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  1. In the two years since the launch of the government's rice pledging policy, where do we stand now? Silos across the country are filled to the brim with millions of tonnes of grain, as the government has become the sole buyer of rice in the country but been slow to sell. Farmers nationwide are protesting about delayed payments as the cost of the scheme soars. And taxpayers are facing hundreds of billions of baht in losses, with the bill rising with each passing day due to the fact that the programme is a bald-faced subsidy paying farmers up to 40% above the market price. The latest move by the Finance Ministry was to call for a bridging loan auction of commercial and state-owned banks last week in an attempt to get a loan to repay 1 million angry rice farmers. However the auction for the first 20 billion-baht bridging loan was called off, as only a few banks joined in the bidding because most of them were worried about whether the caretaker government has the mandate to borrow. The government now owes the farmers 130 billion baht and the money from rice stock sales is insufficient to make the payments. The caretaker government has tried to find ways to pay the debts owed to the farmers as it cannot afford to lose their votes. If this were an enterprise, the word "bankruptcy" would not be sufficient to explain the massive losses and hefty damage caused to the country and its people. More importantly, corruption allegations are tarnishing the country as a whole. The cost of this failure is enormous. In the past two years, the government has borrowed a total of 700 billion baht, equal to a two-year government investment budget. Even worse, the borrowing and debts continue to mount. And those bearing the brunt are the taxpayers. But that is only the financial loss. What else have we lost along the way? And what costs are we about to pay if this much-denounced scheme carries on? Many renowned economists, academics and public figures have slammed the subsidy and urged the government to end it. However, the Yingluck Shinawatra government has played deaf and continued with the scheme. What will happen if the government continues the scheme? Mounting debts : Based on Thailand Development Research Institute (TDRI) data, rice pledging has raked up a bill of 728 billion baht. After the money received from rice sales is deducted, the figure is 700 billion baht. After more than two years, or five rice crops, the total amount of paddy rice pledged under the scheme stands at 54 million tonnes, equal to 32.4 million tonnes of milled rice. However, the total received from rice sold only stands at 158 billion baht. "If this rice pledging scheme continues, the country will be broke," said Nipon Puapongsakorn, a rice expert at the TDRI. The key reason is the government will continue to seeks ways to finance the project, which means the debt will continue to mount. The interest the government has to pay - or rather that the taxpayers must shoulder - is estimated at 21 billion baht a year, given annual interest of 3%. "The government has to keep borrowing money to finance the interest too. Additionally, the debt will escalate if the scheme is pushed forward," said Mr Nipon. A serious concern is the total debt incurred by the one-year pledging is 350 billion baht, and that goes beyond the annual actual disbursement of government investment budget. To carry on this project, the government will likely have to squeeze its other budgets, which will eventually hurt the country's long-term development in infrastructure, economy, gross domestic product, competitiveness and productivity. "In the worst-case scenario, the state will run out of money and not be able to pay salaries to civil servants," said Mr Nipon, adding that the grass roots will eventually be affected. "The programme was initially aimed at reducing income disparities and making the farmers richer. However, now it is widening the gap. Only large-scale farmers are benefiting from the scheme." Crony capitalism and corruption : Apart from mounting debts, we cannot deny the rice pledging scheme has induced "crony capitalism" and bred huge corruption. And sooner or later, taxpayers will have to shoulder this enormous cost. When the programme is over, some unpleasant facts will be brought into the limelight, and that will, again, largely depend on the Thai law enforcement and justice system, if it ever brings down the culprits. Crony capitalism has long set its roots in Thai society, and it is unlikely to go way. Social costs and Thailand's reputation : For many decades, Thailand had been a champion rice exporter of reputable quality. However, as soon as the scheme was implemented, export volumes began falling sharply, as prices have gone way over market prices. Even Thailand's signature rice strain Hom Mali, has seen its reputation dented. A look at paddy rice prices explains why. Over the period, Thai farmers received 15,000 baht a tonne for paddy compared with 10,912 baht a tonne for US rice, 7,130 baht for Indian rice and 6,975 baht for Vietnamese rice. In 2012, Thai rice exports totalled 6.93 million tonnes, down by 35% from 2011. Exports for last year are expected to show a further decline despite the fact that global trade in rice rose last year to 39.8 million tonnes from 38 million in 2012. In the first half of last year, Thai 5% white rice averaged US$572 a tonne free on board compared with an average price of $388 a tonne for Vietnamese rice. Authorities are understandably loathe to reduce prices for fear of undermining the market entirely and escalating the already-massive inventory losses carried by the state. Regardless, Thailand's competitive position in the global rice trade has clearly been affected by the pledging policy. Following years as the world's largest rice exporter, Thailand now ranks third after India (26%) and Vietnam (19%). Since sales have been extremely slow, rice stocks are piling up every day. Nobody actually knows how much rice has been kept in stock, nor how much has been sold. The government has disclosed few figures. However, Somporn Isvilanonda, an economist at the Knowledge Network Institute, believes the sums are massive. He estimates the government has stockpiled as much as 18 million tonnes of milled rice, the equivalent of 17% of total global stocks. Thai rice holdings are the third largest in the world after China and India. "It would take 5-7 years for the government to reduce its stocks to just 2 million tonnes. If the government wanted to clear its stocks faster, we'd have to price exports below Vietnamese and Indian rice," said Mr Somporn. Generally, the quality of rice in stock reduces by 10% a year. Hence, the longer it is kept, the bigger the loss will be. A way out of the imbroglio Many rice experts say it is essential the government end the scheme in order to contain the damage and losses. The first and most important step is for the government to stop the scheme or any interference in market prices and let market mechanisms work their way. Farmers are the most in need of immediate help here. Mr Nipon said the best approach is to find ways to sell the mounting rice stocks to gain money and reduce damage caused to the rice. However, since the reputation of Thai rice has been ruined over the past two years, it is necessary for the government to "grade" the rice in the piling stocks carefully and select to sell only those still in good and premium quality. "In this case, the government is required to announce it will sell only good-quality rice while abandoning low-quality grains in order to regain the trust of buyers including government-to-government sales," said Mr Nipon. Presently, many countries such as Indonesia, the Philippines and China are demanding premium-quality rice. Therefore, it is essential that Thailand regain this market, as it used to hold solid competitiveness, while the price can also be set at a higher level. However, the government should not offload stocks quickly through bulk sales, as that would hurt prices in the domestic market as well globally. This approach would also encourage farmers to grow premium rice. And sooner or later, the market will return to where it used to be - when Thailand produced premium rice and was the champion exporter. However, the stance should be that we focus on quality rather than volume. "The price of rice will also rise, as it is premium in quality," said Mr Nipon. But one possible obstacle is that all warehouses and stocks must be open for inspection for the grading of rice quality. "That could be a problem since the government may not be ready for such inspection and scrutiny," he said. With the rice sales, the government should have more money to pay farmers and pay off some of its debts as well as the interest on loans. However, this is on the condition that the scheme is terminated. Otherwise, the borrowing will continue with ensuing massive debts. Meanwhile, it is unlikely that rice farmers will pledge their harvest to the government for the next crop for fear they will not get paid. It is also unlikely that the next government will continue the scheme, as it comes with too high a cost and faces public opposition. However, it will need to continue repaying the debts incurred by the present scheme. "All the government has to do is to terminate the scheme and let market mechanisms take over. Then things should return to normal," said Mr Nipon. http://www.world-gra...059304564&cck=1
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