FRIDAY, March 29, 2024
nationthailand

Crop policy leads to failure and long-term damage

Crop policy leads to failure and long-term damage

Price subsidies on farm produce are reducing Thailand's competitiveness and harming agriculture; it's time to reverse them before it's too late

 

The government of Prime Minister Yingluck Shinawatra must urgently revise its price-pledging scheme for agricultural products. Although the policy might be able to shore up some farm prices in the short term, it is the wrong kind of incentive to strengthen the position and wellbeing of the nation’s farmers.
The government has, since October last year, spent more than Bt300 billion for pledging programmes on rice, cassava, garlic and red onions. The programme has, however, resulted in depressed rice prices instead of shoring them up. 
A small group of people has benefited from this populist policy. But the majority has not. The evidence is in a recent series of rallies held by farmers asking for the government to provide them with even more subsidies. Apparently, the policy is not creating a multiplier effect in benefiting a majority of farmers. 
If the government does not remedy this situation, it will not only squander a massive budget, but also, in the longer run, entirely wreck the already reduced competitiveness of Thai farmers.
This populist subsidy programme has never been economically sensible because it is simply not sustainable. Politicians are prone to implement this kind of rice policy because it can lure rural voters who believe that a large amount of handout money will bring benefits to farmers.
However, the latest price levels on farm products subject to the pledging programmes have shown that the policy is a failure. For instance, some traders have smuggled cassava from neighbouring countries to sell here, thus taking advantage of the false price set by the Thai government. The Thai Tapioca Traders Association says that more than 300,000 tonnes of cassava have so far been smuggled in from Cambodia. According to the association, the market price of tapioca chips from Cambodia is Bt6 per kilogram, and Bt1.70 to Bt1.80 for fresh cassava, while the price of tapioca chips in the Kingdom is above Bt8 per kilo, with the pledging price for fresh cassava currently at Bt2.80. 
The situation with garlic is no better. Garlic growers have complained that they are suffering as the price of the crop has fallen to Bt7 to Bt9 per kilogram, less than the production cost of Bt10 a kilo. Last year, garlic traded at Bt30 to Bt40 per kilo. Farmers say the government has implemented the pledging project inefficiently, without regard for total production. 
The government allocated only Bt70 million for garlic pledging, but this year production has exceeded 46 million kilos. If the government had to accept the pledge price for all garlic, it would need to raise its budget for this product to Bt1.6 billion if it wanted to shore up the price for the entire crop.
Meanwhile, the government will have to raise the budget for red-onion pledging from the original target of Bt1.2 billion because the situation is worse than originally expected.
All of this is solid evidence that the crop pledging programmes have failed to serve the purpose of raising the standard of living of farmers. Even worse, as seen in the recent rallies, farmers are calling for even more support in spite of the massive sum of money spent on them already. 
These pledging schemes do not increase farmers’ competitiveness. In fact, the depressed prices of crops this year is mainly because farmers are placing higher priority on quantity produced instead of the quality of their produce. They have simply increased the amount of produce grown in the hope of cashing in from the pledging programme.
The pledging programme, meanwhile, could damage the overall reputation of Thai rice as a premium product. Farmers now churn out low-quality rice to receive the uniform subsidy price of Bt15,000 per tonne. The programme only pushes up the cost of local rice production, meaning that Thai rice is now facing strong competition from cheaper rice producers such as Vietnam and India. Burma will also become a main competitor soon, should it aim to export rice.
This is mismanagement on a massive scale that is resulting in depressed prices, smuggling and possible long-term damage to the agricultural sector. All these problems are the result of short-sighted policies. A future in which Thailand has to import these same agricultural products may not be the joke it once was.
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