On the Boil: Thailand’s Government Rice Subsidy

By Marwaan Macan Markar 28 October 2013

BAAN NON SOMBOON, Thailand – On a sun-drenched afternoon, a tractor pulling a flatbed trailer piled with large bags of unmilled paddy arrives at the home of Sa-ngaim Khampakdee, a rice farmer. The 69-year-old inspects the off-white bags with his thick, calloused hands and then requests his son-in-law, the driver, to unload the contents. Thirty minutes later, there is a mound of 25 sacks near the entrance to Sa-ngaim’s house in this village in northeast Thailand.

Similar scenes play out in villages across the Khorat Plateau in Isaan, a rice bowl of Thailand. Farmers like Sa-ngaim have just begun to harvest this year’s monsoon crop. Even before hauling the unhusked grain to the closest miller, the farmers have a rough estimate how much their main annual crop will fetch. “It is much better now; so easy to calculate how much we would get when we sell our paddy,” admits Sa-ngaim. “That is how it was for me during the last two seasons; no uncertainty.”

Such a sense of security is the product of the “rice pledging scheme” introduced by the government of Prime Minister Yingluck Shinawatra. October marked the third year that this lifeline to the farmers is being implemented. Under it, market forces have been given a short shrift. In vogue is the pledge that Yingluck’s Phue Thai (For Thais) Party campaigned on for the July 2011 general elections, and delivered on the back of a thumping polls victory—direct government intervention in the rice trade.

The state has promised to buy “every grain of rice” up for sale at rates far above the market price. So, a ton of unmilled white rice earns farmers like Sa-ngaim 15,000 baht (US$484), while the fragrant, long-grained jasmine rice is lapped up by the government at 20,000 baht ($643) per ton. These prices are nearly 35 per cent to 40 per cent above the estimated market price, since the current international price for milled white rice is $400 per ton. That is $335 cheaper than what the Thai government is paying locally for the same polished grain—$775 per ton.

It explains why an estimated 4 million rice farmers registered for this scheme in October 2011, the first year it was unveiled, according to agriculture officials. They were drawn to the windfall from this pro-poor policy aimed to tap the farmers’ vote, the largest constituency in the country. It offered farmers in Baan Non Somboon an answer to the perennial costs of paddy production. The latter ranged from the spike in fertiliser and pesticides to oil.

Yingluck’s rice policy is in step with the raft of unprecedented pro-poor policies that were implemented during the five years that her twice-elected elder brother, former prime minister Thaksin Shinawatra, governed, till he was ousted in a September 2006 military coup. That first incarnation of populism assured a 1 million baht village fund for small loans, imposed a debt moratorium and unveiled a universal health care scheme.

“The current government and the Thaksin government embraced the ideology that the farmers are the backbone of Thailand,” says Thanet Aphornsuvan, a historian at Bangkok’s Thammasat University. “And they have been rewarded at the polls by implementing programmes that help the farmers.”

This twist by the Shinawatras is a departure from the previous trends that has shaped the politics of rice. That took root after Thailand broke away from decades of military dictatorships and took its first steps towards democracy in the 1970s. “Some of the previous interventions favoured the rice traders, while the farmers were left as poor peasants,” Thanet explained. “That has changed since Thaksin started intervening to strengthen the rural, grassroots economy.”

But Yingluck’s efforts to cosy up to the farmers have given rise to a fault line. The divide pits a satisfied rural constituency against an irate chorus of economists in Bangkok. The latter are troubled by the mounting costs the country has to shoulder, in addition to Thailand being dethroned from its place as the world’s leading exporter of the Asian staple. In 2012, Thailand was replaced by Vietnam and India in the global rice market, exporting a reported 7 million tons of rice for $4.8 billion, according to the Thai Rice Exporters Association. In 2011, by contrast, this Southeast Asian kingdom shipped nearly 11 million tons as the world’s top exporter, bringing in $6.4 billion to the national coffers.

Some critics of the rice-pledging policy are buttressing their arguments with revelations that came to light in July. The losses arising from corruption and the exaggerated production figures from the rice policy over three years of harvests could reach 220 billion baht ($7 billion) a year, said Supa Piyajitti, a senior official at the finance ministry, during an inquiry conducted that month by the Senate.

Pridiyathorn Devakula, a former finance minister, painted an equally damning picture. The losses for the first two years of the rice-pledging scheme could hit 425 billion baht, he revealed during a mid-October press conference. This scheme, in his view, is “the biggest loss-incurring project ever conceived.”

A swift rebuttal by the government—the losses could be “80 to 100 million baht’’—has done little to detract from another glaring fact: the “rice mountains” that have emerged in the country. The prohibitive price that Thai rice is being flogged in the international market has posed a challenge to the government. It is struggling to dispose of the over 26 million tons it bought during the first two years of the program. And government-to-government deals, couched in secrecy, have not eased the pressure on the brimming silos.

But the Yingluck administration’s political capital is still intact. Farmers’ incomes have been boosted by 115 billion baht annually since late 2011, according to official estimates. No wonder a survey conducted by the University of the Thai Chamber of Commerce in September found that 63.7 percent of 1,228 farmers questioned affirmed that the rice-pledging scheme has “helped raise [their] quality of life.” Government largesse has also meant momentary relief to the troubles over household debt.

Yet, such an endorsement places the government in a quandary. It coincides with revelations by senior ministers that plans are afoot to scale down the state’s monopoly of the rice market for the second rice harvest in early 2014. The hint of such a rollback has prompted threats of rural resistance.

Rice farmers from central Thailand, a fertile stretch that is part of the 13 million hectares under paddy cultivation, have announced mass protests in Bangkok. “We will coordinate our protest with rice farmers groups in 10 provinces of the Chao Phraya River basin,” a spokesman from a farmers’ council has told the local media.