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Thailand: Failure Of Rice Pledging Scheme Leaves Huge Financial Burden

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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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"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. -

 

​From an economic point of view - yes - normal.

 

From a social and political point of view - chaos...

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With PDRC demonstrating all over Bangkok, Democrat Party boycotting elections, Rice Farmers blockade roads I think that Thailand has already fallen into social and political chaos.

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Valid point, one assumes though that nothing much is damaged, i.e. they could all go back to their normal lives tomorrow and things could continue after a fashion.

 

I don't think (from afar) that they've fallen off the cliff yet...

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But the name Shinawatra would be forever spat upon for such a climb down and apparent running off with all the gold.

 

Hmm, win win then I guess.

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What has happened to the USD 1.4 Billion seized / frozen of Thaksin's assets about 4 years ago, still frozen why not use that 46 Billion THB towards helping the poor farmers that Thaksinism the saviours of the people allege to support.

 

As I argued on the proposed Rice Auction by the government, BAAC should be running the Auctions selling at market value no the false price imposed by the rice pledging scheme, use the 46 Billion THB to make up for some of the shortfalls and if still shortages then the Rice Pledging Committee can make up the shortfalls, if money left from the Auctions / Thaksin 46 Billion Baht, give him the change back on the promise that he never returns to Thailand and takes all his clan with him.

 

After all if they were to stand up for the poor farmers in their hour of need , they would be seen as martyrs, but as we all know the Shinawatra clan only care for the Shinawatra clan and would not allow one single satang of their ill gotten gains to be rightfully returned.

 

If only politics was so easy.

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Rice prices should be left to market mechanisms. The only value of auctions is when there is insufficient investment in supply to meet demand, with the auction providing a marginal cost of production. But if there is no supply-demand imbalance, there is no need for auctions.

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First off: I have never been a Thaksin fan, not since the early days when I thought he was the height of corruption (which is not such a sin, in my eyes - it can be reined in to a reasonable level, or 'normal' Thai levels, with a bit of external effort and the smallest gesture oinn the part of his family) but worse, I thought he was playing to some very base instincts with his early crusades against drugs (and the wholesale killings that went along with that), for example.

 

Ok, probably my biggest gripe is that he so severely limited nightlife hours back in the Purachai days. Asshole. Totally cramping my style. Just like the mafia never forgave the Kennedy's, I will not forgive my abridged nightlife schedule back in those, my best, younger days.

 

So I don't like him. But he is looking to me to be better than just going on and on with the usual Thai system, these patronizing elites playing Thais like puppets. Actual democracy is the future of Thailand, and Thaksin is a step in that direction. A dangerous step, yes... but, nothing ventured, nothing gained.

 

So the rice scheme was over the top. A mistake. Should be stopped. Fine - that level of price support for a commodity of that scale relative to the nation's size is madness, and eventually the country will be bankrupted. But why are the Thai gov't banks refusing to bridge? What's a state bank for, if not this kind of thing? Oh, a caretaker government can't borrow? Bullshit. The rice scheme is being manipulated into a far worse problem by those who smell blood. Open the coffers, pay the farmers. And don't pretend the farmers are furious and ready to take radical action - they aren't, at least not yet: that's clear from the fact that no where can you find a significant number that chose to express their frustration by voting against the government this week.

 

What has been most apparent of all this week - and to me, it was for the first time - is how heavily the Nation and the Post oppose the government. Overt disagreement is fine, but frequent irrational positions that undermine the govt, often beyond what's reasonable. Disappointing.

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Actual democracy is the future of Thailand, and Thaksin is a step in that direction. A dangerous step, yes... but, nothing ventured, nothing gained.

 

 

 

Thaksin sidetracked democracy and for the last 10 years has kept the country tied up all because of his ego. Just what do you think there was before Thaksin became PM?

 

 

"Thailand's democratic fall is relatively recent. Reformers took control after the failed military interventions of the early 1990s, passing a progressive constitution in 1997, and holding free elections.

 

“Thailand's freedom, openness, strength, and relative prosperity make it a role model,†US assistant secretary of state James Kelly declared in 2002. Growing divides between the middle and upper classes and the poor, however, gradually polarised Thai society, leading to turmoil, and a bloody crackdown in Bangkok last year that killed at least 90 people.

 

"Mr Thaksin was at the heart of these tensions. First elected in 2001, he proved a revelation. For the first time here was a Thai politician who appealed to the poor – who, as in many developing countries, comprise the majority of the electorate. Politically engaged for the first time, they turned out in droves. Yet as he won mandate after mandate, Mr Thaksin – like other elected autocrats such as Vladimir Putin or Hugo Chavez – began to undermine the rule of law, enacting policies that favoured his family businesses, alarming Thailand's middle class and elites, the military and royal family."

 

 

http://www.cfr.org/t...emocracy/p25423

 

 

So a corrupt egomanic who ignores the laws is a step towards democracy? :shakehead

 

And the Post and Nation both oppose the government? So tell me who was the prime minister who tried to muzzle the press and actually tried to shut down any newspapers that did not support him? I'll give you a hint, if you need one.

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Add in the USA presidents and their "executive orders" and pardoning of criminals...Politics, same-same, just

a different country...

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