Rice scheme needs rethink
Thailand is on the brink of losing its status as the world's number one rice exporter to either India or Vietnam, thanks to the government's populist rice mortgage scheme.
According to the respected economic think tank the Thailand Development Research Institute (TDRI), rice exports have dropped by 44 per cent year-on-year since January this year.
But the grim prospect of losing its top place in the export rankings and of lost pride appears to pale when compared to the financial loss in supporting the scheme and the longer-term impact to the economy if this populist policy is not reviewed or scrapped soon enough.
The scheme, introduced last September as a flagship populist policy of the government to curry favour among farmers, has cost the government about 270 billion baht for paddy purchases.
Of this huge amount of spending, 90 billion baht has come from the coffers of the state-run Bank for Agriculture and Agricultural Cooperatives, BAAC president Luck Wajananawat said.
About 11 million tonnes of paddy or eight million tonnes of milled rice will have been purchased under the mortgage scheme by the time the first phase of it ends next month.
Since the rice was bought by the government through the BAAC at 15,000 baht a tonne for ordinary rice and 20,000 baht a tonne for Hom Mali fragrant grains which are about double the normal market prices, the government stands to lose US$350-400 baht a tonne of rice if stockpiles are sold now on the world market.
That means the government will lose 130-140 billion baht if the eight million tonnes of stockpiled rice are to be cleared from warehouses across the country.
So far, the bulk of the rice bought under this populist scheme is still held in warehouses nationwide.
But whether the actual amount will match with the purchase figures will only be known when the rice is actually sold to exporters or sold by the government in government-to-government deals.
The huge stockpile will pose a real problem with the arrival of new harvests when warehouse space is needed to store new rice to be bought under the scheme.
Besides the space problem, the rice quality will drop if the grains are kept for too long and they will fetch much lower prices. Pressed with these dual problems, the government may be forced to sell on the cheap.
There is no doubt the government will suffer a loss if it wants to dispose of the massive rice stockpile to make room for the arrival of new rice purchases. The point is how big a loss. This depends on the efficiency of the government, or the Commerce Ministry in particular, which is, at best, questionable.
The government has good intentions in helping farmers earn more from their crops even though it also expects to win their votes during the election.
The loss burden from the rice mortgage scheme may be acceptable if the farmers are the only real beneficiaries of the scheme. However, others have benefited much more than the farmers, such as millers, brokers, corrupt politicians and officials.
Other means can be found to help the farmers earn better incomes, but regrettably none have been seriously pursued by any government from the past to present. One such method is to help them increase productivity and reduce their dependence on the use of fertiliser and pesticides which have added substantially to their production costs.
Experience to date shows the rice mortgage scheme needs to be reviewed or scrapped before even more damage is done to the economy.
19 July 2012