Stop betting the farm on Thai rice
Last year's floods cost Thailand more than 1 trillion baht thanks to a perfect storm of years of insufficient infrastructure investment, poor crisis management, haphazard zoning and unusually heavy seasonal rains.
It's a political miracle of sorts that Prime Minister Yingluck Shinawatra has survived. She might not be so fortunate in reckoning with the next flood, namely the government's bet-the-farm strategy to buy out the country's entire rice harvest in an ill-conceived bid to corner the world rice market.
The government has already committed 270 billion baht to date to purchase this year's crop under the rice pledging programme that pays farmers unconditionally up to 15,000 baht a tonne for white rice paddy and up to 20,000 baht a tonne for jasmine Hom Mali rice.
The Thailand Development Research Institute, one of the country's most respected think-tanks, estimated that losses for the current crop alone could be as high as 100 billion baht, or 1% of the country's gross domestic product.
That might be conservative. Consider that 5% white rice prices last week were quoted in the world market at US$585 a tonne (18,095 baht), against an estimated price of $800 a tonne necessary to just cover the pledging price. When other costs are included _ milling expenses, storage costs, transport and packaging _ the price gap is even greater.
Vietnam, in contrast, currently sells rice at a price of $405 a tonne. Yes, Thai rice is generally considered a higher grade and priced at a premium against that of our Asean neighbour. But how many consumers would pay twice the price?
Ms Yingluck touted the rice pledging programme as a scheme to boost rural incomes, diversify income and lift small farmers from the very real problems of debt and poverty. Well and good. But by offering blanket subsidies with no restrictions, means-testing or controls, the programme has become open to widespread abuse, has utterly distorted the market and is set to cost taxpayers a veritable fortune.
It's not the first time, of course, that a Thai government has used the rice pledging programme as a conduit to funnel money to rural constituents. But past governments have generally accepted that writing blank cheques and audaciously vowing to purchase "every single grain" of rice in the country is bad policy, and imposed conditions on the programme including time periods for pledges, limits per household and pledging prices that at least had some semblance of being grounded in reality.
Costs to the state-owned Bank for Agriculture and Agricultural Co-operatives , the agency responsible for executing the pledging programme, ran up a 300 billion baht tab under the Thaksin Shinawatra government. The Abhisit Vejjajiva government's policy to substitute the rice pledging programme with an income guarantee scheme, which paid farmers the difference between benchmark prices and market prices, is estimated to have cost the BAAC 40 billion to 50 billion baht. Ms Yingluck is likely to trump both of her predecessors in terms of total costs. And for what? Has the programme resulted in a sustainable improvement in the livelihoods of small-scale farmers? Have farmers been able to increase productivity and yields? Hardly. Indeed, anecdotal evidence is strong that for many, the additional revenues received have come with higher expenses for fuel, feed and fertilisers. Traditional sharecropping models have also given way to less secure lease arrangements as landowners seek their own share of the gains from the government's largesse. Most dangerously perhaps is the fact that the pledging scheme has resulted in farmers focusing on quantity over quality, undermining efforts to improve strains or implement organic or sustainable farming methods.
Why the race to the bottom? We should turn our attention to the top, and continue to develop new strains and new farming methods that have greater appeal to today's health-conscious consumers. Rice berry, for instance, a purple unmilled cross of hom nin rice and khao dawk mali 105, was developed by Kasetsart University and has proven popular for its high levels of vitamins, minerals and antioxidants. Huge potential remains untapped in terms of rice-based snacks or even the use of rice powder as a baby powder.
Thai agricultural scientists have plenty of ideas on how to increase the value of one of Thailand's most iconic products. What is needed is more support, funding and encouragement.
Alas, our policymakers appear wedded to a vain effort to manipulate and inflate global rice prices rather than considering a more measured commitment to improving quality and value, reducing input and logistics costs and investing in safe, environmentally-friendly and sustainable production methods. Education programmes, irrigation improvements or land reform may not sound as politically attractive or expedient as a catchy, easy-to-understand slogan such as "15,000 baht per tonne". But there is no free lunch.
*Wichit Chantanusornsiri is a senior business reporter at the Bangkok Post.
By Wichit Chantanusornsiri*
02 August 2012