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Thailand’s rice policy gets sticky

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In Brief

With Europe threatening to push the global economy into yet another recession, one would think this would be a time for economies to batten down the hatches, build fiscal and foreign exchange buffers, and brace for the coming storm.

Think again. Yingluck Shinawatra’s government recently introduced a new rice policy that will cause a haemorrhaging of Thailand’s public funds at a time when its economy desperately needs to improve its international competitiveness by increasing public investment in education, transport and energy.


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The new policy, which was rolled out in 2011, guarantees the purchase of rice from farmers at 15,000 baht (US$472) a ton for white unmilled rice and 20,000 baht (US$630) for ‘jasmine’ rice — 50-60 percent above the prevailing market price. This new program departs from previous rice-buying schemes because of its high price, and because it fails to set any limit on government purchases. If anyone is prepared to sell, the government is duty-bound to buy.

The policy has made the government the world’s largest rice trader overnight, dealing with virtually the entire marketable surplus of rice in the country. The impact of the policy was limited in 2011 largely because that year’s floods severely damaged the rice crop. But this year rice has flowed into government storage facilities in record amounts, completely overwhelming them. Rice stocks have climbed by 12.5 million tons — well over the amount that Thailand exports in a normal year — and the amount keeps rising.

In order to offload this excess supply, the potential loss to the government could be as high as 5 per cent of Thai GDP. This may be an upper-bound estimate, but it gives a sense of the potential scale of this subsidy. There is some talk of restricting rice production in order to keep costs manageable. But apart from being an implementation nightmare, introducing production quotas would add another layer of distortion in order to correct a distorted result from a distorted policy.

Aside from its rising costs, another problem with the new rice policy is corruption. Farmers are required to sell their rice to millers, who have enough local market power to reduce the procurement price they offer to farmers, and at the same time receive compensation from the government at the procurement rate. It is hardly surprising that the number of mills in Thailand has increased over the last year. Several MPs from the ruling Pheu Thai Party also own rice mills, which may explain their enthusiastic support for the policy.

The government is waiting for the international rice price to rise so it can make a profit. But it could be waiting a very long time. Other major rice producers — especially India and Vietnam — have had a bumper year in rice production, so international prices are low. In previous years, Thailand accounted for a third of world exports. The withdrawal of Thai rice exports from the market this year has been a godsend for Vietnamese and Indian rice exporters, who would otherwise have had to contend with even lower prices.

Rice farmers in neighbouring countries have also been quick to see the advantage of smuggling their rice into Thailand to sell at a high price (the per ton purchase price of Thai rice is almost US$200 above equivalent Indian or Vietnamese rice). True, Thai rice is usually superior in quality to what is grown by Cambodia, Laos, Vietnam and Myanmar, but low- and high-quality rice are often mixed to boost the sale value.

Some might argue that these costs are worth paying because the new program helps poor rice farmers. Unfortunately, less than a fifth of the subsidy is estimated to reach poor farmers. The rest helps millers, corrupt bureaucrats and large farmers who have surplus rice production they can afford to sell. Most small rice farmers are, in fact, net rice consumers.

The reality is that Thailand’s current rice policy has almost no redeeming features. Many policies can be both populist and supportive of sustained rapid growth in the long run, but this is not one of them. Rice is the backbone of the Thai economy, so this bad rice policy is being implemented at the country’s peril.

When the current policy is up for renewal, Thailand should go back to the scheme that was operated prior to 2006, which provided farmers a guaranteed minimum price slightly below the prevailing market price. This scheme was not perfect, but it was fiscally sustainable, helped ensure a guaranteed minimum price for farmers, and allowed the Thai rice market to operate in accordance with market forces.

A return to Thailand’s pledging scheme should be used as a stepping stone toward a rice price insurance scheme that would allow farmers to purchase an option for selling at a future price. Implementing such a system may take some time, but it would provide the framework for an enduring approach toward balancing income security for farmers and an open market. If the current policy goes unchanged, it will almost definitely come to a sticky end.

Vikram Nehru is Senior Associate in the Asia Program and Bakrie Chair in Southeast Asian Studies at the Carnegie Endowment for International Peace.

An earlier version of this article was first published here by the Carnegie Endowment for International Peace.

3 responses to “Thailand’s rice policy gets sticky”

  1. Making claims without providing evidence or statistical data to support the assertions, Japanese’s payroll scholars attack their political targets with ulterior motives beyond economic rationale. Contrary to Nehru’s assertions, the Thai farmers, workers and military are those who brought the first Thai woman of Chinese descent Prime Minister Yingluck Shinawatra to power with decisive majority. They are her power base. Shinawatra Administration’s platform and agenda focus on uplifting Thai farmers and workers from living at subsistence level. Besides the rice policy to assist the Thai farmers during the uncertainty of global recession, Yingluck has increased the minimum wage of the Thai workers to 300 bahts with the intention to eliminate the inequality in Thailand. In addition, she initiates the reconciliation policy by paying a compensation of 7.5 million bahts to each victim of the Thai officials’ brutality. Her intentions as well as the actual implementation of her agenda have won the supports of the Thai workers and farmers, the Thai military, and the monarchy. With the advance of Information technology and globalization, Thailand has been transformed to the point that majority of the Thai farmers and workers have cell phones and access to Internet. They probably are among the most politically active and well informed. This reality is in contrast to Nehru’s portrayal of the Thai farmers and workers as being helpless and ignorance.

    Being located at the heartland of mainland Southeast Asia, Thailand has been encountering the upheavals of international politics since the post- World War II. Although Shinawatra Administration has been pursuing economic comparative advantage policy and responding to her constituents’ responsibility, Yingluck is facing obstacles deriving from international political forces. The rivalry to control the Thai State apparatus has led to the attacks of Yingluck inside and outside Thailand. While enjoying the supports of the U.S., China, Australia, and the neighboring countries, Yingluck faces extensive Japanese’s covert operations to discredit her. Nehru’s article is a case in point. Inside Thailand, the Japanese’s payroll yellow shirts mob currently obstructs her every step of the way. Because Japan’s objectives in Thailand is strategic in nature, the yellow shirts mob captured and closed the two major Thailand international airports completely cut Thailand out from international access during their demonstrations.

    In the era of global hegemonic challenge, economic issue has been distorted for strategic objectives.

    • Please open your eyes and look at the facts. Yingluck was elected by the votes bought by her brother. She has no experience or any knowledge whatsoever in managing any government. What qualification each of her minister has to do his or her job to help the poor Thai people? They all got their positions as a reward for the damage they had done to the country in 2010. Their only goal is to get richer and richer by making new policies or trying to write new laws in order to gain benefit for themselves or their families.

    • Suzie Wong asks for proofs but provides nothing but her distorted opinions about Yingluck and the so~called Japanese scheme.

      Even the head of Thai Rice Farmers association complained that the farmers were used in name but get little benefit. It is well known that after 2 years of implementing the scheme, her cabinet can offer no answers on the details of profit, loss, and stocks to the public.

      If this is not corruption to the hilt, I don’t know what is.

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