Rice farmer Pakasit Jamjaras usually spends his days tilling soil, just like his forefathers. Now he’s been harvesting signatures instead of grain, with a petition to King Bhumibol Adulyadej because the government hasn’t paid for his crop in five months.
A worker loads rice grains onto a truck at Srikobsub Co's rice mill in Nakorn Luang, Ayutthaya province, on Nov 27 last year. (Photo by Bloomberg)
"We are heavily indebted,” Mr Pakasit, a 47-year-old father of three, said by telephone from Phichit province, about 350 km north of Bangkok. “We need to repay suppliers of fertilisers and others.”
Thailand, once the world’s biggest exporter, is short of funds to help growers under Prime Minister Yingluck Shinawatra’s 2011 programme to buy the crop at above-market rates. After the government built record stockpiles big enough to meet about a third of global import demand, exports and prices have dropped, farmers aren’t being paid, and the programme is the target of anti-corruption probes. Political unrest may contribute to slower growth in Southeast Asia’s second-largest economy.
Selling the government inventory to pay farmers would flood the market with rice, eroding prices that in 2013 fell by the most in at least five years, and would escalate competition for shippers in Asia, including India, Vietnam and Cambodia.
“The programme is simply unsustainable and hurting the finances of the country,” said Concepcion Calpe, a senior economist in Rome for the United Nations’ Food & Agriculture Organization. “The suspension of the rice-pledging programme will exacerbate the decline in Thai market prices as farmers enrolled in the programme increasingly fail to be paid.”
Violent protests
Protests against Ms Yingluck by farmers, who blocked roads in the provinces, added to opposition in Bangkok that led to deadly conflicts. Months of demonstrations led by Suthep Thaugsuban, a former opposition-party power broker, paralysed parts of the capital and disrupted a national election on Feb 2. Ms Yingluck heads a caretaker administration until a new government is formed. Thailand, a constitutional monarchy since 1932, had nine coups since 1946, when King Bhumibol assumed the throne.
The price of Thai 5% broken white rice, a benchmark grade, tumbled 23% last year and was at $460 a tonne today. A slump to $370 by March is possible as more grain is offloaded from state granaries, according to Chareon Laothamatas, president of the Thai Rice Exporters Association. It may take about five years for the state stockpiles to be sold off, Mr Chareon said on Feb 5.
Stockpiles expand
Ms Yingluck’s programme was intended to boost farmers’ incomes and lift prices when it began in October 2011. Instead, Thailand was dethroned as the top exporter as reserves surged. After exporting 10.65 million tonnes in 2011, shipments slid to 6.7 million last year, behind India and Vietnam, US Department of Agriculture data show. Shipments are seen at 8.5 million tonnes this year, the USDA forecasts.
The government spent 689 billion baht ($21 billion) in the past two crop years buying from farmers at prices that were as much as 76% higher than current market rates. The USDA expects that Thai inventories will reach a record 14.7 million tonnes this year, compared with 6.1 million in 2010.
As stockpiles grew, so did the strain on government finances. Moody’s Investors Service said in June losses from rice subsidies were credit negative for Thailand’s sovereign rating. The International Monetary Fund, the global lender based in Washington, urged the government in November to replace the policy, saying that it was hurting confidence in public finances. Kittiratt Na-Ranong, Thailand’s finance minister at the time, responded to the IMF’s assessment by saying that “the government has our ways to help farmers.”
Corruption probe
The National Anti-Corruption Commission said last month it will investigate Ms Yingluck’s role as overseer of the programme, after finding enough evidence to charge 15 people, including former Commerce Minister Boonsong Teriyapirom. Mr Boonsong said on Jan 16 that the charge was unfair and he would fight it.
After the commission’s announcement, China’s Heilongjiang province dropped a plan to buy 1.2 million tonnes from Thailand, a sign that the probe had eroded the confidence of the buyer, caretaker Deputy Prime Minister and Commerce Minister Niwatthamrong Bunsongphaisan said on Feb 4.
Ms Yingluck defended the programme on Feb 6, saying that over the past two years the government succeeded in lifting farmers’ incomes, according to a post on her Facebook page. Her caretaker government has limited authority, she wrote. Under the Thai constitution, a caretaker administration can’t borrow new debt or commit to new loans that would obligate the next government.
‘Impeded payment’
“We have asked all related government agencies to solve the issues that impeded payment procedures,” said Ms Yingluck, the sister of former Prime Minister Thaksin Shinawatra, who was ousted in the most recent coup in 2006 and still influences policy through the Pheu Thai party. “The Finance Ministry is seeking legitimate loans under the legal restrictions for a caretaker government, while the Ministry of Commerce is auctioning stockpiles.”
Initially, state buying was popular among growers. A 2012 survey of 1,200 farmers by the University of the Thai Chamber of Commerce found 80% planned to stay with the programme the following crop year. The 5% grade climbed to $647 in November 2011, a three-year high.
Thailand may not be able to find enough buyers for the stockpiles because major importers in Africa and the Philippines increasingly prefer grain from Vietnam and India, said Darren Cooper, a senior economist at the International Grains Council in London. A forecast for Thai exports at 8.2 million tonnes this year probably will need to be reduced, Mr Cooper said.
‘Pay us’
“The government must sell rice in the stockpile to pay us,” said Ravee Rungruang, a leader of a farmers’ group in Ratchaburi province that blocked highways this month and joined other growers on Feb 6 to protest at the Ministry of Commerce. “The government has ignored us.”
The protests led by Mr Suthep, as well as the unrest from farmers, are hurting the economy. The runup to the Feb 2 elections that were contested by Ms Yingluck’s Pheu Thai party, dragged consumer confidence to a two-year low in December and forced the government to cut its 2014 growth forecast twice in less than a month, to 3.1% from 5.1%.
The Thai economy probably expanded 0.2% in the fourth quarter from a year earlier, according to a Bloomberg survey of six economists, slower than a 2.7% gain in the previous three-month period. For the full year, GDP grew 2.8%, a separate survey showed.
‘Fiscal burden’
“The Pheu Thai party gained a political stronghold from farmers because of its rice policy,” said Nipon Poapongsakorn, a distinguished fellow at the Thailand Development Research Institute, who’s studied rice since the mid-1990s. “Now it’s losing a voting base. This policy isn’t sustainable as it damages the rice business and causes a huge fiscal burden.”
There’s also the risk that the government rice is in poor condition or spoiled. Quality of the grain deteriorates after two years in storage at room temperature in Thailand, according to Mr Chareon, president of the exporters’ association. He predicts inventories may reach 20 million tons this year, and that some of the grain is already too old or ruined to be sold.
“The government should let us check quality and volume in state warehouses for transparency,” said Prasit Booncheuy, president of the Thai Rice Farmers Association, whose group joined protesters at the Commerce Ministry on the outskirts of Bangkok on Feb 6. “We want the Commerce Ministry to speed up sales from stockpiles to pay farmers.”
Stockpile sales
The government needs to pay 177 billion baht for about 10 million tonnes bought from farmers since October, caretaker Commerce Minister Niwatthamrong told reporters on Feb 6. About 700,000 tonnes from the past two years is slated for sale in auctions today and tomorrow, according to the ministry.
“In the worst case, if they decide to get rid of the programme and go back to the time when there was no mortgage scheme, it will put downward pressure on global prices,” said Samarendu Mohanty, senior economist at the Los Banos, Philippine-based International Rice Research Institute.
A further drop in rice prices would help extend a decline in global food costs, which fell in January to a 19-month low amid ample supplies, according to a 55-item gauge compiled by the FAO. The measure is down 15% since touching a record in February 2011, and cereal prices tracked by the FAO lost 26% since September 2012. Rough-rice futures in Chicago fell 1% to $15.505 per 100 pounds over the past year.
Mr Pakasit, the farmer from Phichit, gathered about 3,000 signatures in his plea to the 86-year-old king, whose portrait hangs in most homes and shops. Mr Pakasit said farmers aren’t getting paid because of the impasse between Ms Yingluck and her political foes, led by Mr Suthep, and he wants the monarch to be aware that farmers are suffering.
“I want to ask the two opposing groups, ‘Can you stop quarrelling?’” said Mr Pakasit, who faces mounting interest costs on his borrowings. “We have to call for help.”