Thai Rice Subsidy Program Ends With a Whimper

Thailand has largely ended its disastrous scheme to subsidize rice farmers, having lost the country’s position as the world’s biggest exporter and left it an estimated US$2 billion in the hole with vast amounts of rice deteriorating in warehouses. The prime minister faces corruption charges and rebellion from angry farmers who form the backbone of her party’s rural support.

From the time the program was put into effect in 2011, economists were predicting it would end in fiasco. It has. Farmers and traders have now returned to the commercial markets.

Given that the power base of the ousted fugitive former Premier Thaksin Shinawatra and the surrogate governments he was running from outside the country was in Thailand’s rural north and east, the plan was to buy farmers’ loyalty by paying them 40 to 50 percent over the global price for their rice and holding it off the market.

The assumption was that since Thailand was the world’s biggest rice exporter and that US production was sharply off in 2011, the combination of the shortage and Thailand’s absence from the global market would drive prices sky high and allow the government to sell what it had bought from the farmers at the new price.

Thailand had been the world’s biggest rice exporter since 1932, exporting 9.03 million tonnes in 2009. By 2013, exports had dropped by more than 3 million tonnes because the rice the government had accumulated was economically unsaleable. India and Vietnam and India, both recognizing an opportunity to be exploited, raised their export levels, selling at largely the prevailing market price after a short bump upwards while Thailand was stuck with uncompetitive stocks.

India thus pushed Thailand into second place as global exporter, only slightly ahead of Vietnam, exporting 6.72 million tonnes in 2013 to 6.7 million tonnes for Vietnam.

The program also left the Pheu Thai government with a growing surplus that eventually hit more than 12 million tonnes, much of it facing quality issues from deterioration. The government is still believed to be holding as much as 10 million tonnes, which it is trying to sell at a rate believed to be 20-30 percent below its purchase price.

From the start, Thai farmers, seeing the riches to be made from selling rice to the government at substantial levels over the global price, began planting from border to border of their farms. Middlemen and rice traders are believed to have cleaned up through corruption. Some traders were caught trucking in cheap rice bought in Myanmar and selling it to the Thai government.

With the government running a growing deficit from the program, economists and others called for the cessation of the subsidy. The Pheu Thai government, headed by Thaksin’s sister Yingluck, was weakened by continuing political turmoil and needed the farmers’ support. Yingluck vowed to continue it until it simply became non-viable.

Before it was over, the government had long since run out of money to pay the farmers, with an estimated 150,000 of them taking to the streets to demand payments that were months overdue. Thailand’s banks, believed to be either aligned with the opposition or reluctant to loan because of the possibility that the government would be driven from power, largely blocked loans to pay the farmers. Finally about US$620 million was unblocked in March.

With spring at hand, Thailand’s farmers will soon start to harvest a new rice crop, with traders pushing it onto global markets and leaving the government’s stockpiles, bought at high prices, unsaleable unless the price goes down sharply. The government is anxious to sell off as much as possible as soon as possible over concerns over deterioration from long storage. It is believed to have exported more than 2 million tonnes since Jan. 1, up substantially from 2013, although at what price nobody knows.

The Thai Finance Ministry advanced the equivalent of US$621 million to the government in March to pay off the farmers baying at the Pheu Thai heels. That has to be repaid by May 31.

The government is hoping to sell off as much as possible through government-to-government transactions, according to Samarendu Mohanty, economist and head of the Social Sciences Division at the International Rice Research Institute in the Philippines.

Although the Thai government says exports are likely to surge because of growing demand, Mohanty says, it will probably be forced to sell off well below the purchase price.

According to Oryza, an industry reporting website, the US, Malaysia and China are planning to buy a combined 1.6 million tonnes, with China possibly in the market for another million tonnes depending on inspection of some of the warehouses. That leaves Thailand with about 8 million tonnes still to sell. The government is bound to take a substantial haircut.

It may be a pretext that could be substituted with another pretext, but it also leaves Prime Minister Yingluck Shinawatra facing charges in Thailand’s Anti-Corruption Court of corruption and dereliction in not supervising the program properly. The court is widely believed to be aligned closely with the opposition forces trying to bring down her government, and many in Bangkok believe the ruling will go against her. That presumably would end her political career and put the Pheu Thai Party in jeopardy in the parliament.