Rice Subsidy Program Causes Crisis in ThailandWhen Thailands Prime Minister Yingluck Shinawatra came to power in 2011, her win was largelyinfluenced by promises that her administration would pay farmers far more than market price forrice, in a government scheme and populist policy that is already proving to be a tremendous failure.Heavily criticized by academics, economists, the International Monetary Fund, the chairman ofThailands central bank and even the U.S. Department of Agriculture, the rice-pledging policy isnow threatening to bring ruin to the government and may even destroy the prime ministerscoalition.According to an article published by Reuters and the New York Times, the ill-planned subsidyprogram has generated stockpiles of milled rice that have already topped 17 million tons and haseven upset international markets, threatening Thailand in its spot as the worlds number one riceexporter. All of this extra rice is posing a variety of problems, not the least of which involvesfinding warehouse space in which to store it, not to mention that the government is most likelygoing to wind up selling at a loss on the world market.To further complicate matters, the Thai government is already behind on making payments to thestate bank that has so far funded the rice subsidy program, since the Commerce Ministry has failedto sell enough rice to raise the required funds. All of this, plus allegations of political corruption anda rising amount of debt, is quickly adding up to disaster in Thailand, with some struggling farmersalready forced to wait months to receive payment for rice that was sold to the government.Now, as stockpiles continue to grow, the prime ministers Pheu Thai party will face two days ofharsh rounds of questioning at the end of April from the opposition and the senate. It seems thatThai rice, despite its high quality, has simply become too expensive, making it difficult to sell therice even at cost price to foreign governments, which means selling instead at a loss that willultimately have to be covered by Thai taxpayers.In 2013, the subsidy program has promised to pay 15,000 baht, which is equivalent to around$488) per ton of white rice to paddy farmers, which is a great deal more than they have earned inthe past. Although the scheme hoped to drive prices up on the world market, it has had the exactopposite effect and has resulted in the current stockpile.According to the Thai senate, the nations public debt is projected to rise by at least 4 percenteach year if the subsidy program is allowed to continue. In fact, public debt is currently hoveringat just over 42 percent of GDP and the government is planning to spend a total of $33 billion tofund the scheme in 2013 alone. Its not too difficult to understand how this program will beunsustainable if the rice is sold at a loss, or worse, allowed to go bad while sitting in storage.According to Thai rice millers, the nation is currently about halfway through its second harvest,which means the government will soon be forced to make a decision whether to sell off rice at thecurrent market price or run out of warehouse space in which to store the coming crop. With anestimated 14 million tons of rice already in storage throughout Thailand, the government isscrambling to secure additional storage space wherever it can, even if it means repurposing aircrafthangars and other warehouses.
In response to the rising criticism, Prime Minister Yingluck Shinawatra and the Commerce Ministryhave attributed the current payment delays to the administrations efforts to ensure transparencyand investigate allegations of corruption. Despite assurances from the Commerce Ministry thatmore than 7 million tons of rice have already been sold to foreign governments, activity at portshas not reflected the shipment of large volumes of rice, and representatives from both Indonesiaand the Philippines have denied pending deals, despite being named by the ministry as buyers.Couple this with the fact that the ministry has stopped publishing trade data for rice and will notdisclose the price it has received and it is no surprise that many are left wondering what the realstory is.Finally, the rice subsidy program has effectively driven the export prices for Thai rice to around$570 per ton, which is around $170 more than comparable rice from India or Vietnam, which havebeen Thailands main competitors on the world market.--For additional information on Decca Media briefings, please visithttp://www.deccamedia.com/contact/ or call 404-252-1933.