Prices of rice are already edging up as rice is hoarded instead of being released to the market, in the expectation that the price will soar when Pheu Thai implements rice pledging.
Both systems are, in effect subsidies. Under the Pheu Thai proposal, farmers would receive a guaranteed B15,000 a ton for white rice and B20,000 for jasmine rice.
The Democrats’ income guarantee system allows farmers to mortgage paddy to the state and redeem the grain when the market price is higher. Prices fluctuate, calculated on the basis of a farmer’s production costs plus 50 per cent profit and B300 to B600 for transportation costs.
Outgoing Prime Minister Abhisit Vejjajiva has already expressed his opinion that the rice pledging scheme, although not even implemented yet, has caused rice hoarding.
He has been receiving backing from a variety of people. The Bank for Agriculture and Agricultural Cooperatives (BAAC) said it could cause problems because rice farmers still have total unpaid debts to the government of more than B150 billion.
At a public debate recently, featuring representatives of both parties, representatives of farmers, millers, rice traders and exporters came down firmly on the side of the income guarantee system.
There was a variety of reasons for their support Democrats’ system.
First, it was predicted that rice pledging would create a loss to the government of of about B150 billion a year. An income-guarantee policy, on the other hand, would result in a smaller loss of around B65 billion a year.
Second, they felt that pledging would distort market mechanisms and be less transparent.
Pledging, participants argued, would also greatly increase the temptation for people to smuggle rice from neighbouring countries to take advantage of the higher price guaranteed by the pledging scheme.
The pledging scheme would, in addition, affect consumers immediately, with domestic rice prices rise by an average of B11 a kilo.
It would also affect exports by making Thai rice less competitive, reducing Thailand’s export market share to the benefit of neighbouring countries such as Vietnam.
“All players, including farmers, millers, traders, exporters, politicians and government officials would have a high opportunity for involvement in corruption under the pledging scheme,” warned Thai Rice Mills Association president Pramoth Vanichanont.
He pointed out that the Pheu Thai scheme’s proposed prices were 77 per cent above current market price, and predicted this would lead to exports plummeting from 8 to 10 million tonnes a year to as little as 2 to 3 million tonnes.
The president of the Thai Rice Exporters’ Association, Chookiat Ophaswongse, agreed.
“Pledging prices [such as proposed by Pheu Thai] that are too high will push up the export price of Thai rice to more than US$850 (B26,000) a tonne, from a current price of US$490 to US$500 a tonne. Thailand will lose its export competitiveness to rivals such as Vietnam,” he said.
Nakorn Pathom Rice Mill Association’s expresident Somsak Tachasirinuguae warned of increased smuggling, or “rice circumvention” as he termed it, because of the price gap between Thai rice and that from neighbouring countries.
The pledging subsidy package will pay not only for Thai rice but also for smuggled rice.
“The most important thing is that the pledging scheme will damage the rice business,” he said.
The farmers, too, seemed in favour of the Democrat system. The president of the Thai Rice Farmers’ Association, Prasith Boonchuey, said most farmers preferred the income-guarantee proposal because every household would gain from it.
That said, he added, the government must focus more on reducing farmers’ production costs. “Farmers want to see the government create ways to help them reduce production costs and to achieve stable returns,” he explained.
Democrat Party speaker Korbsak Sabhavasu said that the last time pledging had been tried, under the administration of Somchai Wongsawat of the People Power Party, predecessor of the Pheu Thai Party, it had created a giant loophole for corruption during the rice-releasing process.
For instance, he said, the government lost B16.08 billion when just 1.1 million tonnes of rice was released from its stockpiles at that time.
Meanwhile, Permanent Secretary for Commerce Yanyong Puangrach scrambled to reassure consumers that Thailand will not experience a rice shortage. The government holds stocks of more than a million tonnes of rice, he said, while rice mills and exporters also hold large amount.
However, he conceded that bagged rice producers – who buy rice from large sacks from millers and repackage it for retail sale, and who stockpile less rice, have been having problem negotiating prices with the millers.
In an attempt to allay concerns, Mr Yanyong said that in late July and August, about two million tonnes of off-season rice will hit the market. In addition, the Thai Rice Millers Association is urging members to release rice they have stocked if there is insufficient supply in the market.
He denied that there was serious amounts of hoarding or speculation on rice prices in response to the Pheu Thai’s plan.
“Thailand does not face a rice shortage and does not need to slow down rice exports,” he asserted. – Phuket News/MCOT/TAN