The macroeconomics of rice-pledging programme

Economy February 26, 2014 00:00

By Dr Medhi Krongkaew

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The National Rice Policy Committee of Thailand, in its meeting of January 20, decided to discontinue its rice mortgage (or rice-pledging) policy when the current programme for the second crop of the 2013-14 rice season ends this month.

Right to the very end, the government failed to admit that this was a failed policy. Instead, it said it had been discontinued because, as a caretaker government, it had no authority to continue it.
It is really a great puzzlement why this government is so adamant in pursuing this rice-mortgage policy.
Most economists have come out in force to advise against a policy where the government decided to buy “every grain” of paddy at a price roughly 50 per cent higher than the market price.  
Even a top economic adviser of the government, Dr Virabongse Ramangura, warned that this was a policy that could sink the government. Two years on, the government is still unable to sell a reasonable amount of its huge rice stockpile abroad.
Why is the government unable to sell its rice abroad? The microeconomic answer to this question is easy: The price of Thai rice is too high; the supply of rice in other countries is large; and consumer demand in the world market (with respect to Thai rice) is quite elastic.  
On the main price factor, statistics from the Thai Rice Exporters Association early this year showed that the prices of Thai rice were higher than those of its main competitors (Vietnam, India and Pakistan) across the board.
For example, the Thai price of 5 per cent white rice is about 10 per cent higher than Indian rice, and 13.4 per cent higher than Vietnamese and Pakistani rice.
This has translated into a macroeconomic picture of the worsening export performance of Thai rice.
Table 1 shows that the total volume of Thai rice exports increased from 8.593 million tonnes in 2009 to 10.666 million tonnes in 2011, but dropped precipitously to 6.955 million tonnes in 2012. 
The value of rice exports also declined likewise. 
The declining trend continued in 2013 in volume as well as in value.  
It is estimated that the government’s rice stockpile in the beginning of 2014 was about 18 million tonnes of milled rice, which is about half of the total world trade in rice.
This enormous fall in rice-export earnings is just one small aspect of Thailand’s socio-economic woes.
The government is currently unable to pay Thai farmers for their rice taken in the last two quarters.  The amount owed by the government at the beginning of this year was estimated to be more than Bt130 billion.
As the caretaker government of Prime Minister Yingluck Shinawatra could not do anything to help these farmers (such as borrow more money and/or sell rice at a big loss), perhaps she can help by resigning from office so that a new government can come in to provide emergency assistance right away.
Dr Medhi Krongkaew is professor of economics, School of Development Economics, National Institute of Development Administration, and a former member of the National Anti-Corruption Commission of Thailand.