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Editorial Desk

The Nation

Publication Date : 18-03-2013

The Yingluck government has finally decided to maintain the rice-pledging price at 15,000 baht (US$500) per tonne for another year. Cabinet has given the Finance Ministry the green light to guarantee Bank for Agriculture and Agricultural Cooperatives (BAAC) loans worth 74.2 billion baht to finance the rice-pledging scheme in the 2012/2013 harvest season.

Cabinet's decision to maintain the rice-pledging price could further dampen Thailand's export competitiveness and rice-trading. Moreover, the massive scheme will squander more government money.

Ironically, it was reported that even BAAC executives disagreed with the scheme. The BAAC has only 20 billion baht of cash flow left - and the state-run bank has to spend money to finance other projects.

Proposals were made to reduce the rice-pledging price to make it more realistic.

The distortion of rice prices saw the Kingdom lose its status as top-ranked export nation to India last year. Thailand's share of the cake dropped from 33.5 per cent in 2011 to 22 per cent, while India's share more than doubled from 15 per cent to 32 per cent. But the politicians later decided to go full-steam ahead with the populist policy. The government decided to extend the pledging price for another year.

Spending on the rice scheme for the past full year totalled 337.24 billion baht, comprising 118.57 billion baht for major-crop rice and 218.67 billion baht for second-crop rice. The government gained only 20 billion baht from rice sales. The BAAC has complained that it lacks the funds to continue the pledging scheme.

The government has tried to ask other rice-exporting nations to ensure that rice-price movements run in parallel to ensure the price competitiveness of Thai rice on the world market. But the proposal is unlikely to be accepted by other countries, which wish to capitalise on the cheaper cost of production at home. The extension of the pledging scheme for another year will also exacerbate the problem regarding the unloading of the government's rice stockpile.

The programme has distorted the market and made Thai rice expensive. But the government insists on going ahead with this plan simply because it was one of the government's political promises. The promised high pledging price was one of the major policies that enabled Yingluck and her party to win the last general election. But the government should not link the future of Thai rice to its political future without considering the implications of its decision for the majority of Thai farmers.

The rice-pledging scheme has made Thai rice more costly than other countries' such as Vietnamese rice. It is expected that Thailand will be able to export only 6.5 million tonnes this year, compared to more than 10 million tonnes in the past. The government wrongly claims that quantity does not count as much as quality. Because in this case, Thai rice is also losing market share in the premium fragrance rice category. The pledging scheme has eroded the incentives for farmers to improve the quality of rice.

In the long term, the government could go bankrupt because of excessive spending via high subsidy costs. Rice farmers will also suffer when the programme does eventually come to an end. The scheme can be addictive. And it could erode their enthusiasm to improve their quality and productivity.

Pledging at high prices during the past two years has already proved ruinous to the industry.

The Yingluck government must be held accountable for the consequences of this.

*US$1=29.5 baht