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World prices falling, government at risk
PHUSADEE ARUNMAS
The government's high pledging price for paddy will draw a lot of rice into the state stockpile, potentially exposing taxpayers to a massive loss as rice prices are on the way down, an economist warned yesterday. ''This action is like a time bomb,'' said Somporn Isvilanonda, an associate professor of economics at Kasetsart University.
He said the government could end up with massive rice stocks after offering to pay farmers 14,000 baht a tonne, much higher than the market price of about 10,000 baht. ''This is expected to definitely induce an influx of second-crop rice which amounts to 23-24 million tonnes of paddy into the government's stocks,'' he said.
World rice prices have fallen more than 20% from a record above $1,000 a tonne in April, as several countries that had imposed export bans have begun to release grain to the market again.
Mr Somporn, also a director of the National Rice Policy Committee, proposed recently that the government establish a minimum-price insurance system for rice as a way to partially diversify risk from price fluctuations.
According to Mr Somporn, the system would function like an options market, with advance agreements made according to the prices agreed in contracts within a determined period.
The price insurance should be based on the farmers' production costs plus a ''slight'' profit to prevent them from losing money from a paddy price slump.
Mr Somporn said the programme would require the establishment of a fund as working capital to manage the minimum-price insurance. The amount was expected to be much lower than the budget of the government's recently announced rice pledging scheme.
Farmers would need to register to be classified according to the rice they grow to measure production capability.
''The scheme will benefit the rice industry as a whole, as it will create immunity for the industry as well as address possible corruption arising from the rice pledging process, as the state will no longer be the player,'' said Mr Somporn. ''It will also reduce the state budget, as each year it would not have to bear a financial burden from keeping stocks, rice processing, interest rates of the banks, and milled rice storage.''
Chookiat Ophaswongse, president of the Rice Exporters Association, said the scheme was acceptable as long as the minimum price to be set was fair and did not distort the market.
However, Vattana Rattanawong, the president of the Thai Rice Millers Association, said the government pledging scheme remained necessary as the market mechanism was still weak.
He said the market was distorted and pricing was dominated by five giant exporters that accounted for up to 60% of the country's rice exports.
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