The hidden power agenda behind farm-subsidy scheme

The government’s over-market-price subsidy policy has greatly pleased farmers. The pledging prices for paddy rice are set at Bt15,000 per tonne of white rice and Bt20,000 per tonne of jasmine rice. Those prices are double the market rate, almost three times the rate when compared with farmers’ production costs. These attractive prices have lured farmers to grow as much as rice as they can to cash in on this high gap.
The government has monopolised the biggest stockpile of paddy rice ever, at 16 million to 17 million tonnes. In addition, given it plans to continue the programme, the stockpile could reach an estimated 34 million tonnes, a massive supply that would create great problems for the government. Consequently, a huge budget of Bt260 billion has been set aside for the price-pledging programme, mainly for rice but also for other crops such as rubber and cassava, next harvest season.
A former high-level official at the Commerce Ministry said the policy benefited politicians.
“The government has used political means to mete out benefits or penalties to officials to restrain them, to ensure its monopoly of the system for trading rice, Thailand’s most important crop. If these are successful, the government will control the entire rice industry,” said the source, claiming that officials had learned that they can gain by obeying the commands of Pheu Thai ministers, and that they will lose out if they do not.
“My direct experience was to face one of the ministers’ advisers, who asked in a rice exporters’ meeting, ‘Would you travel in the same ship that I’m now in? If not, you have to stop your business now,’” the source lamented.
The source said the government was monopolising all rice cultivation, trading and exporting through its nominees. Exporters without rice in hand would become the government’s employees.
By monopolising all rice, the government would – in a few years – restrain the Kingdom’s rice-trading system completely. This would also prolong the government’s power both politically and control of the trade.
However, only a global food crisis or world war would push up agricultural prices enough to allow Thai rice to enjoy such miracle prices. The government will win this game if its speculation is correct, but for now, it must lose, because the export price is lower than its costs. The government is betting Thailand’s future on an unpredictable food crisis.
What Thailand has achieved in the first year of the price-pledging programme is the loss of its rice-exporter championship in terms of both volume and value. It is difficult to export Thai rice because of its unreasonably high price. For instance, the free-on-board cost of Thai 5 per cent rice is US$800 per tonne, compared with the market price of $570, while other categories of Thai rice are $120-$130 per tonne higher than rivals’.
Last week, the Thailand Development Research Institute raised some interesting points in an open letter, pointing out that if the Commerce Ministry were to export its rice stock at its latest (September 5) bid price of Bt14,300 for white rice and Bt29,800 per tonne for jasmine rice, Thailand would lose Bt112.521 billion. In addition, if the price dropped by 10 per cent, the loss would increase to Bt135.78 billion.
Imposing such high pledging prices is the hidden agenda of the Yingluck Shinawatra administration to allow only the government to purchase the nation’s rice production.
Normally, a government price-subsidy programme would impose a price 5-10 per cent higher than market, and the total volume of rice should not exceed 2 million tonnes. But the prices imposed by Yingluck’s government are more than double the market rate.
By this method, the government is distorting the market mechanism and undermining farmers’ incentive to improve rice quality. In addition, taxpayers have subsidised not only Thai rice but also that from neighbouring countries illicitly cashing in on the programme.
The release of rice stocks by the Commerce Ministry’s Foreign Trade Department and the Public Warehouse Organisation has raised doubts among exporters and traders. The government can say it needs to release stocks quietly to prevent market prices from falling. But this secretive method is unfair to traders and causes huge losses to the country as only a few companies with close connections to the government are included.
This method will lead to corruption among some politicians and unscrupulous traders, since only a few officials are involved in the trading process. Few people will know about the rice-releasing procedures and the exact price offered, so officials can easily collude with certain companies, an exporter said.
Everyone from farmers and millers to officials and politicians is exploring ways to benefit from the rice-pledging scheme’s loopholes. Meanwhile, about Bt300 billion has already been spent to subsidise rice production this year and the target is to spend Bt260 billion more next year to monopolise the estimated production of 34 million tonnes of paddy rice.