Untenable Thai rice scheme puts populist PM in bind

Reuters News
Posted: Oct 09, 2012 5:04 PM
Untenable Thai rice scheme puts populist PM in bind

By Paul Carsten

BANGKOK (Reuters) - Thailand's government is under growing pressure to cut its guaranteed price for rice which is so high exports have slumped, and even some farmers accept a cut might be needed, but it may find it politically hard to back down.

The government is paying farmers 15,000 baht ($490) per metric ton (1.1023 tons) for their rice and, since exporters are unable to find buyers at that level, it has ended up with about 12 million metric tons in state stockpiles, more than it exports in a good year.

Academics and analysts say a price of 10,000 to 12,000 baht may be more realistic and sustainable, but Prime Minister Yingluck Shinawatra and her Puea Thai party rode to electoral success on the back of the policy, securing the votes of agricultural workers who make up 40 percent of the workforce.

Adis Israngkura Na Ayudhaya, dean of the School of Development and Economics at the National Institute of Development Administration, says the scheme was always politically rather than economically motivated.

"The government is using taxpayers' money to buy votes. It's not the welfare of the farmers they care about. It's something they promised the public, an electoral thing, so at the next election they can say to people they kept their word," he said.

Yingluck is the sister of Thaksin Shinawatra, a former telecoms tycoon who pioneered similar populist policies when he was prime minister, before being ousted by the military in 2006.

Thaksin remains hugely popular among rural people in the north and northeast and the urban poor, and is widely believed to be eyeing a return from self-imposed exile.

Finance Minister Kittirat Na Ranong argues that the rice policy will help the economy as it will boost consumer spending at a time when industry is suffering because of the global slowdown.

The International Monetary Fund (IMF), in a June report on Thailand, agreed that the government's various fiscal stimulus policies were opportune but it also said income redistribution schemes, especially the rice program, needed to be monitored and adapted if necessary to contain costs.

The government is ignoring that advice. On Tuesday, it put the cost of rice intervention for the fiscal and crop year from October 2011 at 80 billion baht, a fifth of the projected budget deficit.

Public debt, as central bank Governor Prasarn Trairatvorakul noted this week, is not really a concern at 43 percent of gross domestic product. But it is on the rise, and both Prasarn and the IMF called for more efficiency in public expenditure.

Critics say the rice scheme could not be more inefficient: it helps middlemen, millers and rich land owners as much as poor farmers, it has caused an alarming slump in exports and the state is making huge losses, with little visible benefit.


The scheme is providing political ammunition for the opposition Democrat party and will feature prominently in a censure motion it plans to put to parliament.

Governments of all hues, including the Democrats, have intervened in the rice market for years, but previous schemes have never been as generous or as costly as Yingluck's, who offered twice the market price in the run-up to the election.

"The Democrat system was far better," said one international rice trader, who declined to be identified. "They didn't buy the rice, store the rice or hold the rice. They just gave the farmers the difference between the market price and 11,000 baht.

"Insurance companies, warehouse owners, millers and inspectors all make money because now the government has to pay them," said the trader.

In an indication of the difficulty authorities are having in coping with the rice glut, army chief Prayuth Chan-ocha told reporters on Tuesday the government had asked the army to come up with storage space for stocks.

Prayuth, whose relations with the government are closely watched by many Thais for any sign of tension, said he did not support the rice scheme but would follow orders.

Faced with questions about the wisdom of the scheme, some farmers say a lower price would be better if it meant the scheme remained in place.

"I would take a slightly lower intervention price of 10,000 or 12,000 baht rather than the current 15,000 baht per metric ton. But please, do not scrap the scheme. It is the only scheme the government should be running to help the poor," said Supawadee Nilkun, 52, a farmer in Nong Chok district on the northeastern fringes of Bangkok.

Indeed, millers and middlemen might be more attached to the higher price, according to Thitinan Pongsudhirak, a political analyst at Chulalongkorn University. While the government pays 15,000 baht for each metric ton of rice, this often goes to middlemen who pay the farmers less, charging for transport from the fields or arguing that the grain is low quality.

"The farmers get very little. The millers take the 15,000 guaranteed and give farmers roughly half of that. That's why the farmers say they would settle for lower than 15,000 - because they're not getting that much anyway," Thitinan said.

"The Yingluck government can't be seen to betray the farmers, so they would have to package and modify the policy in a way that would mollify the farmers," he added.

Certain people, like the international trader, thought any change at all could lose Yingluck the next election. "The farmers have tasted blood. She can't go back and say 'I'm sorry'."

The farmers spoken to by Reuters suggested the rice policy was a big factor in their support for Yingluck, but their devotion to her went beyond the rice pledge scheme.

"The government should change other policies to help support exporters, or seek ways to get more money to fund the scheme. But it should never change this rice policy. Never," said Supawadee.

But asked if they would vote for her even if the scheme were scrapped entirely, the farmers said they would.

"Yingluck is a good person. She cares for us. She cares about farmers, who are the majority of the country," said Supawadee.

At some point, Yingluck will have to decide whether she can carry on nurturing that majority at the expense of a policy that most independent analysts see as economically unsustainable.

"Because your workforce is so strongly agriculturally based, you have to support them. But you have to make it sensible. The whole world has rice at $500 a metric ton, why would you buy at more?" the trader asked. ($1 = 30.6550 baht)

(Additional reporting by Apornrath Phoonphongphiphat; Editing by Alan Raybould and Robert Birsel)