The Nation:

Six months since the implementation of the price-pledging scheme for farm goods, it is time the Yingluck government reviewed the policy, which has cost Thailand more than Bt300 billion and left farmers unhappy as commodities prices remain low.

Since October, the government has spent a combined Bt301.27 billion to support price pledging of rice, cassava, garlic and red onions. But the policy has failed to shore up prices of these commodities, due to inefficiencies in the project. The government has focused exclusively on implementing the pledging scheme to encourage price increases, but has failed to support farming, marketing and trading processes, resulting in sluggish trade in both the export and domestic markets.

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Thai farmers’ production costs for most commodities are higher than in neighbouring countries, while yield per rai is much lower. The Pheu Thai-led government does not have a plan to lower production costs or promote sustainable development of farming, and simply spends the national budget on short-term subsidies.

The production cost of Thai rice farming is Bt6,000-Bt7,000 per rai, while the cost of Vietnamese production is Bt4,900-Bt5,000 per rai. Vietnam has an average yield of 862 kilograms per rai, against a Thai yield of 448kg.

The current domestic market price of paddy rice is Bt9,000-Bt10,000 a tonne, while the pledging price is Bt15,000. Thai rice export volumes plunged by 50.3 per cent to 1.03 million tonnes from January to March 5 this year, as Thai rice is far more expensive than its competitors’ crops. The government is expected to spend at least Bt220 billion on the two pledging projects for the main and second rice harvests between October last year and June this year [BP: So 220 or 260 billion]??

BP:

1. BP will stick to the rice pledging scheme as the bulk of the money is for rice and BP has read up about the scheme. For the record, BP is skeptical that the scheme is a good idea – see some pros and cons on the scheme here – but The Nation‘s article is wrong on so many levels and fails to give an accurate picture of what is happening.

The obvious, the floods. Reuters:

The higher output from the second crop would help offset the loss of around 6 million tonnes of paddy caused by the worst flooding in more than 50 years, which inundated parts of the country for months from late July.

Thailand, the world’s biggest rice exporter, normally produces 23 to 25 million tonnes of paddy in its main crop, which relies on seasonal rainfall.

This year it is forecast to grow 19 million tonnes.

Reuters:

Some farmers are still having to sell to millers or middlemen at prices of around 9,000 baht a tonne, as many do not have trucks to carry grain to government buyers.

The buying process was also disrupted during last year’s severe floods and many farmers sold cheaply to get cash quickly.

BP: The relevancy of the above is that, according to Bloomberg, the government only spent 100 billion baht on the main crop harvest for 2011-2012 which is 40 billion baht less than expected (yet The Nation still counts this as extra money has spent). Hence, the obvious, is that you should not take 260* billion baht of allocated money to be spent and then say 260* billion has been spent and the scheme has cost 260* billion baht  Also, 260* billion baht has been allocated to be spent until the end of June (later in the article, the wording is “expected to spend”). It is not even the end of June either so the money for the second crop has not been spent yet. The relevancy of this is that prices may change between now and the end of June.

Also, it won’t cost the taxpayers all of the money spent. The government buys the rice and then sells it. No doubt the government will not recoup all of the money spent and there will be costs associated with storing the rice etc, but this will not the entire amount so to talk about “spent” and “cost” and not include all of the above misrepresents the situation.

2. Whether the policy is good policy on a cost-benefit analysis is one question, but this is not the same as whether the policy has increased prices. Yet the article states “[b]ut the policy has failed to shore up prices of these commodities, due to inefficiencies in the project”. Has it?

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Source: FAO - there are some other rice prices which couldn’t include otherwise the graphic would be too wide and would then cause problems to be displayed properly on the page, but these were two non-Thai price categories which were down 17.4% and 6.3% respectively and one Thai rice category which was up 10.2%.

BP: As you can see, Thailand is the only country whose rice prices increased in January-February 2012 (compared with the same time period last year). Thai rice prices started to immediately rise after the election and which, according to the FAO, was because of high demand and the the new government’s policy. Bloomberg:

Yingluck’s announcement of the policy last July helped spur average local prices of unmilled white rice by as much as 22 percent, to 11,700 baht per ton in November. Prices averaged 10,920 baht a ton in the first three months of the program that started Oct. 7, compared with the 15,000 baht guaranteed by the government.

BP: The evidence certainly suggests the price has increased (if you look from June 2011 to now). The floods may also have affected on Thai rice price in October and November. Regardless, the price has not gone down.

3. But you may say, BP what do you say about Thai exports declining 41% in the first 2 months of 2012? This is true. It is not just Thai rice exports that are falling. Vietnamese rice exports for the first couple months of this year have also fallen per Reuters:

Vietnam exported 627,000 million tonnes of rice in the first two months of this year, already a fall of 43 percent from the same period last year, the report cited data from the food association as saying.
The country exported 1.8 million tonnes of rice in the first quarter of 2011, the report said.

“Import demand is thin. There are markets which have no import plans yet, while domestic rice production is facing difficulties,” Bay was quoted as saying.

BP: This is because of a recent change in Indian government policy which has lifted export restrictions. Despite lower prices in India, it doesn’t have the infrastructure to export continued large quantities of rice so there is still demand for Thai rice despite the higher price – also unlike oil, rice is not fungible and taste and preference in rice varies – with the price rising again in early March. Look, the Indian government policy may continue or it may revert back to export restrictions (if the Indian weather is bad). Regardless, it is too soon to say what the affect will be for all of 2011 on rice exports. Bloomberg has more:

Shipments from Thailand may slide 38 percent to 6.5 million tons this year, the same level as nearest rival Vietnam, data on the USDA’s website showed, while India’s exports may jump 43 percent to 6 million tons.

From Jan. 1 to Feb. 23, Thai exports tumbled 50 percent from a year earlier to 852,629 tons, according to the Thai Rice Exporters Association, which said in January shipments may total 6.5 million to 8 million tons for the year.

Vietnam shipped 473,802 metric tons from Jan. 1 to Feb. 23, the Vietnam Food Association said yesterday. The country may ship as much as 7.34 million tons in 2012, Vietnam’s agriculture ministry said Feb. 3.

BP:  That article quotes the value of rice shipments may grow 20 percent this year to more than 200 billion baht ($6.6 billion), Yanyong Phuangrach, the top Commerce Ministry bureaucrat, said Feb. 24. Whether Yanyong’s optimistic figure is true or not, BP thinks the overall value is more important than the quantity of rice exported. Does it really matter if Thailand is not the No. 1 rice exporter? (despite the optimistic prediction from the Vietnamese government,  Vietnamese exports are still behind Thailand anyway, for now). Given the exporting of Indian rice has depressed the market price, Thailand will more likely export around last year’s value.

On whether the scheme will be a success, as BP said in a post at the end of September 2011:

There are so many variables that is difficult to predict whether the plan will be a “success” or not. There are variables with the international market which the government does not have control over (although their policies will influence – prices for Vietnamese rice are up 25% in Jan-Aug 2010). If things fall into place for the government, it could be a success, but with so many other policies on its plate to juggle and to watch how they are implemented,  the government is taking quite a few gambles that while some policies may not “come off” that enough of them will. Will its rice pledging scheme be one of them?

One thing that BP should note is that the rice pledging scheme is part of the government scheme on indirectly supporting informal labor. If rice prices were flat, it is hard to expect that farmers will receive increases in wages and pay out higher salaries to those who work for them, but the situation is different if farmers are getting 15,000 Baht a ton. Hence, this is part of the reason, the government will be willing to take a financial loss although a large loss will be unsustainable….

BP: We are still waiting. As also quoted in that post, the higher prices that farmers receive will also spur consumption as they will have extra money. There are a number of factors to consider so BP thinks the jury is still out.

*Corrected headline and those marked with * to reflect the change in the post to only write about the rice pledging scheme.