By Peter Janssen
Government officials deny that Pheu Thai’s populist policy is haemorrhag
The populist policy of buying rice from farmers at more than 50% above the market price entered its third year yesterday with the start of fiscal 2014.
The government has budgeted 270 billion baht to buy the main crop, harvested from October-December, at a fixed price of 15,000 baht a tonne for paddy (20,000 baht a tonne for Hom Mali jasmine rice), falling to 13,000 baht a tonne for the second crop in MayJune 2014.
The current international price for milled rice is about US$400 a tonne compared with $775 a tonne under the pledging scheme.
The programme began in October 2011 by the ruling Pheu Thai Party. It was a key campaign promise used by Pheu Thai to win farmers’ votes in the July 2011 general election.
It worked. Pheu Thai won 260 out of 500 seats in the polls.
While a political winner, the pledging scheme has cost the country dearly,though the extent of the loss remains a state secret.
Commerce Minister Niwatthamrong Bunsongphaisan on Monday denied reports the programme had amassed more than 400 billion baht in losses over the past two years.
“It’s hard to say how much has been lost, because we haven’t yet sold all the rice, but it should be about 80 to 100 billion baht,” he told Thai Rath newspaper.
Since the fulfilment of the policy,theoretically designed to boost farmers’incomes and domestic consumption,Thailand has lost its position as the world’s leading rice exporter that it held for three decades.
In 2011, Thailand’s rice exports reached 10.7 million tonnes, earning ing money.
During the first few months of the programme, the policy managed to boost international rice prices to $600 a tonne,but these have gradually declined to about $400 a tonne now.
Thailand’s private-sector rice exporters have managed to get rice over the past two years thanks to “leakage”.
“The fact that we managed to export 7 million tonnes last year was because of leakage by the government through its own channels,” said Vichai Sriprasert, honorary president of the TREA.
The leakage is from the government’s estimated stockpile of 17-18 million tonnes of rice accumulated over the past two years.
“The system is leaking some rice, way below market prices, to certain people only,” Mr Vichai said.
“That private channel then resells the rice to people like myself.”
Rice industry sources said at least four rice companies are acting as middle-men in the trade.
“The government sells rice only to a few companies that are very well connected, and those companies are reselling to local traders and exporters,” said Nipon Poapongsakorn, a policy analyst at the Thailand Development Research Institute.
Details of those transactions remain secret.
“The discount must be big, because all the deals are secret. They are collecting rent from the people,” said Mr Nipon.
Government officials have publicly acknowledged they cannot account for at least 3 million tonnes of the alleged stockpile but deny the scheme is haemorrhaging money.
All told, some 670 billion baht has been spent on the rice pledging scheme in the past two years, and the government has thus far failed to clarify how much it has earned from rice sales.
Moody’s Investors Service, a global credit rating agency, in July raised concerns the scheme may overburden state coffers.
Rating agency concerns were heightened by the government’s decision this month also to subsidise prices paid for rubber to quell protests by growers.
“I think the further expansion of the subsidy programme to the rubber sector is a change in the fiscal outlook,” said Andrew Colquhoun, Fitch Ratings’ head of sovereign ratings for Asia-Pacific.
One sign the government is running out of funds for a new round of rice purchases was the decision last month to lower Thailand’s rice prices on the world market to a more realistic level of $400 a tonne, sources said.
“You cannot fight market forces,” Mr Vichai said.
“Market forces worldwide are more powerful than the government.”
First published in the Bangkok Post, 2 October 2013.