08/11/2008 (Bangkok Post) - The government has turned down a Commerce Ministry proposal to spend at least 3.3 billion baht to buy 150,000 tonnes of crude palm oil to shore up prices, which have plunged 64% from a March record on concerns about the slowing global economy.

Instead, it plans to persuade PTT Plc to buy up to 100,000 tonnes of crude palm oil from crushing factories at prices of 22.50 baht per kilogramme, which would help increase the prices of palm nuts paid to farmers to 3.50 baht per kg.

Commerce Minister Chaiya Sasomsab proposed earlier in the week that 3.3 billion baht be used to buy 150,000 tonnes of crude palm oil from crushers at 22.50 baht a kilogramme on condition the factories buy fresh palm nuts from farmers at 3.50 baht per kg.

But Deputy Prime Minister Olarn Chaipravat said the government would rather ask PTT Plc to buy up surplus output, which the majority state-owned oil company could use as buffer stock in the production of biodiesel.

This approach would also help spur demand for palm oil futures trading as crude palm oil is widely used in alternative energy production, Dr Olarn said after chairing a meeting of the Farmers Assistance Policy Committee yesterday.

Mr Chaiya estimated that PTT would use only only 2.25 billion baht in the buying scheme.

However, more steps to address the palm oil industry's broader problems would be considered next week.

Yanyong Phuangrach, the director-general of the ministry's Internal Trade Department, said that in order to ensure long-term price stability for palm oil, Dr Olarn wanted to see co-operation among all related agencies in devising an alternative energy strategy.

In addition to PTT, the Energy and Agriculture ministries and the Fishery Department need to be involved in the strategy, he said.

The sharp decline in palm prices has tracked the rapid fall in world crude oil prices, which have shed 45% since July on concerns about the slowing global economy, after reaching record highs earlier.

As a result, the drive to produce greater volumes of alternative fuels, including biofuels derived from palm oil, has lost some of its urgency.

Thai crude palm oil prices hit a record high of 44 baht per kg, and farmers enjoyed palm nut prices of six baht per kg in March.

The price of crude palm oil has fallen to 15.75 baht per kg and palm nuts to between 2.05 and 2.50 baht per kg.