End distortion of rice trade: Abhisit tells govt

In an interview with economic reporters on Monday, Abhisit said pledging could not increase farmers’ incomes as the government buys rice at above-market prices.
Last year, the rice-pledging scheme cost Bt270 billion to operate. Between Bt30 billion and Bt40 billion of the amount went on administrative expenses and warehouse rental fees, which were of no benefit for farmers, he said, adding that these costs were however equivalent to what was spent during the entire year of his own administration’s farm-income insurance programme.
He said the annual cost of the rice-pledging scheme was extremely high. Although the government insists that the amount spent during the first year was working capital, according to academics, a loss from 2011-2012 season rice sales of no less than Bt100 billion to Bt150 billion may well have been made.
The government could, therefore, instead provide a direct subsidy for farmers, as it would cost much less to run such a programme, Abhisit said, adding that the money would go to farmers directly, and not to rice millers or those renting out warehouses.
“The government needs to raise farmers’ incomes, and it may need to subsidise farmers directly in order to do so. Foreign countries also do this; that is, give money to the target group. Farmers would then have more money, and the system would not destroy the market mechanism and not be against WTO [World Trade Organisation] rules,” said the ex-PM.
The government could attach conditions to such a subsidy, he said. For example, the subsidy level would be raised if farmers increased productivity and crop quality in each round of rice growing. He reasoned that such a mechanism would develop farmers’ skills.
Under the rice-pledging scheme, however, farmers speed up the cultivation of rice over a shorter period, often leading to lower-quality output, which may not be what the market demands.

NEGATIVE RESULTS
Several sectors have pointed to negative results from the rice-pledging project. Initially, a short-term impact could come from the administrative part of the programme, as the government might not be able to manage the large amount of rice in the 2012-2013 production year, Abhisit said.
After that, the Bank for Agriculture and Agricultural Cooperatives could confront a project liquidity problem, as there could be insufficient money from rice sales.
Finally, farmers may receive delayed payments under the pledging scheme. Some have already complained about the delayed issuance of pledging documents, he said.
In the long term, Thailand’s overseas rice markets could be lost if the pledging programme continued, he said, pointing out that several Asean countries have already seen the scheme as providing them with an opportunity to sell more rice and search for other markets where prices are lower than those offered by Thailand.
Importantly, the Kingdom could lose markets where there is a focus on high-quality rice, he added.
“The government may think that having a large amount of rice in its hands means it can determine world prices. Actually, it’s not like that, as there are a number of factors involved in setting the world’s rice prices. Global prices are always on the move. It is also difficult for Thailand to set rice prices in Asean,” Abhisit said.
As to the recent unclear official explanation of government-to-government sales, he said it was possible that the administration might not be able to sell much rice under such contracts, as the prime minister had previously said G2G export figures would be released by the end of this year.
The government has now said, however, that the figures will be disclosed when the project ends and the total amount of rice is delivered by the end of next year.
In principle, G2G sales could be disclosed after a contract is signed, Abhisit asserted, adding that the government may have to disclose the locations and amount of rice exported.
“If there is an attempt to stock rice in exchange for foreign participation in the government’s future investment projects, such as water-resources management or high-speed trains, it may have to clarify the matter. As rice quality can lessen as time passes, we need to ask those countries why they are willing to take the rice [later].
The only way is that we may have to sell the rice at very low prices,” he said.