Sanity must prevail over rice pledging

Sanity must prevail over rice pledging

Three cheers of chai-yo to Dr Adis Israngkura na Ayudhaya, dean of the Economic Development Faculty of the National Institute Development Administration (Nida), and 145 academics and students who co-signed a petition to the Constitution Court challenging the effectiveness of the government's rice-pledging scheme and the sanity of continuing this badly-flawed and corruption-riddled populist policy.

The group did not want the controversial scheme to be thrown out for good but only wanted it to be temporarily suspended and adjusted by the government in three aspects.

First, the pledging prices set at 15,000 baht per tonne for white rice and 20,000 baht per tonne for Hom Mali grain should be adjusted to reflect real market prices.

Second, the rice pledged to the government can be redeemed by farmers as in the case of a normal pledging practice.

And, third, each farming household can sell at most 25 tonnes of rice valued at a maximum of 350,000 baht to the government under the pledging scheme.

The petitioners contended the rice pledging scheme was a breach of Section 84(1) of the constitution which stipulates that the state must support a free and fair economic system through the market mechanism and must refrain from doing business in competition with the private sector.

Supporters of the rice pledging scheme and hard-core figures in the government may harbour deep suspicion of the academic group's motives and reject their petition outright.

But wait. Can they not just open their minds a little bit and carefully consider whether the three demands made by the petitioners are reasonable and sensible?

First, let's take the demand to adjust rice pledging prices. The 15,000 baht a tonne for white rice and 20,000 baht for Hom Mali are almost double the market prices and therefore a distortion of market prices.

What are the impacts of this price distortion? On the export side, Thailand is losing its status as the world's No.1 exporter to Vietnam for the first time in many years because Thai rice is so expensive and no longer competitive in the world market.

Talks by the Commerce Ministry about government-to-government export rice deals with several countries are just "hot air" without any deals being actually signed.

Thai exporters also find the pledging prices so prohibitive that many of them have stopped buying rice for export or refrained from participating in rice auctions staged by the Commerce Ministry.

In the last auction of 558,000 tonnes of rice recently staged by the ministry, only 57,605 tonnes were actually sold, representing just 10% of the targetted amount.

It was reported that many exporters were concerned the quality of the rice stockpiled in the warehouses was not up to standard.

With exporters' lacklustre interest in joining the rice auctions and with the first major government-to-government rice deal yet to be finalised, the big question is what to do with the unsold rice stockpile of more than 10 million tonnes which have filled the spaces of privately owned warehouses across the country?

And now the government is to secure another mammoth fund, about 405 billion baht, to implement the rice pledging scheme for the second year running.

"Voice of America" writer Daniel Schearf wrote in an article dated Sept 26 that Vietnam this year may surpass Thailand as the world's biggest rice exporter with expected shipments of around 7 million tonnes compared to Thailand's estimated 6.5 million tonnes.

He quoted Nguyen Van Don, general director of rice exporter Viet Hung, as saying: "The reason is due to the programme of storing and buying up rice to support the farmers of Thailand. Now it is very difficult to compete with the selling price."

Mr Nguyen said Vietnam now is "competing very strongly with India and Pakistan and Burma, mostly with India".

China is Vietnam's top rice buyer this year with an anticipated 2 million tonnes.

Although Vietnam's rice is lower in quality than Thai rice, Thailand's drop in exports may still create opportunities, Mr Schearf wrote.

Because of the generous prices offered by the government and the government's promise to buy every grain of rice from farmers, cheats are taking advantage of the scheme to smuggle in cheap rice from neighbouring countries and selling it to the Commerce Ministry as home-grown rice, making a windfall from the price discrepancy.

Landlords who rent out their farmland to rice farmers are the real beneficiaries by posing as farmers and selling the produce they do not grow themselves and making huge profits.

As the rice pledging scheme benefits both poor and the rich farmers or the landlords, the question is, does it make any sense at all to use taxpayers' money to line the pockets of the rich or the landlords?

Thus, the need to put a limit on the amount of rice each household can sell under the scheme. And 25 tonnes is the figure proposed which is reasonable enough for an average farmer.

The academic group's demand for the right of redemption of the pledged rice is just a side issue.

No sane farmer will buy back the rice at the pledged prices anyway unless the prices are cheaper and they can make a profit from reselling the grain. The other disturbing problem about this populist scheme is the alleged massive corruption from the very top down to the bottom and the huge loss from the scheme estimated at up to 100 billion baht for just a single season.

How much more are we to lose if the scheme is allowed to continue without major adjustments?

Fugitive former prime minister Thaksin Shinawatra last week defended the rice policy, saying, "if we manipulate the mechanism for two years, three years, then things will be moving naturally _ the rice price in the world market is increasing. We do not just throw away the money.

"The programme will lead to higher government revenue through the sale of stockpiled grain, increased local consumption and help cushion Thailand from the effects of the European debt crisis," said Thaksin in an interview in Singapore.

But the reality on the ground is a far cry from the positive picture painted by Thaksin. Negative signs abound.

A huge amount of money has been thrown into the hands of those who are not supposed to benefit from the scheme. We still have a huge stockpile of unsold rice which, in the end, may have to be put up for a fire sale to make space available to store new crops. And we are losing our proud status as the world's top rice exporter.


Veera Prateepchaikul is former editor, Bangkok Post

Veera Prateepchaikul

Former Editor

Former Bangkok Post Editor, political commentator and a regular columnist at Post Publishing.

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