No justification for early start to pledging scheme

It is estimated that the government will have to spend more than Bt345 billion to stockpile the main rice crop over the next four to five months. Of that amount, Bt150 billion will come from a government bond issue and Bt60 billion from the Bank for Agriculture and Agricultural Cooperatives. But some will have to be borrowed from commercial banks.

Under the pledging programme, the government will subsidise the price of white paddy rice to maintain it at Bt15,000 per tonne, and jasmine paddy rice at Bt20,000. The cost will be Bt800 million to Bt1 billion per month.

The government has decided to kick off the pledging scheme on October 7, about a month before the main harvest season begins. Why? Who will directly benefit from this strategy? Is there a hidden agenda? Will this policy really benefit everyone, or is it just another blow to taxpayers for the gain of a few players?

Clearly, those who have rice stocks in place will gain immediately, especially major rice millers and exporters.

"The government has no reason to start the pledging programme so early," said a rice-trader source. "The main harvest season will begin in late October or early November, while the second crop will end in September. Inevitably, there will be a circumvention stock inflation by millers and neighbourhood grains to the pledging [including with grain from neighbouring countries], and this will create huge losses for taxpayers."

Given these concerns, it is urgent that the government inspect rice stockpiles of all participants of this subsidy scheme, particularly millers. Otherwise, some will enjoy the subsidy on rice stocks that have not been purchased from Thai farmers - who are meant to be the main beneficiaries - at the higher prices guaranteed by the scheme.

Without stringent conditions, it will be difficult for the government to manage its huge stockpile, estimated at 10 million to 11 million tonnes, over the next five or six months. The programme is set to start on October 7 and expire in February, focusing only on the main crop - the second crop will begin gradually to enter the market in early March.

Exporters are worried that the high domestic cost will reflect on export prices. What will the competitiveness of Thai rice be? Will buyers continue to choose Thai rice if low price is no longer the main factor?

Commerce Minister Kittiratt Na-Ranong last Thursday announced that the government would conduct road shows in rice-importing countries to explain the pledging policy.

"We will explain to them that the Thai government has no intention of manipulating rice prices in the world market. In fact, we aim to allow farmers to have a better living standard through high-quality production," Kittiratt stressed, pointing out that without any subsidy, farmers would reduce their plantation areas.

A positive view of the pledging policy is that it will not undermine competitiveness because Thai rice is of high quality. Consumers will moreover accept rising prices because of low global stocks. Besides, rice-exporting countries such as Vietnam cannot increase their

production but will have to buy stocks from elsewhere, such as Cambodia, for re-export, Sumeth Laomoraphorn, chief executive officer of CP Intertrade, recently said. Rice farmers who cannot compete because of high production costs should switch to other high-value crops, Sumeth added.

However, the government has no plan to prevent inflation of rice stocks by millers who bring cheaper grain in from neighbouring countries. More than 23 million tonnes of paddy rice (about 11 million tonnes of processed rice) could flood the government's stocks, some of which will not be from Thai farmers.

Therefore only small groups such as millers and landlords, who will certainly increase rents after farmers get higher subsidies, a few farmers, and corrupt officials and politicians will enjoy significant benefits from this programme.