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Thailand Cuts Rice Subsidy Price

After incurring a loss of 4.4 billion US dollars, the Thailand government has announced the reduction of rice subsidy price that it gives to four million farmers. Introduced in 2011 after the election victory of Prime Minister Yingluck Shinawatra, the program involved the government buying the rice output of local farmers at high a price before reselling the rice to the global market. The program was meant to improve the savings of farmers.

For five decades, Thailand was the world’s largest rice exporter but it has been overtaken by India and Vietnam in recent years. Critics blame the rice pledging program for the huge financial losses in the rice sector.

Veera Prateepchaikul asserts that the program was unrealistic from the very start:

From Day One, the rice pledging scheme was criticised as unrealistic. Its first priority was to get the votes of the farmers, with the actual benefits for the farmers only a secondary priority.

Thai farmers during protest at Government House. Photo by Piti A Sahakorn, Copyright @Demotix (6/25/2013

Thai farmers during protest at Government House. Photo by Piti A Sahakorn, Copyright @Demotix (6/25/2013

An article in Asia Sentinel argues that the program benefits middlemen and rice traders and not the poor farmers:

There are also questions how much the program benefits the farmers, other sources say. Although famers do undeniably benefit from higher prices, it is the middlemen who make out the most in the long run.

Peter Warr cites the rice subsidy as an example of a populist measure in Thailand:

These populist interventions focus on short-term political benefits to the government, through gaining votes, and economic benefits to favoured special interests, while ignoring the need to craft long-term solutions to the country’s problems.

This new program departs from previous rice-buying schemes because of its high price, and because it fails to set any limit on government purchases.

Vikram Nehru explains what is wrong with the program and offers a solution:

Aside from its rising costs, another problem with the new rice policy is corruption. Farmers are required to sell their rice to millers, who have enough local market power to reduce the procurement price they offer to farmers, and at the same time receive compensation from the government at the procurement rate. It is hardly surprising that the number of mills in Thailand has increased over the last year.

Thailand should go back to the scheme that was operated prior to 2006, which provided farmers a guaranteed minimum price slightly below the prevailing market price

But the government is confident that the program has succeeded. It claims that it benefited millions of poor farmers:

…97.8 percent of the farmers agreed that the scheme had helped alleviate their debt burden both formal and informal, while 93.7 percent was satisfied with the scheme; and 85.4% said they had more savings.

Andrew Spooner reminds critics that farm subsidies given by European countries are bigger than Thailand’s rice subsidy:

What is astonishing in all this is that Thailand's rice buying subsidy scheme is relatively small if the total loss figures of roughly US$2billion match the government’s expectations. In the EU for example farm subsidies top US$75billion whilst in Korea, Switzerland, Japan and Norway up to 60% of all agricultural earnings come via government subsidy.

There's nothing that strange about agricultural subsidies. And the rice buying scheme was put to the electorate in the 2011 general election and they clearly voted to back this policy.

Terence Chulavachana makes a similar point:

How well off are Thai farmers? How well off are farmers in the Eurozone and USA? The fact is, Thai farmers are dirt-poor in comparison. How much is Thailand’s farm subsidy? And how much is the Eurozone and USA farm subsidy? The fact is, Thailand’s farm subsidy is a small fraction of Eurozone and USA’s farm subsidy.

So why has there been so much global out-raged over Thailand’s rice subsidy?

Rice farmers immediately opposed the reduction of the subsidy price and vowed to hold more protests in Bangkok and other cities.

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