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New Year Special

Rice scheme unlikely to survive in pres

It is becoming more and more likely that the rice-pledging scheme will be scrapped or at least modified regardless of who wins the next election.

Since the programme was launched, it has caused problems for rice trading and held back agricultural development, while the government has struggled to support the project financially.

Blame could be placed on political conflict for the rough start to the scheme's third year. But it seems clear that even without the current chaos, which has partially delayed the government's ability to fund the project, it would eventually have to be scrapped or adjusted because of its massive costs.

According to a Finance Ministry audit, the scheme racked up more than Bt400 billion in losses in its first two years.

The government's inability to release rice from its stockpiles quickly has also resulted in barriers to financing the third year of the programme.

The Commerce Ministry reported that it was able to release about 2 million tonnes via general auction during the past year, plus about 8 million to 10 million tonnes under government-to-government contracts.

However, the government has never revealed to the public how much of a loss it has incurred by unloading rice at subsidised prices.

While rating agencies watched with concerns on possible impacts on fiscal discipline, the Pheu Thai-led government recently raised the legal limit of the scheme's outstanding financing pool from Bt440 billion to Bt600 billion.

But despite mounting evidence that the pledging programme was in trouble, the government made no effort to drop it or even scale it back. Since 2011, the Yingluck Shinawatra government has spent almost Bt600 billion on rice pledging. However, some studies have indicated that only 30 per cent of this outlay has been paid to farmers, while millers, traders, and unscrupulous officials and politicians have profited handsomely from it.

A study by the Thailand Development Research Institute also found that the country would lose up to Bt200 billion each year under the pledging programme from reduced rice-sales income.

Thai Rice Farmers Association president Prasith Boonchuey said the government needed to review the scheme soon, as the rice-farming industry had stagnated for several years now.

"Despite the high pledging price, farmers have never received high returns and still faced a high debt burden due to the higher cost of production.

The government will finally need to review the policy because of huge losses and financial liquidity problems," he said.

Prasith added that farmers had put no effort into improving rice quality because the government had focused only on price, with no plan to promote sustainable growth of rice plantations.

Farmers want a project that focuses on long-term development rather than short-term gains from a pledging scheme.

The scheme has drawn heavy criticism from both the parliamentary opposition and academics throughout the past year.

Their top concern was fiscal discipline, as all of the losses racked up under the programme would have to be dealt with sooner or later, and this would increase the public debt, currently at around 44 per cent of gross domestic product.

The scheme has been funded by the Bank for Agriculture and Agricultural Cooperatives (BAAC), which is responsible for paying participating farmers, while the Commerce Ministry is in charge of the release of the stockpiles. Caretaker Commerce Minister Niwatthumrong Boonsongpaisan said earlier that since he took office in July, the ministry had sold 3 million tonnes of rice. But that still left about 10 million tonnes of rice in the warehouses.

The outlook of the whole rice trade is unclear given low global prices. Many questions need to be answered, therefore, as to how Thailand's pledging scheme can survive financially.

The programme has also drawn complaints from exporters, faced with low global prices against the high local price.

According to the Thai Rice Exporters Association, the price of Thai rice dropped continuously last year, despite the high pledging price. As of December 11, the price of 5-per-cent white rice was quoted at US$453 a tonne, down from $599 last January. During the same period, the price of Thai 100-per-cent white rice also dropped from $616 a tonne to $460.

Meanwhile Vietnam appeared to benefit from Thailand's high pledging price, as the price of its 5-per-cent white rice increased from $390 a tonne last January to $430 last month.

In the first two years of the pledging programme, the Thai government spent Bt502.207 billion on it, but the Commerce Ministry had returned only Bt160 billion from rice sales to the Finance Ministry as of last November.

The BAAC, in need of new funds for the third year of the programme, had to borrow Bt75 billion. Though the bonds were fully backed by the government, their sale was disrupted by the political demonstrations rocking Bangkok and the resulting dissolution of Parliament. Only half of them found buyers, and at a higher yield.

Thailand had been the world's largest exporter of rice since 1982, but lost that position in 2012 after the current government implemented the pledging programme's high rice price of up to Bt15,000 a tonne.

Export volume dropped to 6.94 million tonnes that year, a plunge of 35 per cent compared with 2011. For 2013, the country is expected to be in third place after India and Vietnam, exporting only about 7 million tonnes.

Moreover, it remains doubtful whether the government can clear out the enormous stockpiles of rice accumulated by prolonging the pledging project for more than two years amid sluggish rice trading in the world market and high competition.

Rice can easily deteriorate in quality and price if stored for long periods. Inevitably, Thailand will bear a loss from buying rice at a high price but selling it cheaply under the pledging project.

In the first 10 months of 2013, rice exports dropped by 3.5 per cent in volume to 5.4 million tonnes, and by 4.3 per cent in value to $3.65 billion.

Rice exporters say their incomes and profit have declined greatly during the past two years. One source said his company now faced some losses because of the high price, but it needed to accept some orders to maintain the business.

Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association, said most rice exporters had suffered, as profit margin was only 1-2 per cent.

Vichai Sriprasert, another honorary president of the association, said the government had chosen the wrong method by setting the pledging price too high, and had not shown concern for rice traders, especially general exporters.

Instead of spending a huge amount of money for the rice subsidy, it should finance long-term development projects such as irrigation systems, logistics, seed quality and research.

"The pledging is providing only small benefits to some people or companies who have close connections to the government," he said, urging the administration to allow exporters to be involved in stockpile releases.

The cost of managing government rice stocks is also very high at Bt3,300 a tonne, while private exporters would spend only Bt1,000 to manage a tonne of rice before shipment. Although the price of Thai rice has been cut, it still has trouble selling it overseas and competing with rivals.

This is because overseas traders know enormous amounts are begin stored and continuing to deteriorate in quality as the pledging project has gone on, Vichai said.

Virabongsa Ramangura, an adviser to Yingluck, said earlier that Thailand should focus more on adding value to the rice output. To him, it no longer matters if Thailand is the world's largest rice exporter, as it deals only with volume, not value.

Still, the government has done little to encourage adding value to this commodity. Of the 60 million rai (9.6 million hectares) of rice plantations, only a few million rai have been dedicated to growing organic rice.

While the private sector has attempted to add value to rice by marketing such products as rice bran oil, cosmetics, snacks and supplements, the government has no clear plans to support trading of such products.

Only the National Innovation Agency has offered an annual rice-innovation award. And after receiving such awards, only a few innovators are able to commercialise their products.

The government could be doing more to support value-added rice rather than focusing only on short-term subsidies.

Given these hurdles, the pledging programme, if it survives at all, looks certain to be revamped even if Pheu Thai is returned to power in the election.


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