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PARISTA YUTHAMANOP
The government will lose tax money and ruin the domestic rice market if its guarantee prices for rice continue to be much higher than market rates, according to Somporn Isvilanonda, an economics professor at Kasetsart University.
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| The guarantee should be equal to the market price or slightly above it, says Prof Somporn. |
The Somchai Wongsawat government has endorsed the guarantee price to farmers for main-crop paddy at 12,000 baht per tonne. But it has not yet decided whether to continue its mortgage scheme for second-crop paddy.
The previous government under Samak Sundaravej offered 14,000 baht a tonne earlier this year when world rice prices were soaring. Now its successor faces huge losses as rice prices have fallen 50% since April.
The government's rice inventories have swollen to four million tonnes as farmers defaulted on contracts. Officials have failed to unload the stocks because few buyers are willing to offer prices anywhere near what it would take to cover the government's costs.
The previous government had an opportunity to profit from its rice inventories if it sold the rice when the world market price topped $900 per tonne, compared to $590 currently, Prof Somporn said.
More headaches are in store if authorities continue to buy up second-crop paddy. The mortgage scheme that began this month called for purchases of eight million tonnes of paddy, which could create 4.5 million tonnes of white rice when milled.
A state stockpile of nine million tonnes would exceed one-third of the country's annual output and seriously distort the market, the economist said. In addition, it would destroy past efforts to create local reference prices, as farmers would prefer to mortgage crops at higher prices.
Market intervention can be an effective short-term measure when prices are highly volatile. But the guarantee should equal the market price or be only slightly above it, Prof Somporn said.
Farmers in well-irrigated areas are expected to profit by 2,000 baht a tonne from the existing mortgage scheme, given 8,000 baht in costs and the 2,000 baht that mills deduct for drying, he said.
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