and many local farmers supported protests against Yingluck's regime. About 1.6 million households in the nation of 65 million people own rubber plantations and exports totaled US$6 billion last year, government data show. Some 4.4 million households grow rice, with shipments valued at US$5.4 billion.
"The government has to step in as the market mechanism alone is not enough to help farmers have enough income to offset costs of living," Amnuay Patise, deputy minister for agriculture and cooperatives, said in an interview on March 6, when asked why the junta changed its policy toward direct purchases. "We'll buy when farmers are in trouble." While the government measures don't solve the farmers' problems completely, they're better than doing nothing, said Sangwern Tuadhoy, the president of the Thai Rubber Growers Network, who owns a 40-acre plantation in Rayong province.
"We decided to buy rubber, as an additional step, to increase prices and there's no hidden political agenda," government spokesman Sansern Kaewkamnerd said by phone on April 2.
"We're not aiming to build a voter base because this is an interim government." Curbing Exports Thailand, Indonesia and Malaysia, which account for two- thirds of world production, said in November they would limit exports to tighten supply. The global surplus will narrow to 51,000 tons in 2016 from an estimated 77,000 tons this year, the International Rubber Study Group said in January.
Prices of ribbed smoked sheet grade 3 in Bangkok, the Thai benchmark, averaged 58.59 baht (US$1.80) a kg in March compared with 52.79 baht in October. That was lower than rubber on the Shanghai Futures Exchange, which averaged about 12,802 yuan a ton, or 67 baht a kg.
The junta in Thailand is also encouraging farmers to fell aging trees over an area of 158,000 acres annually, with some land being turned over to palm oil.
That may reduce production by about 100,000 tons a year, according to data from the Office of Agricultural Economics. Output will be 4.3 million tons in 2015, the Association of Natural Rubber Producing Countries estimates.
Prices will find little support from China, where the producer group predicts imports will drop 9.9 per cent this year, the first decline since at least 2010. China forecasts economic growth of 7 per cent, the slowest pace since 1990.
The Thai government has bought 130,000 tons since November, Amnuay, the deputy minister, said March 6. Buying probably will resume in May, he said last week. "Small-holders want the government to continue purchases and we're listening to the voice of farmers," he said.
Buying is "artificially distorting the market," Michael Coleman, managing director of RCMA Asset Management Pte, said in Singapore on March 25. "It's keeping the price higher than it otherwise would be. Thailand just created a case study of that with rice in the most dramatic fashion you could imagine."