Thailand - Agricultural price-pledging policy has failed in Thailand

Six months since the implementation of the price-pledging scheme for farm goods, it is time the Yingluck government reviewed the policy, which has cost Thailand more than 300 billion baht and left farmers unhappy as commodities prices remain low.

Since October, the government has spent a combined 301.27 billion baht to support price pledging of rice, cassava, garlic and red onions. But the policy has failed to shore up prices of these commodities, due to inefficiencies in the project. The government has focused exclusively on implementing the pledging scheme to encourage price increases, but has failed to support farming, marketing and trading processes, resulting in sluggish trade in both the export and domestic markets.

As it always does, the pledging system has led to corruption relating to the release of government stockpiles. Taxpayers will no longer be willing to subsidise farmers to the tune of billions of baht, while loopholes in the pledging and releasing processes allow corruption that benefits a small group of people.

Thai farmers' production costs for most commodities are higher than in neighbouring countries, while yield per rai is much lower. The Pheu Thai-led government does not have a plan to lower production costs or promote sustainable development of farming, and simply spends the national budget on short-term subsidies.

The production cost of Thai rice farming is 6,000-7,000 baht per rai, while the cost of Vietnamese production is 4,900-5,000 baht per rai. Vietnam has an average yield of 862 kilograms per rai, against a Thai yield of 448kg.

The current domestic market price of paddy rice is 9,000-10,000 baht a tonne, while the pledging price is 15,000 baht. Thai rice export volumes plunged by 50.3 per cent to 1.03 million tonnes from January to March 5 this year, as Thai rice is far more expensive than its competitors' crops. The government is expected to spend at least 220 billion baht on the two pledging projects for the main and second rice harvests between October last year and June this year.

Thai cassava production and yield per rai have dropped gradually over the past 10 years, while the budget for shoring up the price of the commodity has doubled this year under the government’s pledging scheme, requiring 40 billion baht for the current harvest season.

The price of cassava remains low at 1.30-1.90 baht per kilo, while the pledging price is 2.75-2.90 baht. Pledging of cassava began in February. While it aimed at shoring up the market price, traders have not been able to agree on a high pledging price since it does not reflect the market mechanism.

The cost of cassava production in Thailand, excluding breeding costs, is 85 satang per kilo, compared with 77 satang per kilo in Vietnam and 61 satang in Cambodia.

So far, less than 700,000 tonnes of cassava have entered the pledging project, compared to the target of 10 million tonnes.

The government recently came under pressure from thousands of garlic farmers in the North to extend its pledging scheme to cover the entire garlic crop. The government allocated only 70 million baht for garlic pledging, but this year production has exceeded 46 million kg. The government needs to raise its pledging budget for garlic to 1.6 billion baht if it wants to purchase all of the garlic supply in order to shore up the price.

Garlic growers have complained that they are suffering; the price of the crop has fallen to 7-9 baht per kg, less than the production cost of 10 baht a kilo.

Last year, garlic traded at 30-40 baht/kg. Farmers say the government has implemented the pledging project inefficiently, without regard for total production.

The 70 million baht budget assigned to the Internal Trade Department to purchase garlic at 40 baht per kilo would be unable to shore up the price, as production has exceeded the government's expectations.

The budget for red-onion pledging was set at 1.2 billion baht. However, the current retail price is only 7-8 baht a kilo, while the production cost is 5-6 baht a kilo.

The government faces a problem of deteriorating quality of red onions. 289 baht million worth of the pledged crop is rotten. As a result, the government cannot release stockpiles to realise a return after subsidising the crop, as stockpiling has been done inefficiently.

Rather than increasing farmers' dependence on subsidies, which lead to huge losses each year, the government should support the development of farming, marketing and trading to allow the market mechanism to do its work.

The government should also encourage farmers to aim higher and upgrade their quality to ensure competitiveness ahead of the launch of seamless trade under the Asean Economic Community. Thailand can no longer afford to subsidise farmers' goods in the era of liberalisation.

Petchanet Pratruangkrai

The Nation

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