Will consumers pay for huge rice price subsidies, far above market prices? Will ignoring the market lead to a vicious cycle of government spending?
Map above shows how world rice production is concentrated in Asia (Source: Wikipedia).
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Rice scheme a money pit, TDRI says, Economists claim govt will lose tens of billions by Parista Yuthamanop
The government will lose tens of billions of baht in taxpayer money annually if it revives the rice mortgage scheme as planned, economists warn.
The programme will also significantly distort prices in the local market, Thailand Development Research Institute economists said yesterday.
TDRI economist Ammar Siamwalla said the high prices promised under the mortgage scheme would encourage farmers to increase their plantations, resulting in a vicious cycle where the government would have to spend an "unlimited amount of taxpayer money" to keep rice prices at the promised levels.
He dismissed as impractical plans to coordinate with Vietnam and other regional rice exporters to push global prices higher.
"Being able to set rice prices in the world market has been a pipe dream of politicians from almost all of the parties," Dr Ammar said.
Thailand is the world's largest rice exporter, with a target of 11 million tonnes in exports this year, or one-third of the total global trade in rice.
Commerce Minister Kittiratt Na-Ranong said last week the mortgage programme would begin on Oct 7, with farmers able to pledge "every single grain" from the second crop.
The Pheu Thai Party attracted strong rural support with its pledge to reinstate the government crop mortgage programme with prices fixed at 15,000 baht per tonne of paddy rice and 20,000 baht per tonne for Hom Mali rice, prices that are significantly higher than current market prices.
According to the Agriculture Ministry, white rice paddy prices have averaged 8,500 baht per tonne in the first seven months of the year, with Hom Mali paddy averaging 12,244 baht per tonne.
The scheme, essentially a subsidy programme for farmers, was cancelled by the Abhisit Vejjajiva government in favour of a price insurance programme that paid cash if market prices fell below benchmark prices.
Under the mortgage programme, the government is the primary buyer of rice, using funds paid through the Bank for Agriculture and Agricultural Co-operatives (BAAC). The bank estimates first-year costs for the programme at 190 billion baht.
Mr Kittiratt said the government was committed to the programme and that it was his responsibility, as deputy premier and commerce minister, to ensure transparency.
Last week, he said the mortgage programme could be limited or farmland shifted to other crops if supply increases significantly
But Dr Ammar said such a policy was ludicrous.
"I would like to ask which amat (elite) will tell farmers to stop growing rice," he said. "It's their inalienable right." he said.
Rice prices have begun to increase ahead of programme launch, with traders warning that Hom Mali rice could rise by 25%, or 40-50 baht, per five-kilogramme bag starting next month.
Dr Ammar said the government may have to set aside additional funds to help subsidise rice prices for consumers.
"I believe the cabinet members are just trying to come up with a solution to implement their election promises," he said. "Obviously, the promises were poorly thought out."
Nipon Poapongsakorn, the TDRI president, agreed it was practically impossible to imagine the government avoiding losses from the programme.
Export prices are far below the level required to match the pledging prices. And the government is unlikely to risk consumer anger by selling the rice domestically at a price required to cover costs.
Dr Nipon said the government could be forced to buy more than 10 million tonnes of paddy next year to meet its promises. Any delays in selling its stocks, or if it is sold at a discount, would impose a liability on the state-owned BAAC.
During the 2004/2005 and 2006/2007 rice harvests, the last time the crop mortgage scheme was implemented, the government incurred 141 billion baht in liabilities for 300 billion baht in crop loans by the BAAC.
Of the 10.3 million tonnes in paddy purchased by the government under pledging schemes from 2004 to 2007, only 53%, or 5.5 million tonnes was sold. The rest remains in storage, with its value declining by the day due to storage losses.
The TDRI said the government also incurred 7.6 billion baht in operating expenses over the period from warehouse rentals, miller processing charges and other losses. In 2006, 5.2 million tonnes of paddy were pledged at 316 baht per tonne above market prices. The government lost 19 billion baht as rice was sold at a discount to exporters.
Dr Nipon said that if the government had used a crop insurance programme at the same price, with the same returns offered to farmers, it would have cost 7.4 billion baht to cover the entire year's crop of 23 million tonnes.
He said the programme benefited only 38% of all rice farmers, less than one-quarter of all rice millers and perhaps 10-20 exporters out of a total of 150 firms. The top two rice traders captured as much as 60% of the total benefits, owing to the lack of transparency in the auction process.
"The mortgage scheme also led to a doubling in the capacity of millers, who have since seen their operations fall sharply under the insurance scheme. It is no surprise then that it is the millers, not the farmers, who have lobbied for the return of the mortgage policies," Dr Nipon said.
(Source: Bangkok Post, Rice scheme a money pit, TDRI says, Economists claim govt will lose tens of billions, 5/09/2011, Parista Yuthamanop, link)
Rice Policy Vocabulary
scheme - a plan that is developed by a government or large organisation in order to provide a particular service for people แผนการ โครงการ
rice scheme - the "rice mortgage scheme" (looks like a loan program, but actually a above market price subsidy programme)
money pit - a programme or activity that will lose large amounts of money (image: throwing large amounts of money into a big hole or "pit" never to se it again)
concentrated - a large amount of something in one place or area
claim - saying something is true (but not proven to be true yet)
annually - happening every year ทุกๆปีด
revive - bring to life again
revives the rice mortgage scheme - bring the old "rice mortgage scheme" back to life again
significantly - in an important way อย่างสำคัญ
distort - describe in a false and untrue way, not the way it should be
local - in this country (here: Thailand)
distort prices in the local market
encourage - cause someone to gain enthusiasm, motivation, and energy to continue the activity they are doing ปลุกใจ
plantations - large farms
encourage farmers to increase their plantations
cycle - a series of events repeated over and over again (in the same order)
vicious cycle - when a situation gets worse and worse (each set of problems creating new problems, soon spiraling out of control) (See Wikipedia)
keep rice prices at the promised levels.
dismissed - considered something to be unimportant or not good enough to be taken seriously แย้งกลับ โต้กลับ
impractical - an idea that does not work in the real world, not practical ไม่เหมาะสมในทางปฏิบัติ ซึ่งไม่มีประสิทธิภาพเมื่อนำมาใช้งานจริง,ที่ใช้งานไม่ได้
dismissed idea as impractical - did not accept the idea (because success impossible)
coordinate - work together to achieve a goal (See glossary)
global - throughout the world ทั่วโลก ทั้งโลก
coordinate with Vietnam and other regional rice exporters to push global prices higher - same as "cartel"
cartel - an agreement among competitors to control prices so that they all benefit (See Wikipedia)
pipe dream - an impossible dream; a plan or hope you have that you know could never really happen, will not really work
(origin of phrase: from the fantasies experienced when smoking an opium pipe) (See Wiktionary)
pipe dream of politicians - politicians say it because it sounds nice (so people will vote for them, but never actually happens; note: the Isthmus of Kra canal is an old favourite of politicians too)
parties - people or companies entering into a business arrangement or deal
target - a goal, the amount you are planning to achieve เป้าหมาย
trade - the buying and selling of goods การค้าขาย
global trade in rice - the buying and selling of rice around the world
pledge - to make a serious promise to do something สัญญา
grain - the seed from cereal crops such as rice, wheat, or corn เมล็ดพืช
farmers able to pledge "every single grain"
rural - connected with the countryside outside big towns and cities ในชนบท, บ้านนอก
support - help สนับสนุน
attracted strong rural support - a lot of farmers and towns people in the countryside and provinces liked it (so gave their "support" and vote to the politician)
reinstate - to cause something to exist again นำกลับมาใช้อีก
reinstate the government crop mortgage programme
fixed - at one value that does not change
paddy rice - rice after it has been harvested from the field ข้าวเปลือก
current - of the present time ปัจจุบัน
current market prices - the prices that a good is bought and sold in markets right now
essentially - for the most part ที่สำคัญที่สุด
subsidy - when the government supports and helps some activity by paying part of the costs of it เงินชดเชยที่รัฐเป็นผู้จ่ายให้, เงินสนับสนุน
essentially a subsidy programme for farmers
favour - to give an advantage to someone or something, often in an unfair way ช่วยเหลือ สิ่งที่ทำให้เป็นพิเศษด้วยความชื่นชม
X cancelled in favour of Y - programme X ended, so programme Y can be started
insurance - a system that pays money to help people harmed by bad event การประกันภัย (See Wikipedia)
price insurance programme - insurance that helps farmers if the price for their crops falls unexpectedly (when they plant their crops they do not know what the price will be when they harvest the crops)
cash - money เงินสด
benchmark - a standard that other things can be compared to, measured by or calculated from
paid cash if market prices fell below benchmark prices
primary - first and most important
the primary buyer of rice - the organisation buying most of the rice in the country (is the government, not the companies that specialize in selling the rice, as one would logically think)
funds - an amount of money kept and used for some special purpose เงินทุน
estimates - guesses of what the size, value, amount, cost, etc. of something might be การประมาณค่า
estimates costs for the programme - what people think or guess the program will cost
committed - promise continue doing activity in the future (will not stop or give up early before goals are achieved)
government was committed to the programme - government has promised to continue doing the programme in the future
responsibility - having to take care of some task as part of your job
ensure - to make certain that something happens or is done รับรอง ให้ความมั่นใจ ให้การยืนยัน
transparency - visible to the public, no opportunity for secrets , sneakiness, corruption, or cheating; when the public can see clearly what is happening in politics ความโปร่งใส
responsibility to ensure transparency - have the job of making some process or activity visible to the public (so there is no corruption)
farmland shifted to other crops - farmers grow other crops instead of rice
policy - a set of plans or action agreed on by a government, political party, business, or other group นโยบาย (See Wikipedia)
ludicrous - ridiculous, foolish, laughable (not reasonable, sensible or suitable)
ludicrous policy - a ridiculous and laughable policy
elite - a highly trained group; the richest, most powerful, best educated or most highly trained group in a society ซึ่งดีที่สุด, ยอดเยี่ยมที่สุด
inalienable - something cannot be taken away from a person
inalienable right - a right that cannot be taken from someone (or changed)
launch - to start something เปิดโครงการ, เริ่มต้น, เริ่มทำ
rice prices have begun to increase ahead of programme launch
traders - people and companies who buy and selling some good or asset as a business (for profit)
set aside additional funds - make more money available for a project, give more money to a project
subsidise - to pay part of the costs of something (usually the government) ชดเชย เงินช่วยเหลือจากรัฐ ให้ความช่วยเหลือด้านการเงิน
consumers - people who buy things (individuals and families)
subsidise rice prices for consumers - pay part of the cost of a good for consumers (when it becomes too expensive and difficult for them to buy themselves)
come up with a solution - think of a solution to a problem (find a way to solve a problem)
implement - put a plan into action, make a plan work นำ แผนหรือนโยบายมาปฏิบัติ นำมาใช้
election - the process of choosing a person or a group of person for a position, especially by voting elect (v) electoral (adj) synonym: the polls การเลือกตั้ง
implement election promises - carry out a government programme (to do what the politician promised to do in the election)
poorly thought out - bad planning (that does not think out all the things that could go wrong ahead of time)
matches - to look the same as or very similar to something else ซึ่งไม่คู่ควร (equal to, same as, can be used with)
export prices are far below the level required to match the pledging prices
risk - the possibility that something dangerous or unpleasant might happen ความเสี่ยง
consumer - someone who buys and uses goods and services ผู้บริโภค
risk consumer anger - the possibility that people buying goods (here: rice) will be angry at higher prices
selling the rice domestically - selling the rice inside the country
meet its promises - do the things they promised they would do (election promises)
stocks - large amounts stored for future use
discount - a reduction in price
sold at a discount - sold at less than its normal price
impose - to force someone to accept something กำหนด,บังคับ
liability - 1. borrowed money (debt, loans) that a company has to pay back in the future หนี้สิน, recorded in the company accounting system (assets = liabilities + owner's equity); 2. a legal responsibility for something or someone ความรับผิดชอบ
state - government รัฐ
impose a liability on the state-owned BAAC - the government bank must borrow money to pay for it all (this borrowing may not show up in the official government government accounting = off-balance sheet)
implemented - when a plan is put into action, actually doing the things in a plan
remains - the body of a person or animal that has died ซากศพ
storage - the putting and keeping of things in a special place for use in the future การเก็บ
the rest remains in storage
value declining by the day due to storage losses - same as "post-harvest losses"
post-harvest losses - when the value of the rice stocks decreases over time (due to reduced quality or spoilage, rats eating the rice, people stealing the rice, etc) (See Wikipedia)
incur expenses - when an organization pays for something (and it is officially recorded in the accounting system)
incurred 7.6 billion baht in operating expenses over the period
warehouse - a large building for storing things โกดังสินค้า, คลังสินค้า, โรงพัสดุ
charges - a payment that has to be made for something เงินที่เรียกเก็บ
miller processing charges - paying rice mills to make the harvested rice of farmers into a form that can be stored
pledged - seriously promised to do something สาบาน
sold at a discount to exporters - sold at a lower price than usual (lower than what it cost the government to buy)
crop insurance - insurance to protect farmers from events that can cause them to lose money growing crops (See Wikipedia)
insurance covers Y - the insurance will pay money if bad event Y happens which causes loss or harm
insurance coverage - all the bad events that the insurance will pay for (if they happen)
returns - money gained
benefits - goods things that can happen from anm activity ผลประโยชน์
lack - does not have ขาดแคลน
X owing to Y - X because of Y
auction - selling things by competitive bids, selling to the person who offers that best price (See Wikipedia) การขายโดยการประมูล, การขายทอดตลาด
process - a series of actions that you take in order to achieve a result แนวทางปฏิบัติ, กระบวน, วิธีการ
lack of transparency in the auction process - can't see who is winning the auction or why they are winning the auction (auction could be fake, crony friend of politician winning auction no matter what happens)
capacity - the total amount of something that can be produced ความสามารถในการ (ผลิต)
doubling in the capacity of millers - millers improved their rice mills so they could produce twice as much
lobby - trying to make lawmakers (MPs) change the law so that the law is favourable to you
lobbied for the return of the mortgage policies - the millers want a return to the old system (because they profited from it)
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