Thailand is one of the world’s most important rice producers and has frequently headed the list of rice exporters. Recently, however, policies designed to support rice farmers have backfired, leaving the government with large stocks for which it has paid more than it can recoup from the world market. Controversy over rice subsidies has become a major political issue in the country.
The International Grains Council (IGC) puts Thailand’s total grain production at 4.6 million tonnes in 2013-14, down from 4.7 million the year before. Of that, 4.5 million tonnes is maize, down from 4.6 million, and an unchanged 100,000 tonnes is sorghum.
The country’s total imports of grain are put at 2.2 million tonnes in 2013-14, up from 1.9 million the year before. Imports in 2013-14 include 1.9 million tonnes of wheat, up from 1.7 million in the previous year. The country is also set, according to the IGC, to import 200,000 tonnes of wheat flour, up from 166,000 the year before.
It’s in rice where Thailand is a giant. The IGC projects 2013-14 production of 20.9 million tonnes, up from 20.3 million the year before. Exports are put at 8 million tonnes in 2013-14, second only to India among the leading rice exporters. The previous year’s exports of rice from Thailand were 6.7 million tonnes. The IGC points out that Thailand has regularly been the world’s biggest rice exporter.
“State efforts to release intervention reserves are expected to continue and the heavy fall in export values over the course of this year has improved exporters’ competitiveness in world markets,” it says of Thailand’s position in the rice export market in 2013-14.
The country is also set to import 2.2 million tonnes of soybeans in 2013-14, up from 1.8 million the year before. It will also import 3 million tonnes of soymeal, up from 2.9 million.
RICE SUBSIDY CONTROVERSY
Thailand has a huge and controversial rice subsidy scheme, which has become the subject of legal scrutiny in recent weeks.
The Financial Times newspaper reported on Jan. 16 that Thai anti-corruption investigators have launched a probe into a huge official rice subsidy scheme, dealing a fresh blow to the government as protesters seeking to oust it marched in Bangkok for a fourth day.
“The National Anti-Corruption Commission inquiry targets a contentious project that has cost billions of dollars and is crucial to shoring up the rural political heartlands of Yingluck Shinawatra, prime minister,” the newspaper reported. “The commission said it was probing the high cost of the rice scheme, which official estimates say costs $4 billion a year and which other analysts suggest costs almost double that figure. Falls in the international rice price have left the government sitting on large stockpiles that would recoup far less than the purchase costs if they were sold now.”
“Those who oversaw the scheme knew there were losses but did not put a stop to it,” Vicha Mahakhun, anti-corruption commission spokesperson, told the Times.
“The commission also said it would summon Mr. Boonsong Teriyapirome, a former commerce minister, and other officials to explain why rice destined for export shipment to foreign governments in 2012 was never dispatched. Teriyapirome, who has denied corruption, was dismissed by Ms Yingluck over the affair, the paper reported. It explained that “the 2¼-year-old rice subsidy scheme guaranteed farmers prices well above market rates and helped Ms Yingluck to a landslide election victory in 2011, thanks to millions of votes from northern and central farming areas that were also strongholds for Thaksin Shinawatra, her brother and predecessor as prime minister. But the scheme has proved increasingly economically damaging, attracting criticism from the International Monetary Fund and causing Thailand to lose its crown as the world’s largest rice exporter.”
“The financial drain has also caused an increasing political problem for the government amid sporadic demonstrations by farmers in the past two months because subsidy payments have stopped,” the newspaper said. “An official bond issued in November to inject money into the rice scheme raised only half the Bt75 billion sought, although officials said that a fresh bond aimed at securing Bt20 billion (U.S.$6 million) had exceeded expectations and pulled in Bt32.6 billion.”
“Only two years after its implementation, the rice-pledging scheme has proven to be a failure,” the Bangkok Post said in a Jan. 9 editorial. “It has failed to help poor farmers who cannot produce enough rice for sale. It has failed to reduce farmers’ debt problems, to increase productivity, or raise the prices of Thai rice in the world market as promised. On top of that, it is riddled with corruption.”
The problems could be seen coming. “An increasingly unpopular government sticks to its worst and most costly policy,” said the Economist magazine in an article on the sector published in August of 2013.
“The rice subsidy was classic Thaksin populism,” the magazine said. “Two-fifths of Thais work in agriculture, most of them as rice farmers. Ms Yingluck promised that, if she were elected, her government would buy unmilled rice directly from farmers at about twice the market rate, or 15,000 baht (about $500) per tonne.”
The idea was that the government would be able to sell its stockpiles on the world market at a profit, having first forced up the price by withdrawing rice from the market. In practice, the government had been forced, by the time the Economist produced its article, to stockpile 18 million tonnes of rice, a quantity which the magazine pointed out was equivalent to nearly half the total annual global trade in rice.
“Buying rice from farmers is ruinously expensive, costing the Thai government $12.5 billion in the first year of operation,” it said. “This year the cost is expected to rise to about $15 billion, or 4% of GDP. Storing the rice also carries administrative and logistical costs, and demands expensive new warehouses.”
KNOCK ON EFFECT
In a report published early in 2013, the attaché explained the adverse effect of the government’s price support schemes on other sectors.
“The government pledging programs adversely affect the livestock industry, because they push the cost of feed production higher,” the report said. “Despite higher-than-expected corn production from acreage expansion and illegal corn imports from neighboring countries in MY2012-13 and MY2013-14, corn prices will likely remain high due to the high prices of substitutable domestic feed stocks, particularly broken rice and cassava.
“The government-established intervention prices for the rice and cassava pledging programs are 30% to 40% above domestic farm gate prices,” it said.
High world wheat prices were likely to limit feed wheat imports, although the attaché expected milled wheat imports to rise “due to the growing demand for instant noodle and bakery production.”
In its annual report, T.S. Flour Mill Public Company Limited made several important points about the Thai wheat market, first pointing out that its climate prohibits Thailand from producing wheat. Imports primarily come from Australia and the U.S., followed by Canada and then the Asian countries. Flour imports come from its neighboring countries in Southeast Asia, but Turkey has also been a major source.
The report explains that Thailand has had a flour milling industry for more than 40 years.
“It is not easy for new entrepreneurs coming into the wheat flour industry,” the company said.
It said there are 10 flour milling companies in Thailand, each having production capacity of around 250 to 1,000 tonnes per day.
Population: 67,497,151 (July 2013 est.)
Religions: Buddhist (official) 94.6%, Muslim 4.6%, Christian 0.7%, other 0.1% (2000 census).
Location: Southeastern Asia, bordering the Andaman Sea and the Gulf of Thailand, southeast of Burma.
Government: Constitutional monarchy. Chief of state: King Phumpion Adunyadet (since June 9, 1946); head of government: Prime Minister Yinglak Chinnawat (since Aug. 8, 2011).
Economy: With a well-developed infrastructure, a free-enterprise economy, generally pro-investment policies, and strong export industries, Thailand achieved steady growth due largely to industrial and agriculture exports — mostly electronics, agricultural commodities, automobiles and parts, and processed foods. Thailand is trying to maintain growth by encouraging domestic consumption and public investment to offset weak exports in 2012. Unemployment, at less than 1% of the labor force, stands as one of the lowest levels in the world, which puts upward pressure on wages in some industries. Thailand also attracts nearly 2.5 million migrant workers from neighboring countries. The Thai government is implementing a nationwide 300 baht ($10) per day minimum wage policy and deploying new tax reforms designed to lower rates on middle-income earners. The Thai economy has weathered internal and external economic shocks in recent years. The global economic crisis severely cut Thailand’s exports, with most sectors experiencing double-digit drops. In 2009, the economy contracted 2.3%. However, in 2010, Thailand’s economy expanded 7.8%, its fastest pace since 1995, as exports rebounded. In late 2011 growth was interrupted by historic flooding in the industrial areas in Bangkok and its five surrounding provinces, crippling the manufacturing sector. Industry recovered from the second quarter of 2012 onward with GDP growth at 5.5% in 2012. The government has approved flood mitigation projects worth $11.7 billion, which were started in 2012, to prevent similar economic damage, and an additional $75 billion for infrastructure over the next seven years with a plan to start in 2013.
GDP per capita: $9,500 (2012 est.); inflation: 3% (2012 est.); unemployment: 0.7% (2012 est.).
Currency: Thai baht (THB): 32.879 bahts equal 1 U.S. dollar (Jan. 21, 2014).
Exports: $226.1 billion (2012 est.): electronics, computer parts, automobiles and parts, electrical appliances, machinery and equipment, textiles and footwear, fishery products, rice, rubber.
Imports: $217.8 billion (2012 est.): capital goods, intermediate goods and raw materials, consumer goods, fuels.
Major crops/agricultural products: Rice, cassava (manioc), rubber, corn, sugarcane, coconuts, soybeans.
Agriculture: 12.3% of GDP and 38.2% of the labor force.
Internet: Code: .th; 3.399 million (2012) hosts and 17.483 million (2009) users.
Source: CIA World Factbook
Chris Lyddon is World Grain’s European editor. He may be contacted at: email@example.com.
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