The Pheu Thai Party-led government's rice pledging scheme has faced a barrage of criticism among pundits, who have come up with several versions of calculated losses that will later become public debt.
Rice pledging can be abolished when it is no longer needed and when farmers get the prices they deserve, says Mr Olarn. (Photo by Chanat Katanyu)
Other concerns include negative effects on sustainable aids to farmers, oversupply, eroding competitiveness of Thai rice exports, smuggling to take advantage of the scheme and corruption in sales.
Some have drawn a comparison with the rice price guarantee of the previous Democrat-led government, which seemed to have the advantage of not having to handle massive rice stockpiles and market interference.
But Olarn Chaipravat, an economist and architect of the rice pledging policy, maintains that the pledging programme can serve as a long-lasting farm price-support tool that increases income for farmers.
In an interview with the Bangkok Post, he said the government has prepared to sell the rice in big lots this year, which will help repaid short-term loans to finance the scheme.
"The government would be able to sell more than 2.5 million tonnes of medium-grade 100% and 5% white rice in 2012/13, compared to just 1.4 million tonnes in 2011/12," he said.
The amount would be sold at world market price of about US$600 per tonne quoted by US rice exporters in government-to-government (G2G) deals, compared to $450 quoted by other countries such as Vietnam, said Mr Olarn, who is also chairman of the Thai Trade Representative Office.
The deals, if they go through, would vindicate the government from accusations that its G2G rice deals are fabricated.
"We expect import orders for 100% and 5% white rice from new customers in Asia to rise to more than one million tonnes in 2013 from less than 100,000 tonnes in 2012. We have secured the orders. There are more orders coming for Hom Mali as well as 100% and 5% white rice in 2013," Mr Olarn said.
Total rice shipments increased 22% year-on-year to about 665,000 tonnes a month from October to November 2012.
If the trend continues, Thailand would be able to export 8.5 million tonnes from October 2012 to September 2013 compared to 6.7 million tonnes in 2011/12, a 21% year-on-year increase.
"The 8.5-million-tonne export volume is close to 8 million tonnes estimated by the US Department of Agriculture in December 2012," he said.
While the pledging paddy price at 40% above the previous year level could result in losses, the extent of such losses would depend on many variables including the world price of milled rice and the carrying stocking costs in 2013," Mr Olarn said.
The country's rice policy should aim at increasing the supply of higher-quality rice such as Thai Hom Mali premium to serve the changing tastes of more affluent consumers in China and other Asian countries. Their incomes have risen in line with a shift of economic driver to domestic demand from exports.
While Thailand has yet to produce enough Thai Hom Mali rice, prospective buyers might opt for good-quality 100% and 5% white rice.
Of 30 million tonnes of paddy produced by Thai farmers each year, six million tonnes are Thai Hom Mali rice which Thailand, as the world's largest producer, sets the sustainable and long-term price of $1,100 per tonne.
Another 6 million tonnes the country's paddy production are of glutinous variety typically consumed by the Japanese, Thais, and Laotians. When converted into milled product, the glutinous rice normally fetches a market price of about $800 a tonne. The remaining 18 million tonnes of paddy yield medium-quality products such as 100% and 5% white rice, low-quality broken white rice of 25-30% and extremely low-quality rice used as animal feeds.
"Thai Hom Mali is definitely not an issue in calculating losses from the pledging scheme. We might continue to keep medium-quality white rice until the price meets our target," Mr Olarn said. "
He said the decline in Thai rice exports in 2012 did not stem from pledging policy which pushed up Thai rice in the world market by about 5 to 10% compared to the previous year, but from diminished demand from Bangladesh, the Philippines and Indonesia as their weather returned to normal.
In 2011/12, India decided to offload its surplus of low-quality white rice by abolishing the 10-year export ban on non-Basmati rice. Its exports of Basmati and low-quality white rice increased to about 10.5 million tonnes in 2011/12 compared to just 2.8 million tonnes of Basmati rice exports in 2010/11.
"The Pheu Thai government is in no hurry to dump quality Thai rice to the world market at a fire-sale price of US$450 per tonne. Our medium-quality white rice can command the world price at US$600 per tonne, slightly below US$620 per tonne commanded by US exporters for the white rice of the same quality," Mr Olarn said.
He also said the pledged price of Hom Mali paddy at 20,000 baht per tonne was formulated on the basis that the milled rice is sold at US$1,100 a tonne.
The prices of glutinous paddy (16,000 baht a tonne) and white-rice paddy (15,000 baht a tonne) were based on the same basis as the benchmark price of the Thai Hom Mali paddy.
"How could we possibly allow farmers in the Central Plains and the South who grow white-rice paddy enjoy less premium on their crops than farmers in the North and Northeast who grow Thai Hom Mali and glutinous rice paddy?" Dr Olarn said.
"The losses from our pledging programme could turn out to be close to the budget spent under the price guarantee programme by the previous government, which totalled 70-80 billion baht," Mr Olarn said.
"This also depends on the government's ability to solicit sales at the target prices. But losses of more than 100 billion baht estimated by some agencies should not be the case as the figure was calculated based on the current mark-to-market prices and the assumption of a single price for all types of stocked rice."
Mr Olarn said the government's programme would also serve its regional food security plans. The government is preparing to build large temperature-controlled warehouses that can store rice for two years with minimal quality deterioration.
"If we don't want to sell our stocks, we can keep them as food security for the region. Some of our neighbours may face volatile weather patterns more frequently in the future," he said.
Mr Olarn said the rice pledging policy should benefit exporters who are keen to market quality rice.
"The objective of the policy is to allow farmers to receive the income they deserve. The rice pledging policy wants exporters to adjust," he said.
Exporters who are keen to find markets for good-quality rice have prospered while those suffering from the pledging policy rely on selling cheap rice, he added.
Mr Olarn said the government also considered offering loans to farmers for fertilisers and pesticides as part of its policy. The government should play a role in interfering the market to support crop prices when they are too low, and manage them when they go too high.
"Critics should offer us recommendations on how to improve the programme instead of calling on us to scrap it. The Democrat Party has called on us to support palm oil prices," he said.
"The rice pledging policy can be abolished when it is no longer needed and when farmers get the prices they deserve from the market."