Two farm economists offer rational solutions to helping rice farmers earn a living wage. By Sriwipa Siripunyawit
After six months of political drama and negative economic reports, the recent bulletin about rice farmers being paid for their pledged rice was a rare bit of good news. Smiles from poor rice farmers gave many in the nation a momentary respite from a torrent of woe.
The National Council for Peace and Order (NCPO) won admiration for its decision to make long-overdue payments to farmers. Within a week, some 40 billion baht was paid to nearly 400,000 farmers. NCPO promised to pay for all pledged rice by next month.
The Yingluck Shinawatra government owed 92.4 billion baht to more than 850,000 farmers from its infamous rice pledging scheme, which was heavily criticised for severe mismanagement and mounting corruption allegations as well as massive loss of an estimated 500 billion baht.
But what’s next? How will the next government address this issue when several past rice schemes did little to solve the poverty of small-scale farmers? Are there any other practical means of creating genuine sustainability for rice farmers and the entire sector without enabling
politicians to use the issue as a tool for their own benefit?
Farm economists said one option is to end subsidies and simply let the market work. Below is their advice on how to help rice farmers and the industry.
Nipon Poapongsakorn, a rice economist at the Thailand Development Research Institute (TDRI), and Somporn Isvilanonda, an economist at the Knowledge Network Institute, agreed the next government should not intervene in the market except for limited subsidies to poor farmers. So who are poor farmers?
Mr Somporn said the government should subsidise only those farmers owning less than 10 rai of land, while Mr Nipon suggests farmers with less than 10 tonnes of rice production per household should be subsidised.
Mr Nipon said the subsidy, if needed, should be in the form of direct payment to farmers without any price intervention. The government could set up a reasonable subsidy per rai to be paid directly to poor farmers.
“This subsidy could be considered a minimum wage for poor farmers. It can be calculated based on the actual number of rai the farmers own times the subsidised amount per rai. This method is free from market intervention as it doesn’t involve pricing,” said Mr Nipon.
Mr Somporn also proposed implementation of “option pricing” or a price insurance programme with the cooperation of insurance firms, the Bank for Agriculture and Agricultural Cooperatives (BAAC) and the government.
The concept is similar to a price guarantee scheme, with insurance firms responsible for the price gap when the market price is lower than the reference price. Farmers would need to pay for insurance premiums, which must be fairly set, he said.
The government could assist poor farmers by paying their premiums while the BAAC could act like a middleman facilitating the scheme. In this instance the government may need to set up an endowment fund to pay for the programme and build up necessary infrastructure.
“The idea has been practised in the US, but never in Thailand. It would help us cope better with price volatility,” said Mr Somporn, adding this scheme links three markets: futures, spot and insurance.
“This scheme would require a trivial budget compared with rice pledging, but if implemented correctly, it will create sustainability in the rice industry and Thai farmers will eventually become ‘smart farmers’.”
Reducing production cost
Thailand’s rice production cost is higher than that of its neighbouring countries. The Thai Chamber of Commerce recorded Thailand’s rice production cost at an average of 9,763 baht per tonne, while Myanmar’s stands at 7,121 baht and Vietnam 4,070 baht. Higher cost is one of the key factors hindering Thailand from competing with other countries efficiently.
Farmers should consider reducing the use of chemical substances, pesticides and fertilisers to a minimum as they take up 15-20% of total costs, said Mr Somporn.
Farmers would also save more if they manage their own rice farms without hiring anyone.
Organic farming is the ideal option, as total cost per rai is typically about 4,000 to 5,000 baht lower per rai than chemical farming, he said.
“Over the medium to long term, increasing yield per rai is a smart choice for farmers,” said Mr Somporn.
Quality and niche products
According to both economists, Thailand should focus on quality instead of quantity.
“We no longer have to be the world’s No.1 rice exporter by volume, but we need to be No.1 in quality,” said Mr Nipon.
Thailand had been the world’s top rice exporter for decades, but the rice pledging scheme knocked the country behind India and Vietnam.
To strengthen the country’s competitiveness and position itself in the market, the economists believe the country should pursue premium quality rice and grains serving niche markets such as organic rice, rice berry, black jasmine rice, brown rice, Sangyod rice and such. Thailand excels at growing these varieties and the prices are higher than mainstream varieties.
Mr Somporn said in 2013 Thailand exported 6.6 million tonnes of rice. Of the total, 30% was white rice, both 100% and 5%, while Hom Mali rice made up 29%. However, Hom Mali rice contributed 44% of the total export value while white rice represented only 22%. Hom Mali rice costs 50% more than white rice.
“That’s why we need to concentrate on improving our rice quality so it can be sold at a premium price,” says Mr Somporn.
“Rice berry is sold at 100 baht per kilogramme at supermarkets, and that translates to 100,000 baht per tonne. It’s obvious farmers should be heading in this direction,” said Mr Nipon.
Research and education
“If we want to make good money then we need to sell good rice. If we want to have good rice then we need to have good seeds. And we will only achieve these goals through research and studies,” said Mr Nipon.
He said generally return on research investment stands at 30% per year. Thailand has spent little on rice research for many years, he said, emphasising research today should focus not only on genetics but also marketing because the latter is increasingly important.
Based on Mr Nipon’s experience, each rice-importing country has its own preferences and tastes.
“Marketing research should help us understand the demands of individual countries so we can tailor our rice production to market demand,” he said.
“If we know what types of rice African or Middle East people like to eat, then we can help farmers focus their rice production. They can build their own brands that will be sustainable over the long run.”
First published: Bangkok Post, June 02, 2014