US pressures Thailand over rice scheme

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Thailand’s prime minister Yingluck Shinawatra defends the rice subsidy policy, saying that farmers were benefiting “tremendously”.

Thailand’s rice subsidy policy has come under scrutiny of US trade policymakers who fear that the pledging scheme will lead to serious price distortions on the world market and hurt US exporters.

The US has said it will challenge Thailand over its rice subsidies at a World Trade Organisation agriculture committee meeting in Switzerland on November 14, according to a November 9 Reuters report.

Thailand, under the programme of Yingluck Shinawatra’s populist Pheu Thai party which leads the coalition government, is paying rice farmers about 40 per cent more than world market prices for their crop. The programme offers farmers up to 15,000 baht a tonne for white rice paddy and 20,000 baht for high-quality Hom Mali rice, well above market rates, only to stockpile huge amounts of rice and looking to sell it off via government-to-government contracts which comes at significant losses.

The government has effectively become the only rice buyer in the country, using huge debt-financed budgets for it, critics say.

Key promise

The rice-pledging scheme was one of the key election-campaign promises of the Pheu Thai Party, hoping for votes from the large population group of farmers. However, the system has drawn heavy criticism not only from the opposition, but also from farmers themselves who complain about heavy price deductions from rice millers and widespread corruption occurring at government-held rice auctions.

One bitter effect of the scheme is that Thailand is about to lose its position as the world’s leading rice exporter to Vietnam and India this year due to lower exports of overpriced rice.

The USA Rice Federation believes Thailand is determined to regain its status as the world’s top rice exporter by releasing huge stocks bought by the government onto the world market at significant, government-backed losses which is against WTO principles.

Selling the 2011-12 main crop would come at a loss of about 60 billion baht ($2 billion), incurred from the falling prices of rice in inventory against market prices, the Thai commerce ministry estimated earlier this year.

Furthermore, the Thai government in October 2012 approved a new rice-pledging scheme for the 2012-13 harvest year, which would require a budget of 405 billion baht ($13.5 billion).

Yingluck Shinawatra was repeatedly defending the rice pledging scheme, saying it was aimed at raising the standard of living of farmers. Referring to her field trips, she said farmers had benefited “tremendously.”

She added that the government had no policy to reap profits from the project: “The programme is simply to realign supply and demand.”

“Without the mechanism, rice prices would fall to an irrecoverable level. The project incurs some losses, but it won’t affect the overall economy. Higher rice prices are raising farmers’ living standards and this is boosting economic cycles,” Yingluck said.

Taking action

However, the US rice industry group has urged the US Trade Representative to take action against the Thai scheme, alleging that it acts as an export subsidy prohibited by the WTO. It also asks why the Thai Board of Trade has stopped publishing daily data on the scheme

“The US remains concerned that with government procurement of rice at rates as much as 40 per cent above world market prices, it will be difficult for the government of Thailand to export any procured rice without incurring a loss,” the US submission to the WTO committee says.

It also says the Thai government uses loans from the Bank for Agriculture and Agricultural Cooperatives and other specialised institutions to fund the purchases, then repays the loans by selling the procured rice, with some operational costs reimbursed from the fiscal budget.

 

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Reading Time: 2 minutes

Thailand’s prime minister Yingluck Shinawatra defends the rice subsidy policy, saying that farmers were benefiting “tremendously”.

Thailand’s rice subsidy policy has come under scrutiny of US trade policymakers who fear that the pledging scheme will lead to serious price distortions on the world market and hurt US exporters.

Reading Time: 2 minutes

Thailand’s prime minister Yingluck Shinawatra defends the rice subsidy policy, saying that farmers were benefiting “tremendously”.

Thailand’s rice subsidy policy has come under scrutiny of US trade policymakers who fear that the pledging scheme will lead to serious price distortions on the world market and hurt US exporters.

The US has said it will challenge Thailand over its rice subsidies at a World Trade Organisation agriculture committee meeting in Switzerland on November 14, according to a November 9 Reuters report.

Thailand, under the programme of Yingluck Shinawatra’s populist Pheu Thai party which leads the coalition government, is paying rice farmers about 40 per cent more than world market prices for their crop. The programme offers farmers up to 15,000 baht a tonne for white rice paddy and 20,000 baht for high-quality Hom Mali rice, well above market rates, only to stockpile huge amounts of rice and looking to sell it off via government-to-government contracts which comes at significant losses.

The government has effectively become the only rice buyer in the country, using huge debt-financed budgets for it, critics say.

Key promise

The rice-pledging scheme was one of the key election-campaign promises of the Pheu Thai Party, hoping for votes from the large population group of farmers. However, the system has drawn heavy criticism not only from the opposition, but also from farmers themselves who complain about heavy price deductions from rice millers and widespread corruption occurring at government-held rice auctions.

One bitter effect of the scheme is that Thailand is about to lose its position as the world’s leading rice exporter to Vietnam and India this year due to lower exports of overpriced rice.

The USA Rice Federation believes Thailand is determined to regain its status as the world’s top rice exporter by releasing huge stocks bought by the government onto the world market at significant, government-backed losses which is against WTO principles.

Selling the 2011-12 main crop would come at a loss of about 60 billion baht ($2 billion), incurred from the falling prices of rice in inventory against market prices, the Thai commerce ministry estimated earlier this year.

Furthermore, the Thai government in October 2012 approved a new rice-pledging scheme for the 2012-13 harvest year, which would require a budget of 405 billion baht ($13.5 billion).

Yingluck Shinawatra was repeatedly defending the rice pledging scheme, saying it was aimed at raising the standard of living of farmers. Referring to her field trips, she said farmers had benefited “tremendously.”

She added that the government had no policy to reap profits from the project: “The programme is simply to realign supply and demand.”

“Without the mechanism, rice prices would fall to an irrecoverable level. The project incurs some losses, but it won’t affect the overall economy. Higher rice prices are raising farmers’ living standards and this is boosting economic cycles,” Yingluck said.

Taking action

However, the US rice industry group has urged the US Trade Representative to take action against the Thai scheme, alleging that it acts as an export subsidy prohibited by the WTO. It also asks why the Thai Board of Trade has stopped publishing daily data on the scheme

“The US remains concerned that with government procurement of rice at rates as much as 40 per cent above world market prices, it will be difficult for the government of Thailand to export any procured rice without incurring a loss,” the US submission to the WTO committee says.

It also says the Thai government uses loans from the Bank for Agriculture and Agricultural Cooperatives and other specialised institutions to fund the purchases, then repays the loans by selling the procured rice, with some operational costs reimbursed from the fiscal budget.

 

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