Extension of rice-pledging scheme: bad news

The government's insistence on maintaining the rice-pledging price at Bt15,000 per tonne for another year will not only continue to dampen Thailand's export competitiveness and the rice-trading industry, but also lead to higher budgetary losses and a gloomy future for rice-farming development.

Despite many disagreements and clear evidence showing that too high a subsidy on rice has caused a host of problems for the industry, Yingluck Shinawatra's government on Monday agreed to extend its price pledging on the crop until February next year. The government has made this decision out of concern that it could lose face and support from farmers if it were to take the opposite direction, since a high pledging price was one of the major policies enabling Yingluck and her party to win the last general election.

However, the government has not thought twice about the wider implications of its decision on the sector, despite having had a chance to do so. The plan to stick with the high pledging price will continue to ruin the Thai rice industry and plant development. The country will inevitably face further losses, yet the most costly lesson is that Thailand could permanently lose its status as the world's largest rice exporter because of its inability to compete on price with leading rivals in the global market.

The government could also go bankrupt because of another year of excessive spending via high subsidy costs, while it has to date earned small returns from rice selling.

Rice farmers will also suffer when the pledging programme does eventually come to an end, since the government will then finally force them to grow other economic crops on which there will be no need to pay a high subsidy under its farmland zoning plans.

The government has announced that it will concentrate on farmland zoning for rice and other major crops next year. The measure aims to limit the budget for highly subsidised prices and reduce the huge losses that the government must shoulder each year in fulfilling its election pledge.

Budgetary spending on the rice scheme for the past full year stood at Bt337.24 billion, comprising Bt118.57 billion for major-crop rice and Bt218.67 billion for second-crop rice. The government has gained only Bt20 billion from rice sales.The Bank for Agriculture and Agricultural Cooperatives has complained that it has lack of funds to continue the pledging.

The bank is therefore seeking an additional budget to continue with the scheme, while stockpiles are rising amid falling exports to the global market. Previously, Commerce Ministry permanent secretary Vatchari Vimooktayon acknowledged that the rice pledging had caused Thailand to lose its crown as the world's top rice exporter.

The ministry prompted to revise down the pledging price to pave the way for rice exporting.The distortion of prices resulted in the Kingdom losing its top-ranked export nation status to India last year. Thailand's share of the cake dropped from 33.5 per cent in 2011 to 21.79 per cent, while India's share more than doubled from 14.57 per cent to 32.18 per cent.

Vietnam, meanwhile, increased its share from 21.98 per cent to 24.18 per cent during the same period.The Thai Rice Exporters Association has projected that Thailand will be able to export only 6 million to 7 million tonnes of rice this year, against 6.9 million tonnes last year. India and Vietnam, who can offer prices between US$100 and $200 a tonne lower, will continue to export more and increase their market share. Other ASEAN rice-trading nations, such as Myanmar and Cambodia, will also take more global share at the expense of Thailand.

FARMING DEVELOPMENT SUFFERS

Aat Pisanwanich, director of the Centre of International Trade Studies at the University of the Thai Chamber of Commerce, said Thailand would continue to be knocked off its pedestal as the leading grower and international trader of rice because the subsidised price is too high.

"Pledging with a high price during the past two years has already proved that it has ruined the industry," he said.

"Thai rice plantation has not developed, as the government has invested a huge sum on the subsidy scheme each year rather that spending money on long-term development," he continued.

He added that the country could no longer claim that Thai rice was of a higher quality than its rivals' produce because there was now much less development in farming, a problem compounded by the fact that prices are too high.

Besides the wide price gap between Thai rice and that of its major export rivals resulting in consumers and importers choosing other countries' rice,

Thailand will face a tougher situation when selling rice overseas because it can also be replaced by many other cereals that can be cultivated within a short period of time. The country will face huge losses as it will be unable to release sufficiently high quantities due to its lower market share, while the stockpiled produce will continue to deteriorate in quality, Aat said.

The rice-farming industry has not made any progress in its development and competitiveness since the government has been guaranteeing prices via the high-subsidy programme, he added.

Uthai Kamnueng, a farmer in Nonthaburi, said he had speeded up his cultivation cycle to grow two or three crops a year in order to join the pledging scheme.

However, rushed growing results in farmers paying less attention to the quality of their grain. He said they could accept a lower pledging price as long as the government were to help farmers in a more sustainable way. "Like exporters, rice farmers want to see more sales. The government could help subsidise the cost of production by other means, as long as it encouraged the growth of the industry," Uthai added.

The farmer also called on the government to seek a sustainable way to develop rice plantation in the light of increasing competitiveness among neighbouring countries.