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Thailand's Rice Subsidy Program
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Rice Subsidy Program Causes Crisis in Thailand When Thailand's Prime Minister Yingluck Shinawatra came to power in 2011, her win was largely influenced by promises that her administration would pay farmers far more than market price for rice, in a government scheme and populist policy that is already proving to be a tremendous failure. Heavily criticized by academics, economists, the International Monetary Fund, the chairman of Thailand's central bank and even the U.S. Department of Agriculture, the rice-pledging policy is now threatening to bring ruin to the government and may even destroy the prime minister's coalition. According to an article published by Reuters and the New York Times, the ill-planned subsidy program has generated stockpiles of milled rice that have already topped 17 million tons and has even upset international markets, threatening Thailand in its spot as the world's number one rice exporter. All of this extra rice is posing a variety of problems, not the least of which involves finding warehouse space in which to store it, not to mention that the government is most likely going to wind up selling at a loss on the world market. To further complicate matters, the Thai government is already behind on making payments to the state bank that has so far funded the rice subsidy program, since the Commerce Ministry has failed to sell enough rice to raise the required funds. All of this, plus allegations of political corruption and a rising amount of debt, is quickly adding up to disaster in Thailand, with some struggling farmers already forced to wait months to receive payment for rice that was sold to the government. Now, as stockpiles continue to grow, the prime minister's Pheu Thai party will face two days of harsh rounds of questioning at the end of April from the opposition and the senate. It seems that Thai rice, despite its high quality, has simply become too expensive, making it difficult to sell the rice even at cost price to foreign governments, which means selling instead at a loss that will ultimately have to be covered by Thai taxpayers. In 2013, the subsidy program has promised to pay 15,000 baht, which is equivalent to around $488) per ton of white rice to paddy farmers, which is a great deal more than they have earned in the past. Although the scheme hoped to drive prices up on the world market, it has had the exact opposite effect and has resulted in the current stockpile. According to the Thai senate, the nation's public debt is projected to rise by at least 4 percent each year if the subsidy program is allowed to continue. In fact, public debt is currently hovering at just over 42 percent of GDP and the government is planning to spend a total of $33 billion to fund the scheme in 2013 alone. It's not too difficult to understand how this program will be unsustainable if the rice is sold at a loss, or worse, allowed to go bad while sitting in storage. According to Thai rice millers, the nation is currently about halfway through its second harvest, which means the government will soon be forced to make a decision whether to sell off rice at the current market price or run out of warehouse space in which to store the coming crop. With an estimated 14 million tons of rice already in storage throughout Thailand, the government is scrambling to secure additional storage space wherever it can, even if it means repurposing aircraft hangars and other warehouses.
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Transcript of Thailand's Rice Subsidy Program
Rice Subsidy Program Causes Crisis in Thailand
When Thailand's Prime Minister Yingluck Shinawatra came to power in 2011, her win was largelyinfluenced by promises that her administration would pay farmers far more than market price forrice, in a government scheme and populist policy that is already proving to be a tremendous failure.Heavily criticized by academics, economists, the International Monetary Fund, the chairman ofThailand's central bank and even the U.S. Department of Agriculture, the rice-pledging policy isnow threatening to bring ruin to the government and may even destroy the prime minister'scoalition.
According to an article published by Reuters and the New York Times, the ill-planned subsidyprogram has generated stockpiles of milled rice that have already topped 17 million tons and haseven upset international markets, threatening Thailand in its spot as the world's number one riceexporter. All of this extra rice is posing a variety of problems, not the least of which involvesfinding warehouse space in which to store it, not to mention that the government is most likelygoing to wind up selling at a loss on the world market.
To further complicate matters, the Thai government is already behind on making payments to thestate bank that has so far funded the rice subsidy program, since the Commerce Ministry has failedto sell enough rice to raise the required funds. All of this, plus allegations of political corruption anda rising amount of debt, is quickly adding up to disaster in Thailand, with some struggling farmersalready forced to wait months to receive payment for rice that was sold to the government.
Now, as stockpiles continue to grow, the prime minister's Pheu Thai party will face two days ofharsh rounds of questioning at the end of April from the opposition and the senate. It seems thatThai rice, despite its high quality, has simply become too expensive, making it difficult to sell therice even at cost price to foreign governments, which means selling instead at a loss that willultimately have to be covered by Thai taxpayers.
In 2013, the subsidy program has promised to pay 15,000 baht, which is equivalent to around$488) per ton of white rice to paddy farmers, which is a great deal more than they have earned inthe past. Although the scheme hoped to drive prices up on the world market, it has had the exactopposite effect and has resulted in the current stockpile.
According to the Thai senate, the nation's public debt is projected to rise by at least 4 percenteach year if the subsidy program is allowed to continue. In fact, public debt is currently hoveringat just over 42 percent of GDP and the government is planning to spend a total of $33 billion tofund the scheme in 2013 alone. It's not too difficult to understand how this program will beunsustainable if the rice is sold at a loss, or worse, allowed to go bad while sitting in storage.
According to Thai rice millers, the nation is currently about halfway through its second harvest,which means the government will soon be forced to make a decision whether to sell off rice at thecurrent market price or run out of warehouse space in which to store the coming crop. With anestimated 14 million tons of rice already in storage throughout Thailand, the government isscrambling to secure additional storage space wherever it can, even if it means repurposing aircrafthangars and other warehouses.
In response to the rising criticism, Prime Minister Yingluck Shinawatra and the Commerce Ministryhave attributed the current payment delays to the administration's efforts to ensure transparencyand investigate allegations of corruption. Despite assurances from the Commerce Ministry thatmore than 7 million tons of rice have already been sold to foreign governments, activity at portshas not reflected the shipment of large volumes of rice, and representatives from both Indonesiaand the Philippines have denied pending deals, despite being named by the ministry as buyers.Couple this with the fact that the ministry has stopped publishing trade data for rice and will notdisclose the price it has received and it is no surprise that many are left wondering what the realstory is.
Finally, the rice subsidy program has effectively driven the export prices for Thai rice to around$570 per ton, which is around $170 more than comparable rice from India or Vietnam, which havebeen Thailand's main competitors on the world market.
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