Thailand Sticks With Loss-Making Populist Rice Policy

[Flashermac]

Thailand's populist policy of buying rice from farmers at more than 50% above the market price started its third year Tuesday with the beginning of the new fiscal year.

 

The government has budgeted 270 billion baht (8.7 billion United States dollars) to buy the main crop, harvested from October to December, at a fixed price of 484 dollars per tonne of unhusked paddy, or about 775 dollars per tonne of milled rice, which will be dropped to 416 dollars for the second crop of unhusked, harvested in May and June 2014.

 

The current international price for milled rice is about 400 dollars per tonne.

 

The so-called rice-pledging programme kicked off in October 2011, by the Pheu Thai Party that leads the current government.

 

The programme was a key campaign promise used by the Pheu Thai to win the farmers' vote in the July 2011 general election.

 

It worked. Pheu Thai won 260 out of 500 seats in the polls.

 

While a political winner, the rice-pledging scheme has cost the country dear, although the extent of the loss remains a state secret.

 

Commerce Minister Niwatthamrong Boonsongpaisal on Monday denied reports that the programme had amassed more than 400 billion baht in losses over the past two years.

 

"It's hard to say how much has been lost because we haven't yet sold all the rice, but it should be about 80 to 100 billion baht," he told Thai Rath newspaper.

 

Since the implementation of the policy, theoretically designed to boost farmers' incomes and domestic consumption, Thailand has lost its position as the world's leading exporter that it held for three decades.

 

In 2011, Thailand's rice exports amounted to 10.7 million tonnes, earning the country 6.4 billion dollars, but last year, Thailand fell behind India and Vietnam, shipping seven million tons of rice for 4.8 billion dollars, according to data compiled by the Thai Rice Exporters Association.

 

It is surprising that Thailand managed to export any rice at all, given that the government bought all the available rice on the domestic market for what amounted to 800 dollars per tonne of milled rice.

 

During the first few months of the programme, the policy managed to boost international rice prices to 600 dollars per tonne, but these have gradually declined to about 400 dollars per tonne now.

 

Thailand's private sector rice exporters have managed to get rice over the past two years thanks to "leakage."

 

"The fact that we managed to export seven million tonnes last year was because of leakage by the government through their own channels," said Vichai Sriprassrt, honourary president of the Thai Rice Exporters Association.

 

The leakage is from the government's estimated stockpile of 17 million to 18 million tonnes of rice accumulated over the past two years.

 

"The system is leaking some rice, way below the market prices, to certain people only," Vichai said. "That private channel then resold the rice to people like myself."

 

At least four rice companies are acting as middlemen in the trade, according to rice industry sources.

 

"The government sells rice only to a few companies that are very well connected, and those companies are re-selling to local traders and exporters," said Nipon Poapongsakorn, from the Thailand Development Research Instuitute, a think tank.

 

Details of these transactions remain secret.

 

"The discount must be big, because all the deals are secret," Nipon said. "They are collecting rent from the people."

 

Government officials have publicly acknowledged that they cannot account for at least three million tonnes of the alleged stockpile, but deny that the programme is haemorrhaging money.

 

Altogether, some 21.9 billion dollars has been spent on the rice purchase scheme over the past two years, but the government has thus far failed to clarify how much it has earned from rice sales.

 

Moody's Investor Services, a global credit ratings agency, in July raised concerns that the scheme might overburden state coffers.

 

Credit rating agencies' concerns have been heightened by the government's decision this month to also subsidize prices paid for rubber, to quell protests by growers.

 

"I think the further expansion of the subsidy programme to the rubber sector is a change in the fiscal outlook," said Andrew Colquhoun, Fitch Ratings' head of sovereign ratings for Asia Pacific.

 

One sign that the government is running out of funds for a new round of rice purchases was the decision last month to lower Thailand's rice prices on the world market to a more realistic level of 400 dollars per tonne, sources said.

 

"You cannot fight market forces," Vichai said. "Market forces worldwide are more powerful than the Thai government."

 

 

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