The biodiesel formula and the proportion of crude palm oil (CPO) in diesel will be adjusted to curb the impact on farmers and biodiesel consumers, says Energy Minister Anantaporn Karnchanarat.
The decision comes after palm growers, a biodiesel-related association and a group of palm crushers opposed the government's policy to reduce the proportion of crude palm in biodiesel from 5% (B5) to 3% (B3).
Plans to cut the percentage of palm oil used in biodiesel were previously intended to reduce possible shortages in palm cooking oil.
"We would be ready to cut down the proportion of palm in the biodiesel to 3%, or B3, if needed," said Mr Anantaporn.
The Energy Ministry needs more information on the country's palm oil demand and palm stock reserves from the Commerce Ministry, he said, as well as data on production trends and the supply side from the Agriculture Ministry.
According to the Agriculture Ministry, Thailand is forecast to produce around 10.9 million tonnes of palm fruit this year, down from 11.0 million the previous year, largely because of a drop in yield.
In May, the Energy Policy Administration Committee said it was preparing for the commercial sale of B10 biodiesel nationwide by 2018.
The use of the fuel, a blend of 10% palm oil and 90% diesel, is part of the National Alternative Energy Development Plan to raise renewable usage to 30% over the next few years, up from 12% at present.
The Department of Energy Business (DOEB) said it is ready to cut the proportion of palm in diesel to B3 from B5 if there is any palm shortage, said director-general Witoon Kulcharoenwirat.
He said the DOEB will conduct a study to determine the exact quantity of CPO stocks nationwide.
In contrast, if it is found that palm fruit prices continue to drop due to abundant palm supply, the authorities would be ready to switch back from B3 to B5 in order to help increase the percentage of palm oil used in biodiesel to help absorb additional supply, said Mr Witoon.
Prior to the recent B3 plan, the DOEB on July 25 had required that petrol stations switch from selling B7 to B5 biodiesel to reduce palm oil usage in the energy sector while bolstering supplies for the cooking industry.
Chayodom Suwarnwattana, a representative of palm oil growers, said the palm fruit price had dropped from 6.40 baht per kilogramme to 5.4 baht in only a week's time and palm growers feared that the price would continue to drop even further.
He said the cost of growing palm fruit is in the range of 3.80-4.0 baht per kg.
Mr Chayodom said if the price of palm fruit falls below five baht per kg, growers would stage street protests to demand the government's help.
Sanin Triyanon, a representative from the Bio Diesel Producers Association, said the drop in CPO prices are largely because of massive stocks accumulating over the past few years, a situation caused by speculation that eventually triggered hoarding.
The domestic CPO price rose substantially to 33 baht per kg -- well above the global price of around 20 baht -- because of the government's plan to increase the proportion of CPO used in fuel. That in turn encouraged profiteers to start hoarding, prompting oversupply and an eventual fall in prices, he said.