Second crop shortfall not such a blessing

The continuing drought which has substantially cut back the harvest of the second-crop paddy for this year means a loss of much-needed revenue for many farmers. But to the contrary, it represents a blessing in disguise for the Commerce Ministry.

Commerce permanent secretary Watcharee Vimuktayon says only seven million tonnes of second-crop paddy will be bought under the rice pledging scheme as against 11 million tonnes estimated earlier because of the drought. As such, only about 100 billion baht will be needed to support the populist scheme as against 165 billion baht earlier approved by the cabinet.

The permanent secretary is confident there will be enough funds to buy the seven million tonnes of paddy or unmilled rice without the need for the Bank of Agriculture and Agricultural Cooperatives (BAAC), the chief financier of the rice pledging scheme, to secure additional loans to shore up its liquidity.

That may sound too good to be true. The problem is that BAAC is running short of liquidity to meet the 90 billion baht it needs to find to finance the scheme because it has yet to receive repayments on loans extended to the Public Warehouse Organisation (PWO) and the Marketing Organisation for Farmers to buy paddy from farmers.

The PWO recently claimed it had already repaid BAAC from its rice sales to the tune of about 50 billion baht. Meanwhile, the Commerce Ministry's Foreign Trade Department promised to return to the bank this week 50-60 billion baht from the revenue earned from the export of 150,000 tonnes of milled rice under government-to-government deals. As always, there are no details about who the buyer or buyers are and at what prices the rice was sold.

If the claims by the PWO and the Foreign Trade Department are to be believed, everything should be fine from now on. And the BAAC should not have complained about a liquidity shortfall and the Commerce Ministry should not have bothered to consider slashing the pledging price from 15,000 baht to 13,000 baht per tonne of unmilled white rice.

The truth is that most of the rice bought from the 2011-12 crops and the leftover from earlier crops is still left unsold in state and privately-owned warehouses. The total amount of rice stockpiles was estimated at 18 million tonnes of unmilled rice or 10 million tonnes of milled rice.

With the price of the Thai grain standing at 40-50% higher than market prices, chances are slim that the ministry will be able to sell it to any buyers unless it slashes the price to make it more competitive. That would be the most sensible thing that most businesses would do, but not the ministry because the rice issue is not just a simple business affair but has been politicised by almost everyone, be it the Democrats or the Pheu Thai Party.

Hence the idea of slashing the pledging price to 13,000 baht from 15,000 baht per tonne of white rice was recently floated by the ministry so Thai rice would be more competitive. But no sooner was the idea floated than the ministry had to hastily back-pedal after some farm leaders issued open threats of mass protests.

Narong Monkolvech, a core leader of farmers in the Central Plains, warned the government would not last its full term if it decided to cut the rice pledging price which would affect many farmers.

Of the 15,000 baht/tonne price pledged, he said the best price that most farmers were offered by the millers was 12,000 baht because millers would cite humidity and other problems as an excuse to suppress the price. Moreover, he said that production costs had increased due to heavy use of fertiliser and pesticides, high labour costs and land rental fees.

If Mr Narong's information is credible, all the claims by the government that the rice pledging scheme is meant for the benefit of the farmers is only partially true as the real beneficiaries are the millers, rich farmers who rent their land to landless farmers and politicians who work hand-in-glove with the millers and some exporters.

Moreover, only one million farmers out of a total of three million participate in the populist scheme.

So far, the scheme has cost the BAAC 350 billion baht (90 billion baht from the bank's coffers and the rest in loans guaranteed by the Finance Ministry) for rice purchases alone for the first year. This excludes storage fees, management fees and interest on loans amounting to some 50 billion baht. With a price tag of 400 billion baht, this is the most expensive populist programme yet, and the least effective because the real beneficiaries are not the farmers.

Obviously, the Commerce Ministry is in a desperate situation, although Commerce Minister Boonsong Teriyapirom has always tried to put on a brave face with assurances that everything is fine and the rice pledging scheme will continue.

In reality, the scheme is sputtering like a malfunctioning engine which needs to be replaced with a new engine.

But the trouble is that even maintenance to extend the lifespan of the engine is not permissible.

Veera Prateepchaikul is a former editor, Bangkok Post.

About the author

Writer: Veera Prateepchaikul
Position: Former Editor