UTHAI THANI, Thailand—Thailand, the world's biggest rice exporter by volume, is placing a hefty, and some economists say reckless, bet that prices for the grain will spiral higher as demand increases.
During an election campaign this year, recently appointed Prime Minister Yingluck Shinawatra pledged to use government funds to buy unmilled rice from farmers at 15,000 baht, or about $500, a ton at the coming harvest. That was nearly twice the market rate before Ms. Yingluck's landslide July 2 election win.
Ms. Yingluck pitched the promise as a way to generate more income for Thai farmers and help push international prices higher in the process. Thailand provides about one-third of the rice that is traded internationally, and any policy change in this country of 67 million people can have an impact on the cost of one of the world's most important foods from the Philippines to Nigeria.
That is especially true because so little of the world's rice production is traded across borders, leaving Thailand in an especially influential position. The United Nations' Food and Agriculture Organization projects the country will export about 29% of its total production this year.
Already, prices for Thailand's milled benchmark grade B white rice have risen more than a third since April to $640 a ton, a level not seen in 18 months. Some analysts expect prices to top $800 a ton if the Thai price-support program is put into full effect.
"Prices are rising in anticipation of the Thai policy kicking in, and there's already hoarding taking place. Farmers are waiting to sell to the government for a higher price," said Samarendu Mohanty, an economist with the International Rice Research Institute in Los Banos, the Philippines.
Farmers in Uthai Thani in the heart of central Thailand's rice-farming belt said in recent interviews that they weren't hoarding, though they thought it was possible others were. They said there is strong support for the government's buying plan, which is set to begin Oct. 7.
I'm very happy now. I'm able to make ends meet and have a little left over," said Chaliew Samphanbai, 55 years old, while taking a lunch break from her harvest. "Even if the price was only 10,000 baht, I'd be happy."
Another farmer, 61-year-old Sam-ang On-laor, said there was a risk that fertilizer prices could shoot up if there is a sudden rush to plant more rice, but reckons that the added costs would be worth it if there were a guaranteed income on which to rely.
But while Ms. Yingluck's campaign pledge to buy rice at $500 a ton helped her follow her elder brother, ousted leader Thaksin Shinawatra, into Thailand's top job, a number of economists warn that she could spend more money than she bargained for.
One question: Is the world in the midst of a long-term surge in the price of food and other grains that will be exacerbated by Thailand's policy, or are expansions in production in recent years, and the threat of a possible global recession, enough to counter Thailand's move to push prices higher?
Some analysts doubt prices will go much higher. Ammar Siamwalla at the Thailand Development Research Institute said Thailand may be overplaying its hand. He warns that it risks falling into a vicious cycle in which it forks out large amounts of cash to farmers to produce more and more rice, whose prices may not be sustained at their current levels.
Mr. Mohanty, the economist with the International Rice Research Institute, said more rice is being grown compared with 2008, and India soon could be exporting rice in significant quantities for the first time in three years if a court rules that private shipment licenses were awarded correctly.
"Overall, the situation looks good. The crop looks solid all over the world," Mr. Mohanty said. "At this point, we would need a really severe weather event to cause a serious disruption."
Some commodity analysts said Thailand could lose market share to rivals such as Vietnam because of its rice-buying program.
Still, prices for some crops have continued to rise even with significant increases in production in recent years. Wheat, for instance, still is trading at record levels despite improving production numbers, the U.N.'s Food and Agriculture Organization said.
Indeed, global food prices remained near records last month, particularly in the developing world.
The U.N. agency said last week that its food-price index slipped less than a point in August to 231 points, just 3% below a record set in February. The agency warned that grain inventories are tight as poor harvests have failed to keep up with demand.
The Organization for Economic Cooperation and Development argued in a joint report with the U.N. agency last week that the world needs to increase its agricultural output by 70% by 2050 to keep up with global demand as countries such as China and India continue to expand.
Soaring food prices played a role in some of the political upheavals rippling around the Arab world this year. Some economists and industry leaders are urging places such as the U.S. and the European Union to rethink policies on subsidizing biofuel or banning imports of genetically modified crops that might otherwise increase yields, or else run the risk of more instability.
In the long run, Mr. Mohanty said, "we have to be open to all potential tools available."
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