Thailand to cap rice scheme losses at $2.25b

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Yingluck rice
Thailand’s prime minister Yingluck Shinawatra eating rice

In Thailand’s never-ending story of its costly rice subsidy scheme, the country’s ministry of finance has now said it needs to cap the loss limit for the upcoming rice harvest season starting in October 2013 at $2.25 billion.

The ministry said that it would not be able to deal with losses deriving from the scheme by more than the mentioned sum per fiscal year as it was “the maximum” it could set aside to compensate farmers under the programme. The money is given to the Bank for Agriculture and Agricultural Cooperatives which oversees the payouts to farmers.

If the government finds it needs more than $2.25 billion, the target of balancing the national budget by 2017 “could not be achieved,” the ministry said according to the Bangkok Post.

While the Thai government recently has said it will uphold the guaranteed price of 15,000 baht per tonne of rice, the commerce ministry has discussed with farmer associations to lower the price to 13,500 baht per tonne, with a pledging quantity of 15 million tonnes. Negotiations are ongoing.

Overall, the scheme is expected to see losses of nearly $9.7 billion 2011-12 and 2012-13 seasons, but, according to independent experts, it could be even more than double than that. Officials in the government and at farmers’ associations are frantically searching for alternatives to the scheme that would both satisfy farmers and ease the burden on the state budget.

The government is currently struggling to sell overstocks of rice of which some parts reportedly are already rotten after up to 3 years of storage in the warehouses. Some promoted government-to-government trades make just a small amounts of the 17 million tonnes of  rice stockpiles.

The rice pledging scheme has caused a lot of problems for the Thai government, with analysts saying that probably the negative effects already outweigh the advantage of providing farmers a reasonable income. Firstly, Thailand has lost its position as top rice exporter in the world. Secondly, the long storage of unsold rice has raised questions among consumer groups about the safety, hygiene and freshness of Thai rice which damages its reputation on the world market. Thirdly, the rice pledging scheme is accompanied by graft and corruption and has lead to imports of low-quality foreign rice that is sold in Thailand at a higher price and mixed with the local rice in the warehouses.

Furthermore, the fact that the rice pledging scheme swallows up an astonishing 8 per cent of the national budget has prompted rating agency Moody’s to reevaluate Thailand’s credit rating. And urban Thais are furious about the government’s preference of pumping money into the rural northeast instead of releasing funds to redesign the almost defunct public education sector.

“Thailand is still in the process of transformation from an agrarian to an industrial economy, and this opens up gaping inequalities between urban and rural areas, farmers and non-farmers,” says David Dawe, a senior economist with the UN’s Food and Agriculture Organisation.

However, the government under pressure of the rural voter base, currently does exactly the opposite of supporting a shift towards an industrial economy, helplessly, as it seems.

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Reading Time: 2 minutes

Thailand’s prime minister Yingluck Shinawatra eating rice

In Thailand’s never-ending story of its costly rice subsidy scheme, the country’s ministry of finance has now said it needs to cap the loss limit for the upcoming rice harvest season starting in October 2013 at $2.25 billion.

Reading Time: 2 minutes

Yingluck rice
Thailand’s prime minister Yingluck Shinawatra eating rice

In Thailand’s never-ending story of its costly rice subsidy scheme, the country’s ministry of finance has now said it needs to cap the loss limit for the upcoming rice harvest season starting in October 2013 at $2.25 billion.

The ministry said that it would not be able to deal with losses deriving from the scheme by more than the mentioned sum per fiscal year as it was “the maximum” it could set aside to compensate farmers under the programme. The money is given to the Bank for Agriculture and Agricultural Cooperatives which oversees the payouts to farmers.

If the government finds it needs more than $2.25 billion, the target of balancing the national budget by 2017 “could not be achieved,” the ministry said according to the Bangkok Post.

While the Thai government recently has said it will uphold the guaranteed price of 15,000 baht per tonne of rice, the commerce ministry has discussed with farmer associations to lower the price to 13,500 baht per tonne, with a pledging quantity of 15 million tonnes. Negotiations are ongoing.

Overall, the scheme is expected to see losses of nearly $9.7 billion 2011-12 and 2012-13 seasons, but, according to independent experts, it could be even more than double than that. Officials in the government and at farmers’ associations are frantically searching for alternatives to the scheme that would both satisfy farmers and ease the burden on the state budget.

The government is currently struggling to sell overstocks of rice of which some parts reportedly are already rotten after up to 3 years of storage in the warehouses. Some promoted government-to-government trades make just a small amounts of the 17 million tonnes of  rice stockpiles.

The rice pledging scheme has caused a lot of problems for the Thai government, with analysts saying that probably the negative effects already outweigh the advantage of providing farmers a reasonable income. Firstly, Thailand has lost its position as top rice exporter in the world. Secondly, the long storage of unsold rice has raised questions among consumer groups about the safety, hygiene and freshness of Thai rice which damages its reputation on the world market. Thirdly, the rice pledging scheme is accompanied by graft and corruption and has lead to imports of low-quality foreign rice that is sold in Thailand at a higher price and mixed with the local rice in the warehouses.

Furthermore, the fact that the rice pledging scheme swallows up an astonishing 8 per cent of the national budget has prompted rating agency Moody’s to reevaluate Thailand’s credit rating. And urban Thais are furious about the government’s preference of pumping money into the rural northeast instead of releasing funds to redesign the almost defunct public education sector.

“Thailand is still in the process of transformation from an agrarian to an industrial economy, and this opens up gaping inequalities between urban and rural areas, farmers and non-farmers,” says David Dawe, a senior economist with the UN’s Food and Agriculture Organisation.

However, the government under pressure of the rural voter base, currently does exactly the opposite of supporting a shift towards an industrial economy, helplessly, as it seems.

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