Thailand’s Rice Subsidy Under Siege

A Thai legislative committee has advised the Pheu Thai government to put an end to the country’s disastrous rice subsidy program, which according to a Finance Ministry audit has cost billions of dollars over the first two years of implementation and lost the country its position as the world’s leading rice exporter. The recommendation, by the Senate Committee on Agriculture and Cooperatives, isn’t binding on the government, headed by embattled Prime Minister Yingluck Shinawatra, which in any case has adjourned until after scheduled Feb. 2 elections, which an energized opposition is attempting to thwart altogether. The problem with subsidies is that withdrawing them can be political suicide. The Yingluck government has continued to support the program although last summer it announced it would cut prices by 20 percent, only to have the farmers take to the streets. Rubber tappers began demanding the same kind of subsidy scheme. The government backed away from the subsidy cuts in the face of opposition. Given the extremely tense political situation in Thailand, with tens of thousands of protesters in the streets demanding that the Thaksin regime be erased for good, the government needs all the support it can get from its legions of rural supporters to continue to prevail. Any attempt to do away with the subsidy now is problematical. At its onset, the program kicked off a huge flurry of planting across the country as farmers planted every available plot of land to take advantage of the scheme. Traders rushed to Thailand and Cambodia to buy cheap rice and haul it to Thailand to sell it to the government. The government was forced to lease an additional 180 warehouses last February to handle the storage problem. The scheme, which pays farmers a premium of as much as 50 percent over world prices, has been plagued by corruption and been more a benefit to traders and middlemen than the farmers it was intended to reach, critics say. The idea behind the scheme was that the government would hold the rice in warehouses, cutting off exports and causing a global shortage that would cause prices to spike and allowing the government to sell at a profit. But it didn’t happen that way. Global buyers switched their contracts from Thailand to India and Vietnam among others, which almost immediately surpassed Thailand in tonnage onto the world market and left the country holding millions of tonnes of rice in warehouses. Now the world has been caught in a commodities downcycle, not just for rice but for a wide range of others as well. Over the past 18 months, prices have been moving in a tight range, with the Oryza white rice index fluctuating between US$475 and $500 since January 2012. However, in the past few weeks, prices have weakened on the back of surplus rice in Vietnam, weaker Thai and Indian currencies, and the news about the possible decline in the Thai mortgage prices. Thailand has been forced to delay payments to some farmers for more than three months because of the financial burden on the budget. The government has begun issuing bonds to raise Bt75 billion (US$2.27 billion) to keep the program running. Thailand only managed to sell 5.9 million tonnes of rice between January and November, down considerably from 2012. The country is expected to export a total of 6.4 million tonnes for the full year, down about 25 percent from its target of 8.5 million tonnes, according to the Thai Rice Exporters Association. In 2011, before the rice pledging scheme got underway, Thailand exported 10.7 million tonnes. Warehouses have been left bulging with rotting rice that is too expensive to sell on world markets. The Thailand Development Research Institute recommended in December that warehouse owners be required to burn rotten pledged rice in order to prevent additional corruption from payments for warehousing. The stockpile has grown to the point that nobody is quite sure how much rice there is, beyond a lot. It is estimated at more than 18 million tonnes. Nipon Puapongsakorn, a TDRI official, said in December that the new government will need to urgently examine the amount of stockpiled rice, saying that without the exact figure of rice in store, the country would have to unnecessarily spend higher amount of money on maintenance and face depressed prices for the whole stock. He also said that the lack of reliable pledged rice inspections would likely attract corruption. According to Oryza, an online service delivering global rice news, research and analysis, the government now is seeking to sell 150,000 tonnes of rice from the new crop (2013-14) through the Agriculture Futures Exchange of Thailand as of Jan. 15.

Read →

Comments on this post are for paying subscribers