Thai government Minister Varathep at the FCCT tonight and the rice pledging schemeBy Bangkok Pundit Oct 16, 2013 5:17PM UTC
Tonight at 7pm at the FCCT:
An Evening with Varathep Ratanakorn, Minister to the Prime Minister’s Office
7pm, Wednesday October 16, 2013
(Please see pricing and reservation procedure below)
Varathep Ratanakorn is the Yingluck Shinawatra government’s troubleshooter. Having served in his role for roughly one year, he’s been charged with overseeing a flooding crisis, the rice pledging scheme, the two trillion baht loan bill and even controversial constitutional amendments. A former deputy finance minister under the Thaksin Shinawatra administration, Varathep is seen within Pheu Thai ranks as a problem solver and a jack of all trades. The FCCT is pleased to welcome Varathep to the club, where he’s prepared to field questions on a range of pressing issues impacting Thailand’s ruling party.
Varathep Ratanakorn, Minister to the Prime Minister’s Office
Members: No cover charge, buffet dinner is 350 baht
Cover charge for non-members: 350 Baht, Buffet dinner: 350 Baht, for members and non-members alike.
BP: Varathep is an experienced politician having previously served as government spokesperson and Deputy Minister of Finance. He will likely speak about the infrastructure project, but as of June, he is also the Deputy Agriculture Minister so he should face some questions of the failing rice pledging scheme. Haven’t got around to a longer post on this issue, but agree with Pridiyathorn (although am not so sure about his figures)* about moving to a direct subsidy. Having said that, Pridiyathorn clearly actually wants the government to listen to his advice because as opposed to just attacking the government, he actually framed the letter in a way that is more conducive to the government listening (ie. persuasion and not attacks). Below is an excerpt of the translation by The Nation - see this article for the complete translation and a screenshot of the letter in Thai):
I understand well that you want to help increase incomes for farmers. But you should find a way to help farmers that will not cause higher losses to the national budget than the benefits that the farmers will receive more than market prices. Such a measure should not provide a chance to non-farmers to cite farmers to reap their own benefits. Such a measure should spread benefits to more poor farmer families. Moreover, to prevent damage from rice becoming rotten, the government should find a way to help farmers without bringing in rice to be in the government’s stockpile. On the contrary, the government should allow rice to be traded through the rice trading system of private firms, which is already good and will not cause damages to the government.
Actually, your government has already started using such a measure for helping farmers without causing huge damage. The measure was used in case of rubber growers. Your government decided to pay only the market margin directly to rubber growers to prevent others from earning benefits. The measure allowed the rubber trading system to continue normally without taking in rubber sheets to be in the government’s stockpile, which could lead to losses or corruption when the rubber stocks are unloaded. Moreover, the Commerce Ministry has already used this method in providing help to formers for 890,000 tonnes of rice, which was the last amount the government provided help to farmers for the 2012/13 crop year. The Commerce Ministry paid the subsidy directly to bank accounts of farmers at the rate of Bt2,500 per tonne, instead of buying the rice from them at the rate of Bt15,000 per tonne.
As a result, I would like to call on the prime minister to seriously review the scheme. It is still not too late to cancel the rice pledging scheme and turn to use the method of paying the subsidy for the market margin directly to farmers. The government must set the ceiling of subsidy for each family and must formulate rules to fairly distribute subsides to poor farmers. If you, the prime minister, can do this, you will earn the praise that you have worked as the prime minister to prevent the national budget from being wasted and you will also help more farmers.
BP: There are just too many world players and with India’s re-entry into the non-basmati rice export market in 2011, there is simply too much rice on the market for the government to try to exercise some control of the market. BP has no confidence of the government’s ability to act as the seller of rice and the constant talk of rice sales abroad which have not panned out just makes the government look ridiculous. The two years of the pledging scheme have not instilled BP with any confidence that the government knows what is doing in trying to sell rice.
If anything the current implementation shows the government should steer clear of trading and like Pridiyathorn says just leave it private rice trading firms. A direct subsidy scheme will still cost a lot. Pridiyathorn talks about 2,500 Baht per tonne which BP is sure that farmers won’t go far given they receive far more than under rice pledging. However, at around 4,000-4,500 Baht a tonne, it would make selling the change to farmers much easier. Even then with a direct subsidy of 4,000-4,500 Baht a tonne at the time rice is sold and set a maximum of how many tonnes per household per year (say 15-25 tonnes per household per year) then if you have around 20 million tonnes** you are talking about 80-90 billion Baht a year. Remember the Democrat’s rice income guarantee scheme cost 67 billion baht in its final year (see also USDA report for the costs). There will be also be some costs for administering the scheme, but there will be such costs for any scheme.
With a direct subsidy, the government can let the private sector deal with the rest so this avoids this all of the messy complications and uncertain cost of the current scheme. Even now, the costs of the pledging scheme are still unclear. It will also avoid misleading articles to the “cost” because now the cost will be clearer as there is no need to deduct costs for money made from selling rice as well as storage and all other various costs. A direct subsidy won’t stop many farmers being screwed, but the rice pledging scheme hasn’t done this either.
One reason for pledging is that farmers know the amount of money they will receive, but the reality is that farmers don’t know how much they will receive under the pledging scheme. Under the pledging scheme, the moisture content of rice must be lower than 15% to get the 15,000 Baht pledging price, but most farmers do not pledge rice that has a moisture content of less than 15% so they don’t get the 15,000 Baht and instead get a lower figure depending on the moisture content or quality of the rice. If necessary, the direct subsidy could be adjusted by harvest to provide certainty.
*The letter states 21,640,000 tonnes +22,230,000 tonnes and then gives a total of 48,870,000 tonnes (where does the extra 5,000,000 figure come from??) – and given he doesn’t provide the working on how he calculated the losses it doesn’t inspire confidence over the math of the rest of the letter…
**Given we had 21-22 millions tonnes in previous years with none or less onerous maximum number of tonnes per household conditions, 20 million tonnes seems to be a reasonable rough ballpark figure