Cambodia Rice News: World Rice News: Rice price pledging scheme is a total disaster

Rice price pledging scheme is a total disaster

The rice pledging scheme alone, plagued with inefficiency and corruption, is likely to result in losses to the tune of Bt100 billion.

Niphon Wongtra-ngarn, a rice expert, has called for an inspection of the government's rice stocks, following reports that there could be 3 million tonnes in fake stock.

The government now has about 15 million tonnes in its stock, accumulated from the pledging programme. Of this, 3 million tonnes might not exist. Independent inspection is likely to face a roadblock. The Commerce Ministry is desperately trying to release the rice from the warehouses via government-to-government deals.

The Thailand Research Development Institute has called for the government to completely revised its farm price intervention policy, which harms the entire rice production and trading system of the country. Still, Kittiratt Na Ranong, the deputy prime minister and finance minister, has insisted that the government will continue to implement the rice pledging scheme, one of the Pheu Thai Party's massively expensive populist policies.

The Yingluck government has set aside Bt400 billion for the rice pledging scheme. It has spent Bt260 billion, over two harvests, to buy up paddy from farmers - with white rice at Bt15,000 per tonne and homali fragrant rice at Bt20,000 per tonne. Kittiratt said that by September the government is expected to use the remaining Bt170 billion in the budget to purchase more rice from farmers in order to fulfil its policy obligation.

The rice price pledging scheme is funded largely via borrowing. The FinanceMinistry has borrowed short-term money to the tune of around Bt260 billion to finance the scheme, operated by the Bank for Agriculture and Agricultural Cooperatives.

The whole Bt400 billion pledging scheme looks like a black hole. Nobody knows what is going on. The full extent of the losses will be learnt only when the Bank for Agriculture and Agricultural Cooperatives announces the operational outcomes. The rice pledging and selling operation is not transparent.

The following is from the United States Department of Agriculture's latest report on the global rice trade, issued in July:

"Prices have not returned to their pre-2008 pattern when quotes from Thailand, India and Vietnam generally moved together, and the gaps between them were narrow. Since the 2008 spike, quotes have converged and diverged, with gaps between suppliers occasionally surpassing US$200 per tonne. This has been the case since May, when Thai quotes jumped while Vietnamese and Indian quotes fell. The paddy pledging scheme in Thailand is keeping prices artificially high, while in India, massive stocks are pushing prices down. Like most of the price movements since 2008, the current divergence is linked to policy rather than to changes in supply or demand."

According to the US Department of Agriculture, Thailand has lost its world's No 1 rice exporting country status. Normally, Thailand exported 9 to 10 million tonnes of rice a year. But in the 2011 and this year so far, Thailand has exported only 6.5 million tonnes due to the phigh prices set by the rice pleding scheme, compared to 7 million tonnes for Vietnam and 8 million tonnes for India. The more Thailand exports, the more losses it will incur because the pledged price is higher than that on the world market. From fears of food insecurity and food inflation due to drought and natural disaster over the past few years, the situation has turned in favour of the buyers' market. Countries like China and Indonesia offer better bargains when it comes to prices for their rice exports.

In the 2012-2013 season, the situation will gradually turn around for Thailand's rice exports, when the country will export 8 million tonnes, followed by Vietnam's 7 million tonnes and India's 6.5 million tonnes.

If the policy does not work, the government should not continue to shoot itself - and the country - in the foot. The rice price pledging scheme must stop now before it creates even further damage and empties the government's coffers.

Source: TheNation/3August2012

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