Green economics far preferable to populism

A sharp fall in rice exports following the implementation of the government’s grand subsidy scheme has proved that our competitors, Vietnam in particular, gain while the cost of the subsidy falls on our shoulders. Worse, the government has recently adopted a debt moratorium for those who borrow from state-run banks, and again the cost will certainly fall on taxpayers, on top of which there will be a high risk of moral hazard on the part of debtors.

So are there better solutions available for raising the earnings of farmers and other lower-income groups? Yes there are, and one of them is the green economic concept.

Government farm subsidies have encouraged farmers to burn down forest to grow cash crops – rice, rubber, cassava root, corn and other mono-crops. 

“The government should instead encourage farmers to grow more trees on their land, in particular those who live in upper-river areas, and provide them with a subsidy” to do so, said Sawai Saengsawang, a leader of the rural development team at the Bank for Agriculture and Agricultural Cooperatives (BAAC). 

Many would agree with Sawai, since such a policy could lead to a lower supply of rice and other crops, which would result in price rises without the need to waste public funds in achieving such a goal.

Sawai and wise local inhabitants initiated a tree-bank project in 2006. The scheme currently has 85,000 members, who are growing about 3 million trees. Sawai aims to raise the number of newly planted trees to 8.5 million this year.

However, the number of people participating is small compared with the 4 million farming households in the Kingdom. 

“The bank [BAAC] this year plans to provide loans worth Bt1 billion for farmers who want to grow trees,” he said, adding that the interest would be lower than the minimum lending rate. 

The planned loan amount is much smaller than the funds involved in the new debt moratorium, which covers loans totalling Bt460 billion, and for the rice-subsidy programme, which could amount to as much as Bt400 billion per year.

To take advantage of climate-change awareness, Sawai said the BAAC would also try to attract deposits from both local and international investors who want to contribute to the tree-bank project. 

Farmers who grow trees will also try to sell carbon credits to manufacturers that want to offset their carbon emissions this year, he said. 

Companies with corporate-social-responsibility schemes will also be invited to join the tree-planting programme, Sawai said. 

The BAAC also provides loans to promote ecological farming in line with His Majesty the King’s economic-sufficiency philosophy. 

Unfortunately, however, it is obvious that government farm subsidies, combined with marketing campaigns run by those with a vested interest in selling pesticides, fertiliser and seeds for mono-crop farming, are overwhelming and constrain widespread adoption of the economic-sufficiency philosophy. 

Meanwhile, Adis Israngkura, economist and adviser to the Thailand Development Research Institute (TDRI), is trying to sell the idea of forest bonds. 

Such a bond would be issued by a government agency – say, the Finance Ministry or the National Resources and Environment Ministry – to raise funds for reforestation. The government could then collect a water charge from those living downstream of 25 river basins and benefiting from forested land, or it could sell carbon sinks in order to generate funds to repay bondholders, Adis said. 

“But sceptics doubt the practicality of forest bonds,” he conceded. This is understandable, since the carbon-credit market has not been yet fully developed. 

Even those who agree with tree-planting schemes worry about government intervention, preferring to rely on the market mechanism. They fear that if the government heavily intervenes, for example by directly buying carbon sinks from tree farmers, there would be the risk of fiscal indiscipline and inefficient implementation. 

At the same time, in regard to current farm subsidies and other populist policies, most economists give the thumbs down to the government. 

“It’s a dark period, with academics unable to make changes to bad policies,” said Nipon Poapongsakorn, president of the TDRI. 

He is very concerned about the government’s debt moratorium and rice-subsidy schemes. “Only politicians in the Pheu Thai-led government can stand up and solve the issues,” he said.

Nipon is right, as the politicians can do something, even it involves taking risks. 

Adopting a green economic policy would be worth taking a gamble on. The government could choose to buy carbon sinks from tree planters to encourage more planting or forest conservation.

Although this could lead to a tree-planting bubble in the future, having more trees would do less harm than the boom-bust cycle of the property and financial markets. 

Having more trees would produce more oxygen and absorb dangerous gases such as carbon dioxide for the whole world, which is especially important at a time when we are facing deficits of nature.