BANGKOK — When the military government approved spending at least 20 billion baht to guarantee prices for rice farmers, two questions were raised: How did it differ from the subsidy program that lost billions under Prime Minister Yingluck Shinawatra, and how would it succeed this time?
Answering those questions is tricky however. Expert opinions vary wildly, often depending on the political persuasion of the source. One economist critical of both governments’ programs said the junta’s more conservative scheme is unlikely to suffer the same losses – but also unlikely to work. And the consensus of economists in general is that the regime is wrong to blame market conditions on politically motivated manipulation of the market.
One thing made clear by economists is that this type of price-pledging subsidy has been implemented by governments since the 1980s, long before Yingluck’s election in 2011.
While critics doubt the scheme’s fundamental effectiveness, experts said it isn’t intended to move big market changes but rather stabilize volatile prices over the course of the harvest season, which runs about four months.
“The point is not to improve long-term problems about the price,” said Decharut Sukkumnoed, a agricultural economics lecturer at Kasetsart University. “To improve the price of rice, you need to fix some other issues.”
It’s a matter of managing supply to keep prices stable. Otherwise, at the beginning of the harvest period, the glut of rice hitting the market drives them down. The subsidy works by allowing farmers to “sell” their rice to the government at a fixed price. It’s actually a loan secured by their inventory. Later in the season, the farmers can reclaim their rice for sale at a better market rate and repay the “loan” to the government.
Despite being directly involved in farmer welfare issues and skewing pro-democracy, Decharut finds fault in both approaches taken by Yingluck then and the military regime now.
The lecturer explained that in order for the program to work, the government must set the right buying price. Decharut said it must be higher than what the milliers are offering to farmers at the beginning of the season, when the market is oversupplied, to attract farmers. At the same time – and here’s where some gambling happens – it must also be lower than where the price lands at the end of the season.
This increase is supposed to happen because the rice bought from the farmers is held in reserve, lowering supply and therefore driving up prices, assuming demand is relatively inelastic.
So for the program to succeed and be effective for farmers, the right price must be set and enough farmers must participate to affect the market.
“It’s basic principle of economics, neither Yingluck nor Prayuth invented it,” he said.
He said there were some big policy differences that could make for different results.
Yingluck’s biggest mistake was announcing a price – 15,000 baht per metric ton – while campaigning in the election. While that may have helped secure the support of her rural constituents, she was stuck with that promise when harvest season came around and it proved much higher than the market could bear.
Her government also committed to buying an unlimited amount of any type of grain at that price, regardless of its market value.
The result was that at the end of the season, when prices were still low, a lot of farmers didn’t reclaim their rice and default on their loans. The government was left with silos full of aging stock.
Where Yingluck was too soon, Decharut said Prayuth was too late to be effective.
“The perfect timing would have been early October,” Decharut. “It was late now. Some rice was already sold to the market.”
The regime’s lower guarantee of 13,000 baht only for a relatively small quantity of premium jasmine rice made for a safer bet.
But Decharut said its low quantity, capped at two million metric tons, was another reason it was would not be effective.
“Will it help lift the price up in the end, because the amount of rice they are buying is very low compared to the whole market?” he said.
No Foul Play
Most agricultural economists, including a fierce critic of Yingluck’s program, agree that the government is falsely blaming the current market conditions on supply-side political sabotage.
Prime Minister Prayuth Chan-ocha suggested Tuesday the worst price for rice in years was caused by market manipulation by millers in cahoots with the political opposition. He even dispatched soldiers to the provinces to investigate.
Under pressure and accused of being responsible for the plummeting prices, the Thai Rice Mills Association on Thursday dissolved its executive committee.
“I don’t have the competence to collude with millers nationwide,” said President Manus Kitprasert as he announced his resignation, explaining it was impossible to control the thousands of mills nationwide.
Manus said millers base their prices to buy from farmers on what exporters are willing to pay. Experts agree the pricing situation was out of the control of the millers. In fact, they had long expected this year to be the worst for one simple reason: an oversupply of rice.
Economist Viroj NaRanong of the Thailand Development Research Institute wrote Wednesday on Facebook that strong rice production combined with lower consumption led to the depressed market conditions. Nine million metric tons of rice bought during Yingluck’s administration were also left in the country’s stock.
Viroj declined to answer questions Friday and urged the media to publish his entire, lengthy post.
The world rice market isn’t likely to recover anytime soon either. Global rice stocks at the end of this year are forecast to grow to their highest levels in over a dozen years, according to the U.S. Department of Agriculture.
Rice prices in the kingdom depend on the world market and are usually decided before orders are placed, Viroj wrote.