The Thailand Development Research Institute found that the country spent up to Bt985 billion buying 54.4 million tonnes of paddy in two and a half years under the scrapped rice-pledging scheme but most of the Bt560-billion producer surplus went to medium-to-large-scale farmers.
According to the paper “Corruption in the Paddy Pledging Policy”, which was compiled by TDRI distinguished fellow Nipon Poapongsakorn and a group of researchers, the institute also found that the scheme’s accounting cost as of April was estimated at Bt519.5 billion.
More important, it said the “welfare cost” of the policy exceeded the producer and consumer surplus by Bt120 billion. The TDRI said the policy had a negative impact on rice exports, and created various kinds of distortions (or dead-weight loss).
However, the estimated “welfare cost” still did not include the loss from rent-seeking activities, the negative impact of rice quality and the replacement of competitive rice trading with crony capitalism.”The size of corruption in rice sales, estimated from the model, is Bt84.47 billion,” it said.
To check the reliability of that figure, the researchers employed a research method that involved estimating the value of corruption in three channels of rice sales.
The results showed that the biggest component was the corruption involving government-to-government deals (Bt45.09 billion), followed by sales to cronies who offered to buy rice at a low price (Bt21.51 billion) and corruption of the cheap-bagged-rice policy (Bt12.26 billion).
The total value of the corruption in the three channels was Bt78.87 billion, slightly lower than the model’s estimate.
In addition, there was another type of corruption that indirectly involved rice sales. It was found that a few brokers used their political connections to “borrow 2.9 million tonnes of rice” from millers and sold it to exporters or bagged-rice suppliers. They then bought low-quality rice from the government’s old stockpiles and from neighbouring countries to deliver back to the warehouses. That corruption amounted to Bt32.12 billion.
The TDRI estimated total corruption of Bt111 billion.
The institute said it should be noted that the estimates did not include upstream corruption (farmer registrations and rice sales to millers) and midstream corruption (millers, surveyors, warehouse owners, and government officers).
It also found that both the participants and non-participants of the rice-pledging programme accepted the high-level of corruption, and corruption existed at all of the programme’s levels.
Similarly, interviews and field surveys revealed widespread rent-seeking activities by all the participants – ranging from farmers trying to increase production to warehouse owners trying to increase storage capacity.
The TDRI said this was not surprising because, aside from corruption, the policy resulted in huge economic rents for participants of the scheme.
The total economic rent is estimated at Bt585.4 billion, of which Bt296.5 billion went to the farmers, Bt138.5 billion to consumers, Bt84.5 billion to connected traders, Bt54 billion to millers, Bt9.6 billion to warehouse owners, and Bt2.2 billion to 20 surveyors.
“The investment in rent-seeking activities is a waste of real resources for society,” the TDRI said. “Last, the government failed to disclose vital data to the public, causing losses to stack up.”
Researchers made eight recommendations including amending the constitution and strengthening the law on government budgeting.
They also said balance sheets must exist for all government projects, government data must be disclosed to the public, and there should be a limit on government intervention in markets or it should be terminated altogether.
It was also recommended that independent reports be carried out on the impact of the rice-pledging policy, affected farmers should get help while an improved version of the Abhisit Vejjajiva government’s price-support programme should be adopted, and the government should improve its database and compensation-payment management.
Last, the TDRI said there should be a focus on reducing production costs for rice farmers and increasing production yields.
First published: The Nation, August 23, 2014