Regional rice pool concept a non-starter

opinion November 15, 2012 00:00

By Suthichai Yoon
The Nation

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All signs point to the newly reshuffled Cabinet pressing ahead with the controversial rice-price mortgage scheme despite vehement opposition from most non-government parties concerned.

Commerce Minister Boonsong Teriyapirom remains in his post, determined to prove all critics wrong. To underscore that unrelenting effort, the Commerce Ministry has published a White Paper on the subject to confirm that this policy is on the right track and will eventually prove to be a “red-ribbon” plank in the Pheu Thai Party’s platform.

But Thailand’s leading think-tank, the Thailand Development Research Institute (TDRI), and two Senate committees have told the government in no uncertain terms that the rice price subsidy will “put the entire industry at risk”.
The critical language used by opponents has got stronger every day. The populist policy is “wrong-headed”, “flawed”, “corrupt” and “stubbornly dangerous”.
TDRI senior researcher Nipon Poapongsakorn said the policy struck him as being “politically motivated”, and has gone on record as saying he cannot find any sound economic reason to justify the continuation of the scheme. 
The only reason he can think of as a rationale behind this policy, he said, is that the ruling Pheu Thai Party will probably retain the votes of about a million rice-farming families. The owners of rice mills and paddy warehouses also stand to gain, he said, because they can charge for storing the pledged rice stock. That’s why new paddy godowns have sprung up recently, since owners are confident they can earn back their investment within a year.
The Commerce Ministry White Paper, however, hits back with a vengeance. It insists that if the government had not launched the plan – and let the market determine rice prices – Thai farmers would remain trapped in the vicious circle of poverty, at the mercy of the rich and powerful.
The official argument is that if farmers earn more, they will spend more, and thus local consumption will be boosted, thereby benefiting the domestic economy.
Critics argue that only a small group of farmers stands to gain from the higher prices – to which the government has countered that even those farmers who do not directly participate in the scheme still earn more. “That’s because merchants and exporters have to compete to buy paddy from them at the level set by the government under this scheme,” the White Paper says.
If critics have charged that Thailand’s rice exports have suffered badly because of the artificially higher rice price, the government’s response has always been that exports – in terms of value – remain No 1 despite reports that India and Vietnam are poised to overtake Thailand this year.
Minister Boonsong insists he has been able to sell more rice through government-to-government deals, although he has refused to offer any details to back up the claim.
His other highly trumpeted plan is to ask other rice-producing countries such as India, Vietnam, Cambodia and Myanmar to form a “rice pool” to help stabilise both supply and prices on the world market.
No, he won’t use the term “cartel”, as Opec is characterised for the oil-producing countries. The “pool” concept will underscore close cooperation among countries that produce rice and will stymie fierce competition that could drive prices down.
The idea has been shot down by academics who have studied the subject for decades. They describe the proposed rice pool as a “dream” that can never materialise for obvious reasons.
A veteran rice exporter says the very idea of inviting other rice-producing countries to jointly set prices in the world market is a non-starter. “Vietnam won’t buy the idea for sure. It has always set prices below those of Thailand. The more expensive Thai rice becomes, the more Vietnam can sell,” he said.
The exporter added: “It’s like Thailand has held up an umbrella for Vietnam. Hot days don’t bother them. And on rainy days, they remain dry.”
Another leading rice exporter says Vietnam may play along only if India doesn’t pose such a fierce degree of competition in the world market. Once India initiated a price war, Vietnam had no choice but to lower its rice prices.
In its original concept, the idea has been shaped as the “Organisation of Rice Exporting Countries” (Orec) following the Opec pattern. The proposed regional forum was tossed around for discussion. Member countries were too polite to shoot it down instantly. They all know it is “an idea whose time will never come”.
It goes without saying, therefore, that Thailand’s proposal for rice-producing nations to coordinate production and pricing can only remain on paper. The reasons are simple. For one thing, each country is at a different level of economic development and is under pressure to sell more, at better prices. For another, where was Thailand on this issue when everything was going great for Thai rice exports? 
All politics is local. And so is the economics in rice-export competition.