August 5, 2014 / 8:58 AM / 6 years ago

UPDATE 1-Thai govt to aim for rubber supply cut to support prices

* To hike compensation for farmers who cut trees, switch to palm

* Global rubber prices down by more than 25 pct this yr

* Govt aims for more palm oil output to meet biofuel demand (Adds rubber prices, background)

By Apornrath Phoonphongphiphat

BANGKOK, Aug 5 (Reuters) - Thailand’s military government will encourage farmers in the world’s biggest rubber producer and exporter to cut down more rubber trees in a bid to restrict supply to help shore up prices, a senior government official said on Tuesday.

Global rubber prices have tumbled more than 25 percent this year on persistent worries about demand from top consumer China and oversupply. Sellers in Thailand and other producers in Southeast Asia are complaining tyre grade prices are already below production cost.

The price of benchmark Thai smoked rubber sheet (RSS3) has dropped by a fifth this year to $2.00 per kg, down from $2.45-$2.50 a kg early this year.

“We aim to cut down 350,000 rubber trees a year, up from 250,000 trees we planned earlier,” Dumrong Jirasutas, Director General, Department of Agriculture, told Reuters.

The government will increase the compensation to farmers who cut rubber trees to 21,000 baht per rai (0.16 hectare/0.4 acre) from 16,000 baht and switch to growing palm oil to meet rising demand for biofuel, he added.

“We plan to expand palm area by around 25 percent from the current 4 million rai (0.64 hectares),” Dumrong said.

Thailand has enforced the mandatory use of 7 percent palm oil-based biodiesel in diesel gasoline starting this year.

The government also plans to support the state-owned Bank of Agriculture and Agricultural Cooperatives in giving soft loans to rubber factories and local cooperatives, which will buy the commodity from farmers.

Thailand’s current rubber plantation area stands at around 18 million rai. The area has been expanded substantially since 2004, with the government aiming to raise farmers’ incomes by encouraging them to grow more rubber to meet increasing demand in the tyre industry. (Editing by Lewa Pardomuan and Muralikumar Anantharaman)

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