Rice-pledging scheme: a longer-term view
Once again the government’s flagship rice-pledging scheme has hotly returned to the front page and public debate, as the Cabinet approved a budget of 405 billion baht to extend the program into its second year, which will run until September 2013. Conditions remain essentially unchanged. Thus far, Thailand has already spent 260 billion baht on subsidizing rice prices. It is expected that about 26 million tons of paddy will enter the new pledging round.
ผู้เขียน: Dr. Sutapa Amornvivat
Once again the government's flagship rice-pledging scheme has hotly returned to the front page and public debate, as the Cabinet approved a budget of 405 billion baht to extend the program into its second year, which will run until September 2013. Conditions remain essentially unchanged. Thus far, Thailand has already spent 260 billion baht on subsidizing rice prices. It is expected that about 26 million tons of paddy will enter the new pledging round.
The scheme's longevity is disconcerting. Preliminary outcome of its first-year implementation has shown several adverse consequences. The short-term effects are worrying enough. Huge fiscal losses are by design unavoidable. Perhaps the government can justify to taxpayers-and I hope they soon will-how this fiscal burden is considered a small price to pay for farmers' income security and improved quality of life.
Whether or not the intended beneficiary does indeed benefit from the scheme, its long-term effects can induce structural changes in rice business and market mechanism and must be rigorously analyzed and debated as a national agenda.
From the short-term outlook, price competition is of major concern. The government guarantees to purchase from farmers at 15,000 baht per ton for white rice and at 20,000 baht per ton for jasmine rice. This is driving the prices of rice exports to 30-40% above that of Vietnam and India, effectively making Thai rice the world's most expensive. Rice exports have declined continuously since late last year at the onset of the pledging scheme. Over the first 7 months of this year, the volume of rice exports dropped by 46 percent. Both India and Vietnam are set to overtake Thailand as the world's largest rice exporters for the first time in three decades.
About one third of the previous in-season crop went to the program, compared to about 90 percent of the recent off-season crop. Going forward, nearly all rice output is expected to take advantage of unrealistically high prices. At the same time, rice in the government's stockpile is deteriorating in quality. It is inevitable that Thailand will soon face huge losses when it releases the massive stock, potentially realizing up to 100 billion baht in losses to the government. The second round of government purchases could be bigger while the global rice supply forecast is higher-causing an even greater loss.
Longer-term consequences are a gradual departure from traditional small-scaled rice farming, and declining quality of Thailand's rice production. We as a nation should decide whether these structural changes are desirable.
Under this mechanism, the government becomes the largest rice buyer in the market, bypassing middlemen and rice agents. Farmers and rice millers who participate in this program, in effect, act as state employees.
In addition, rice farming has become a business that creates large profits for investors-rather than one that essentially supports the livelihood of those engaged in traditional small-scaled farming. Investors can reap benefits from the high subsidized prices. They can easily rent or own land for rice cultivation and conduct a rice-trading business. In such cases, does this scheme truly target the right beneficiary?
The more worrying issue is the degradation of rice quality. Typically, features that define rice quality-thus impacting price-include moisture content, purity degree, and grain dimension. They are simply ignored because the scheme is designed to accept every single grain without differentiating quality which is the key element to boosting competitiveness in the long run. Farmers are likely to select short-growing cycle rice in order to maximize output and land productivity. Not only will this shift mean less attention being paid to developing rice varieties; but it will also affect fertility of the soil, leading to increasing usage of chemical fertilizers.
The big question mark is, "what should be an appropriate policy for Thailand's long-term competitiveness in the rice market?" Instead of the quick-fix solution like the rice-pledging scheme, we should focus more on longer-term, sustainable solutions such as improving rice quality and boosting productivity. We need to formulate a clear-cut strategy to develop our rice industry. A desirable roadmap should highlight on the following aspects.
More R&D investment is crucial to stay in the game. According to Thailand's Rice Department, Vietnam has spent 15 times the level of Thailand's miniscule budget on rice research of 200 million baht in 2010. Vietnam's rice productivity reaches 900 kilograms per rai in stark contrast to Thailand's 450 kilograms per rai-among the lowest in ASEAN. Despite the two-fifths of our labour force in the agricultural sector, funding for agricultural research in Thailand is substantially lower than that of developed economies albeit their smaller agricultural sectors. This urgently calls for an agricultural research system for the new breeds with higher yield and pest resistance qualities, as well as the premium-grade rice-taking advantage of the demand for organic and naturally nutritious rice from increasingly health-conscious consumers.
Rice-based irrigation systems and logistic efficiency require a serious upgrade. About 80 percent of rice fields in Vietnam are located in irrigated areas, compared to 25 percent for Thailand. Besides the irrigation system, resources should also be allocated to improving water transportation network as water transport is the cheapest form for transporting heavy goods and bulk cargos such as rice and grains. Logistics cost for rice production in Vietnam is about 10 percent lower than Thailand due to their reliance on water transport.
Producing more rice experts is key to innovation and technologies for rice farming and value-added products. During 1967-1997, Thailand produced only 50 new rice researchers-averaging at fewer than 2 persons a year; the situation has not since improved. The lack of research capability hinders us from developing more novel, high-value products from rice (such as rice snacks and rice wine); and from penetrating into niche consumer groups.
Failure to develop Thai rice industry will result in greater setback comes the official launch of AEC in 2015. Besides Vietnam and India who have surpassed Thailand as the main rice exporter this year, many economists are already predicting that Myanmar, amid their rapid opening of its economy, will eventually regain its lead of many decades ago as a top rice exporter. The Asian Development Bank (ADB) believes that Thailand may regain position as the world's top rice exporter if the rice-pledging scheme ends soon.
That is a pretty big "if" given the recent extension of the scheme. Whether one agrees with the ADB's prediction or not, the long-term view does not look rosy for Thai rice industry. Is it not time to consider reallocating resources from this costly short-term response toward longer-term solutions for a more sustainable and competitive industry?