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Finance officials troubled by Thailand's farm subsidy scheme

Publication Date : 22-10-2012

 

Rice and other farm subsidy schemes have led to the loss of over 200 billion baht (US$6.5 billion) and must be reviewed to cap the ballooning cost for taxpayers, Thai Finance Ministry officials said last week. "If the government can't sell more rice and other products from its stocks, it will lead to a combined loss of 260 billion baht this year," a ministry source said.

The ministry recently reported to the prime minister the cost of 15 farm pledging projects since 2004, the source said.

The ministry officials led by deputy permanent secretary Supa Piyajitti, who is in charge of evaluating the price support schemes, suggested the government to repay debt worth 200 billion baht to the Bank for Agriculture and Agricultural Cooperatives(Baac), which had advanced payments to scheme recipients on behalf of the government.

The government may take five years to fully pay off its debt to the Baac, the source said.

The ministry also suggested the government revise the pledging conditions to cut costs and prevent corruption, the source said.

Since 2004, past governments and the current government have implemented pledging schemes for 48 million tonnes of farm products from farmers, mainly rice.

These projects yielded revenue of 205 billion baht against costs of 412 billion baht, the source said, so the net loss so far is 206 billion baht.

The cost is expected to rise further as the government continues to buy crops from farmers at much higher prices than the |market.

As of May, the government's farm product inventory was 121 billion baht and its cost for storing rice was 33 billion baht.

The Baac has had to pay out to farmers a total of 450 billion baht for the 15 price-support schemes, but has received only 198 billion baht in compensation from the government so far, or less than half of the total cost.

Due to rising cost, the Finance Ministry proposed to the Commerce Ministry and the National Rice Policy Committee to report the cost every quarter.

To make the rice pledging scheme sustainable, the government needs to review the way it buys rice from farmers. The price should not be too much higher than the market, according to officials. The government promises to buy unlimited rice from farmers at an average price of 15,000 baht per tonne of unmilled rice.

The government was also urged to limit the quantity of rice that it will buy from farmers, as the open-ended policy has led to overproduction of rice and other farm products, officials said. For example, now farmers plant seven crops in each two-year cycle, up from five previously.

Since the government now has a monopoly in rice trading, it has distorted the market mechanism. Exporters and millers cannot buy rice at a reasonable price for trade. A few of them can win rice at government auctions, but that is because they have an unfair advantage over others, officials said.

The price support scheme also makes Thai rice more expensive than rivals' rice in the world market, leading to shrinking market share.

The scheme has also encouraged smuggling, as farmers in Asean countries can get higher prices by selling their rice to Thais.

The government should also consult with other agencies on conducting a comprehensive appraisal of the price support schemes to determine if they should be continued or changed, they said.

*US$1=30.6 baht

 

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