Thai rice plan controversial

by Susan Reidy
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The Thailand government is reviving the Paddy Pledging Program it says to help farmers, but opponents believe it will instead hurt exports and benefit competitors such as Vietnam.

The program began Oct. 7 and will continue through Feb. 29, 2012. With pledged prices 66% higher than current market prices, the program is more aggressive than the 2008-09 program when intervention prices were 20% above market prices, according to a report from the U.S. Department of Agriculture’s Foreign Agricultural Service (FAS).

Rice farmers may benefit from the program, said the Thai Rice Export Association, but the rice price guarantee distorts actual market mechanisms, which will increase costs for consumers, and benefit other rice exporting nations.

Thailand, which is the world’s leading rice exporter, is expected to produce 20.3 million tonnes of rice this year.

FAS estimates rice exports will drop to between 7 and 8 million tonnes in 2012, a decrease from the 10 million tonnes expected to be exported this year. It’s expected the government will accumulate large quantities of intervention stocks due to the program, FAS said.

Anticipation of the program has led to widespread hoarding, according to press reports, with an estimated 3 million tonnes of rice stockpiled in recent weeks to gain from higher prices from the plan.

Scheme details

The Thai National Rice Policy Committee (NRPC) finalized its Paddy Pledging Program for Cabinet approval on Sept. 13. It calls for intervention prices of $460 to $500 per tonne of white rice paddy; $666 per tonne for fragrant rice paddy; $600 per tonne for Provincial fragrant rice paddy; $533 per tonne for Pathumthani fragrant rice paddy; and $533 to $600 per tonne for glutinous rice paddy.

No limit restrictions were imposed on the amount that can be pledged. The government said it expects the program will need a budget of $13.3 billion based on crop production of 25 million tonnes of paddy, FAS said. The Bank of Agriculture and Agricultural Cooperative’s will provide of a credit line of $3.3 billion for the first phase of the program, which is from October to mid-December.

If the government is short on funds, it will be covered by loans from government banks.

Deputy Prime Minister and Commerce Minister Kittiratt Na-Ranong said mortgaged rice will be sold at an appropriate time to repay loans.

“The public should not be concerned about the loans, because rice will enter the market gradually and this will give the government time to manage the loans appropriately,” he told the Bangkok Post.

The NRPC has created six sub-committees to monitor production, marketing, mortgage procedures, provincial mortgage processes, the selling of mortgaged rice, and examination and inspection.

The Commerce Ministry reported that 651 millers in 50 provinces have applied to participate in the pledging program so far. The government said it will have enough space to stock rice under the program.

Potential Impacts

According to the FAS report, about 70% of rice farmers will likely be worse off under the Paddy Pledging Program compared to the previous Price Insurance Program. In past pledging programs, participation amounted to only one-third of total rice farmers, mostly large-scale farmers in the central plain.

Small farmers, especially those in the northeast with small 2 to 3 hectare holdings, have limited ability to participate in the program due to liquidity and logistical concerns, FAS said. They will be forced to sell at market prices, which are usually far below the intervention prices.

Under the pledging program, farmers will have to wait a few weeks to redeem their sales, FAS said. With the Price Insurance Program, more than 95% of farmers participated and cashed in on their sales at market prices immediately. This gave farmers liquidity to cover expenses while waiting for compensation.

FAS said farmers sold their paddy at 30% above market prices under the Price Insurance Program during the 2009-10 and 2010-11 market years.

Rice exports for 2011 are expected to reach 10 million tonnes, an increase of 10.5%, despite a surge in domestic prices driven by speculative activities of millers and traders. Speculation started in June 2011 when the Pheu Thai Party, which won the elections, campaigned on the platform that it would revive the pledging program, FAS said.

With the pledging program, the Thai Rice Exporters Association believes the nation will lose a significant share of the global market because its prices won’t be competitive.

The white rice pledged price will increase the export price to more than $800 a tonne from the current $630, while Vietnamese rice will increase from $550 to only $700 a tonne, Vietnam exporters say. Vietnam plans to take advantage of that, with exports expected to grow as much as 7 million tonnes in 2012.

Thai and Vietnamese rice leaders have met multiple times to discuss rice cooperation. Korbsook Iamsuri, president of the Thai Rice Exporters Association, said the two countries will exchange information to prevent price cutting and to develop rice production.

“This agreement will ensure sustainable growth in rice exports, because Thailand and Vietnam are the world’s biggest rice suppliers. Rice prices will be more stable, because each country will stop undercutting prices,” Korbsook said.

To cut back on corruption, the Ministry of Commerce plans to reward informers who give tips on wrongdoing associated with the Paddy Pledging Program. This includes fraudulently claiming privilege prices for rice from neighboring countries. Those who give information on such practices will receive 50% of the value of the smuggled rice. A special unit also is being established to prevent corruption, according to the commerce minister.

Government Risk

Economists have warned that the government could lose millions of dollars under the pledging program. The Thailand Development Research Institute (TDRI) said the high prices promised will encourage farmers to increase their plantations, resulting in the government having to spend more to keep rice prices at the promised levels.

TDRI said the government may have to buy 10 million tonnes of paddy next year to meet its promises. At some point the government may be forced to dump excess rice at a loss on the open market, the group said.

When the government goes to release rice from its stockpiles, the price will likely drop in the global market, resulting in more losses, TDRI said. The government would likely not raise prices domestically, for fear of consumer backlash, or it would implement consumer subsidy programs, adding more to the cost.

It seems unlikely that expectations of soaring rice prices will happen, according to analysts and economists. Global stocks to usage ratios have increased for six years, despite some instances of panic. Rice consumption per capita, especially in emerging nations, is likely to drop each year as consumers shift spending to other items.

The government took huge losses from past pledging programs, TDRI said, amounting to $628 million.