Workers unload rice from a truck in northeastern Thailand. Pic: AP.

Disastrous support scheme was put in place for political rather than economic reasons

Thailand has largely ended its disastrous scheme to subsidize rice farmers, having lost the country’s position as the world’s biggest exporter and left it an estimated US$2 billion in the hole with vast amounts of rice deteriorating in warehouses. The prime minister faces corruption charges and rebellion from angry farmers who form the backbone of her party’s rural support.

From the time the program was put into effect in 2011, economists were predicting it would end in fiasco. It has. Farmers and traders have now returned to the commercial markets.

Given that the power base of the ousted fugitive former Premier Thaksin Shinawatra and the surrogate governments he was running from outside the country was in Thailand’s rural north and east, the plan was to buy farmers’ loyalty by paying them 40 to 50 percent over the global price for their rice and holding it off the market.

The assumption was that since Thailand was the world’s biggest rice exporter and that US production was sharply off in 2011, the combination of the shortage and Thailand’s absence from the global market would drive prices sky high and allow the government to sell what it had bought from the farmers at the new price.

Thailand had been the world’s biggest rice exporter since 1932, exporting 9.03 million tonnes in 2009. By 2013, exports had dropped by more than 3 million tonnes because the rice the government had accumulated was economically unsaleable. India and Vietnam and India, both recognizing an opportunity to be exploited, raised their export levels, selling at largely the prevailing market price after a short bump upwards while Thailand was stuck with uncompetitive stocks.

India thus pushed Thailand into second place as global exporter, only slightly ahead of Vietnam, exporting 6.72 million tonnes in 2013 to 6.7 million tonnes for Vietnam.

The program also left the Pheu Thai government with a growing surplus that eventually hit more than 12 million tonnes, much of it facing quality issues from deterioration. The government is still believed to be holding as much as 10 million tonnes, which it is trying to sell at a rate believed to be 20-30 percent below its purchase price.

From the start, Thai farmers, seeing the riches to be made from selling rice to the government at substantial levels over the global price, began planting from border to border of their farms. Middlemen and rice traders are believed to have cleaned up through corruption. Some traders were caught trucking in cheap rice bought in Myanmar and selling it to the Thai government.

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