Rice scheme will hurt Thais and help Vietnam

While consumers and taxpayers will suffer from the government's controversial rice policy, Vietnam will substantially gain, the Thailand Development Research Institute (TDRI) has warned.

Ammar Siamwalla, a prominent economist, yesterday asked the government to answer hard questions on the rice pledging scheme - its cost burden, impact on consumers, and farmers' and government ability to boost global market prices.

"As the government is set to buy paddy at Bt15,000 per tonne from farmers, it has to build up a large stockpile this year - and years later it must accumulate ever larger and larger stockpiles in order to maintain these high prices, which will in the end lead to high costs for taxpayers," Ammar warned at a TDRI press conference yesterday.

When the government releases rice from the stockpile, the price would drop in the global market, which would result in more losses. "It's a dilemma," he said.

High prices would hit consumers and if the government provided a subsidy to consumers, the cost burden to the public would be ever higher, said Ammar, a distinguished scholar at the independent think-tank.

"Thai consumers may have to queue to purchase cheaper rice, subsidised and sold by the government, while rocketing high prices will force Thai rice out of the world market. But rice export rivals, such as Vietnam will gain substantially," he warned.

He was pessimistic about the government's capacity to boost prices in the global market, or that the market price would increase due to an expected high demand. "The government is whistling in the dark," he said.

Responding to Deputy Prime Minister Kittiratt na Ranong who said the government may ask farmers to reduce rice production to keep prices high, Ammar argued that the government could not tell farmers to cut rice production if it faced having too much stock.

"Farmers have the freedom to grow rice. Even in past times of absolute monarchy, the farmers could not be forced to do so," he said.

Although food prices were expected to increase, demand for rice consumption per capita, in particular in emerging economic nations, was likely to drop gradually each year, as affluent consumers shift to spend more on other items, Ammar explained.

TDRI's study said the Thaksin government had faced a loss of Bt19.13 billion from rice pledging in 2005/06 by pledging 5.24 million tonnes of rice, while the income guarantee by the Abhisit regime recorded a loss of only Bt7.38 billion in 2009.

Some 300-500 millers from 2,000 mills, and 10-20 giant exporters would benefit from the pledging scheme. Only 500,000 farmers from a total of four-million households stood to gain from rice pledging, TDRI chairman Nipon Poapongsakorn said. Outstanding costs totalling Bt141 billion from the rice subsidy in 2005 to 2009, included a smaller Bt44.6 billion incurred from the income guarantee scheme.

He said farmers would ignore developing grain quality as the government had set up a high pledging price without regard to rice quality.

The pledging project would draw a flood of rice from Cambodia and Burma. The market mechanism would be destroyed and only millers and a few exporters who joined the pledging scheme would survive, as the state would monopolise rice trading. Past attempts by the Thaksin government to form a rice cartel with Vietnam in order to influence global prices had been a proven failure, he noted.

The new government blames the Democrats' income guarantee scheme for not increasing rice prices, and says that is why it plans to resume the controversial price-pledging scheme.

Sumeth Laomoraphorn, CEO of CP Intertrade, yesterday drew strong support for the government rice pledging policy, saying the vision was in the right direction by foreseeing world's rice stocks at a low level while the price was trending upward.

According to futures stock prices of four key commodities - rice, wheat, maize and soybean - the rice price has not been adjusted in line with those other three crops. Moreover, rice prices have been exported at lower prices than they should have.

Major rice exporters such as the US, Vietnam and Pakistan have low stockpiles while export volumes are rising. Stockpiles in Thailand and Vietnam have reached 8 and 2.1 million tonnes respectively. But Thailand's export share is 30 per cent, and Vietnam 20 per cent, of the average global trade of 31-32 million tonnes of rice a year.

Sumeth urged the government to undertake a policy mix between income guarantee and pledging to shore up Thai rice prices. "The income guarantee scheme will directly pay compensation to farmers while pledging will shore up the price when it goes down," he said.