Thailand - Thailand's plan to give rice-growers high subsidy arouses doubt

Thailand's Bank for Agriculture and Agricultural Cooperatives (BAAC) plans to provide 120 billion baht to support the government's rice-pledging scheme for the second crop running from this month until September, while an academic has warned that the scheme is heading for disaster, as it is damaging the market mechanism and leading to high inflation.

Luck Wajananawat, president of the BAAC, said yesterday that the bank had estimated providing 120 billion baht for the government to finance its rice-pledging scheme for the second crop that started on Wednesday and will continue until September 15. Production is expected to be 11.11 million tonnes of unmilled rice and the government will not limit the rice volume for the scheme.

Farmers in the South would join in from July 1 until October 31, he said. The implementation of the rice scheme for the first crop season, starting last October, came to an end on February 29.

Luck also revealed that as of Monday, the BAAC had provided 111.88 billion baht to 1,105,206 farmers nationwide who participated in the scheme with 6.67 million tonnes.

Meanwhile, Somporn Isvilanonda, an economist at the Knowledge Network Institute of Thailand, said the rice-subsidy scheme had proved a failure. Fewer farmers participated in the government programme as a large number of small-scale farmers need cash right away, hence they sold their rice to millers, he said. The government had previously estimated 20 million to 25 million tonnes of rice to be pledged under the scheme.

The government cannot push up the domestic or overseas price to its target, Somporn said. Domestic unmilled rice is currently 9,000-Bt10,000 baht per tonne, far short of the target of 15,000 baht per tonne. Last year's flood disaster might take about 8 million tonnes of rice out of the market.

The price of white rice in the overseas market is about US$500 per tonne, far below the government target of $800, he said.

Thailand's rice trade last year fell behind Vietnam's in the Asean market as it could export only 1 million tonnes against Vietnam's 3 million tonnes because of the high price of Thai rice, he said.

Vietnam sold rice at about $100 per tonne lower than Thai rice.

Thailand is also expected to lose the parboiled-rice market in Africa this year as India's lower price would gain it a larger market share, he warned.

He suggested that the government should help farmers cut their cost of production, as Vietnam does. "The government should not provide a high price subsidy but it could provide a little bit higher than market prices," he said. Too much subsidy ends up damaging the market mechanism and the country stands to lose when the Asean Economic Community is born in 2015.

"The government signs many free-trade agreements but its farm policy reverses the free-trade trend, it is heading for disaster," he warned.

Rice subsidy is expected to cost the taxpayer about 100 billion baht a year while small-scale farmers, who make up the majority, will not benefit from the scheme, he said.

Rice exporters cannot sell much overseas while the government does not know how to sell its stocks without incurring huge losses due to deteriorating rice quality after long periods of storage, he said.

Rice exports in the first two months of this year plunged by 70 per cent compared with the same period last year because of high competition from India and Vietnam, he said.

The government has stocks of about 5 million to 6 million tonnes of white rice. The stock is expected to pile up further as the government is expected to buy about 10 million tonnes of unmilled rice from the second crop.

The rising price of white rice due to government policy in the domestic market is expected to drive inflation, he warned. Farmers will grow more rice and grow less of other crops, which will also lead to high prices of vegetables, fruits and pork, he said.

In the future, Burma, Vietnam and Cambodia are likely to eat into Thailand's market for premium fragrant rice as these countries have substantially improved their rice quality, he said.

Wichit Chaitrong

The Nation

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