Global rice prices, which are expected to increase anyway this year due to the drought in China, would be forced up by the policy, analysts say, although they are unlikely to hit records seen in 2008 in Asia, especially with countries such as Vietnam trying to grab market share by undercutting Thailand.

The Puea Thai (For Thais) party, which broadly supports populist former prime minister Thaksin Shinawatra, says it will buy rice directly from farmers at 15,000 baht ($496) a ton if it wins the July 3 election, a policy to please the millions who make their living from rice.

The major rice-producing region in northern Thailand is Thaksin’s traditional power base.

That intervention price is around 80 percent above the current market of 8,000 baht per ton. The effect would be to propel export prices to as high as $870 a ton, more than 74 percent above the current $500, traders said.

“That would lead to a collapse in Thai exports. Export could drop as low as 5 million tons next year as we can’t compete with such high prices,” said Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association.

Thailand aims to export 9.0 million to 9.5 million tons this year. A drop to 5.0 million could push it to second place behind Vietnam, which is able to export 6.0 million tons a year.

Vietnamese premium grade 5 percent white rice is offered at only $465 per ton.

Traders and exporters said world rice prices were likely to rise anyway in coming months on fresh demand from China as a result of drought, which is also affecting parts of the United States and Europe. Analysts warned this could stoke food inflation in the second half of 2011.

Rainfall in Anhui, Jiangsu, Hunan, Hubei, Jiangxi, Zhejiang and Shanghai, China’s main rice-producing areas, is the lowest since 1954, the country’s meteorological office said, though torrential rains are expected soon.

“Global prices may rise on a possible increase in demand,but they definitely wouldn’t rise as high as Thai prices, which would be distorted by government intervention,” Chookiat said.

Prices may be restrained to some extent by lower demand from Indonesia and the Philippines this year, and the Manila-based International Rice Research Institute (IRRI) said global rice prices should hold around current levels into 2012 on improved output due to ample rain and plentiful stocks.

Thailand’s benchmark rice hit a record high of $1,080 per ton in April 2008.

But Chookiat said the situation now was different to 2008,when global prices jumped on a supply drop caused by an Indian export ban plus panic about food security, as farmers switched from food crops to biofuel crops as oil prices soared.

“Rice prices from other origins would be higher due to stronger demand if buyers turn away from Thailand as prices shoot up because of intervention,” said Arup Gupta of Phoenix Commodities Ltd.

“But global prices will not rise as high as Thai prices, which are not realistic. The situation is not like in 2008 and

buyers are more careful.”

Thai authorities have intervened in the market for decades to help poor farmers, but policies became more

aggressive in the Thaksin era from 2001, as his government bought rice from them at way above market prices to cement his popularity.

Even in 2008, when prices hit records and farmers could make a rare profit on the open market, the pro-Thaksin

government still offered to buy rice from them at 14,000 baht a ton, above market levels.

The scheme drained around 5 million tons into government stocks, which had the perverse effect of cutting supplies to exporters, who were thus unable to sell on the international market at a time of highly advantageous prices for the country.

The Democrat-led government of Prime Minister Abhisit Vejjajiva introduced a new price guarantee scheme last year, offering to pay farmers the difference if they had to sell rice below a guaranteed level, currently 11,000 baht per ton.

The government said that was more transparent and fair, since all farmers could participate, but many growers hated the paperwork and complained that since it did not drain rice from the market, prices kept falling.

Farmers protested and the government gave in, operating a dual intervention/price guarantee scheme. In the election campaign, the Democrats have promoted their price guarantee system in a low-key way.

The Puea Thai intervention scheme would run into other, familiar problems. Buying a lot of rice directly from farmers would swell up stockpiles and the government would find it difficult to sell at profitable prices at a time competitors were trying to undercut Thailand.

Thai stocks rose as high as 7 million tons in 2009, hanging over the market and forcing prices down as authorities

struggled to find buyers before the grain went bad.

“If Puea Thai comes to power, then definitely prices will move up and it affects white rice exports from Thailand because buyers will have optional origins to choose for their white rice imports,” said the head of rice business at an international grains trading company in Singapore.

“They will struggle to sell Thai white rice. But the rice will come back into the market later from the government stocks which will be sold at lower than the procurement price as old crop. The government will lose money and sell.”

He expects exports to fall to 7-8 million tons from 9-10 million tons, of which 3 million will be parboiled rice that

will not be affected much, as India is absent from the market.

Kanawat Wasinsungworn, deputy leader of Puea Thai, said the new government would look to cooperate with Vietnamin the rice market and possibly try for a cartel that could influence world prices.

Traders were skeptical that would achieve much. Cooperation was started a decade ago but has produced few tangible results, with Vietnamese prices offered below Thai prices for years.

“We used to have that kind of cooperation, but if we come to power we will tighten it up so that we can manage world prices as well as manage supply together — we are the world’s top two exporters,” Kanawat said.