Unravelling

We could easily fill this blog with 100+ references to what now looks like the end of free handouts for Thai rice farmers. But I won't.

What I will do is try to recap:

Thai politics are thwart with vote-buying. Very often dressed up neatly, launched as a so-called policy, the objective is to hand out cash, with the confidence vote required in return. With most of Thailand's farmers dependent on rice (to a varying degree), a guarantee price was set up, above and beyond what could be expected. The government became the buyer and was only waiting for the international price to follow suit so that the government could off-load it's stores and even make a profit. A win-win situation.

Not. Besides inefficiencies in the process (where did the international rice trader go?) and the stimulation of graft, the rice pledging scheme has run into problems because the price will go down. And will head further south once (or if?) the silo's will be emptied.

In the end all we can say is that rice growing in Thailand was stimulated. Additionally, internationally, prices of rice stabilised, so many consuming countries will be sending a new greetings cards later on this year to Thailand.

But governments shouldn't intervene in commercial processes. And certainly not governments who have no idea what they are doing, who are susceptible to short-term gains and function in an environment where taking say a 10% share of whatever passes along is commonplace.

The beginning of the end?

And things were going hunky-dory. Yeah, there were a couple of blips, a lot of blah blah (opposition jealousy, soothsayers predicting a worse future), but in general things were going well. Farmers (and voters) happy, what more could a government wish for?

And then in steps the international financial community. The same guys that failed to see the current global economical mess, suspected that Thailand might be less well-off (financially) than they thought themselves; the government was only buying / buying and nothing was being sold. And rice is perishable. 

The response: liars! Bangkok Post (June 6):

'The agency [Moody's] noted the losses could exceed 200 billion baht for 2011-12, more than double the Finance Ministry's forecast of 70-100 billion baht. Mr Niwatthamrong [PM's Office Minister], however, said this estimate was exaggerated. He said the 200-billion-baht figure was most likely the amount of money the government spent to purchase rice from farmers rather than the loss incurred'.

The Thai government then goes into overdrive to point out that losses are nowhere as great as that (source). In fact (Nation, June 8) the scheme is still on-going so only when completed will we [Thai tax-payers?] know what the exact cost was.

For more info on the Moody's vs Thai government visit Asian Correspondents background articles pt 1 and pt 2 (!).

But just in case Moody's are correct let's start lowering the intervention price. Or the prelude to political suicide.  Now your supporters are totally cranky.

Bangkok Post (June 10) reports on the possibility of lowering the price by a third, a move by the government, oddly supported by the Thai Farmers Association (TFA):

'Earlier, Prasit Booncheuy, the [TFA] association's president, said a price of 10,000 baht per tonne, down from 15,000 baht a tonne, was acceptable. "Most farmers are willing to accept the lower price. Even though the government offers 15,000-20,000 baht per tonne, the farmers don't get paid fully anyway because of corruption," he said'. 

And we now know that the main reason why the price needs to go down. It's not because of the failure of the system. No, it's the Thai baht's strength (Bangkok Post, June 13).

Lost losses But after testing the waters (are you crazy?), the price will only drop marginally (10-20%) according to reports on June 16 (Nation, Bangkok Post). But nowhere in line with world market prices. Both sources en-passant let readers know:

'The loss of 136 billion baht was based on all expenses in the rice-pledging scheme in its first year _ the 2011/2012 crop year _ including management costs, interest and the estimated value of remaining'.

And more know-how gained:

'Boonsong [Commerce Minister] had earlier said government-pledged rice seeds sold in 5-kg bags at major superstores were safe to eat [or not?] despite being treated with pesticides after the safety time limit. The chemicals are safe after 48 hours for the first type, and 57 days for the second type, and eating this rice after the safety period is not hazardous to health, he said'.

But this has translated into more stringent checks on incoming rice imports in the US (Nation, June 28): 

'The US FDA has ordered every port such as in New York and Chicago to confine Thai rice for random inspection. If the agency finds Thai rice with problems such as contamination, fungus, mold, or over-fumigation five times, the importer would be ordered to refuse Thai rice from exporters.

The source said that such stringent inspection has created concern among American importers as well as Thai rice exporters. Importers could easily turn to order rice from other rice export countries such as Vietnam and Cambodia'.

The article continues to see the flaws in the government intervention:

'Meanwhile, the Commerce Ministry's special taskforce, with cooperation from the Crime Suppression Division, acting against corruption and misconduct in the public sphere, undertook inspection of 2,000 warehouses nationwide and found rice missing from the government's stocks in many provinces'.

Paying the price

Farmers though will suffer from lower prices. The higher prices have meant that land rental values have gone up, eating into the potential profits of farmers (Nation, June 11). The same applies to other inputs. The Nation (June 27) continues:

'Cash return reduced from over Bt3,300 per tonne to Bt360 a tonne, according to BioThai estimates'.

With lower prices on offer these fixed costs won't get cheaper suddenly. So (poorer) farmers will stand to loose substantially. Hence the start of a season of discontent (Bangkok Post, June 19, June 21, Nation June 21, Bangkok Post, June 26, Nation June 26, Nation June 28). The Bangkok Post (June 23) adds:

'Meanwhile, a Bangkok Poll conducted on June 18-20 by the Research Centre at Bangkok University, suggests the prime minister's popularity has plunged. The survey of 1,234 respondents showed the premier's approval rating is now 40.4%, down from 51.2% in November'.

Then comes false securities. Thai government will raise the price once global prices will pick up (Bangkok Post, June 25). Which is unlikely, especially with enormous Thai stocks hovering above the market.

Making hay

My apologies for the above, the intention was to keep it short ...

In the meantime Cambodia is (in absolute terms) slowly making gains in the international market. The Cambodian Daily (June 10) reports on rice exports doubling. Reasoning:

'European countries figure prominently on the list thanks to the European Union’s Everything But Arms trade scheme, which allows Cambodia to export—as the name implies—everything but weapons to member states both duty and quota free.

President of the Federation of Cambodian Rice Exporters Kim Savuth attributed the growing exports to better quality of the product'.

Surprising news (Nation, June 19), Vietnam is to stockpile it's rice produce. Nowhere near Thai dimensions, but still, why try to outsmart the market and lose a wager? 

While Thailand's exports dip, those of Vietnam continue their ascendency (VNS, June 5). And oryzae.com notes (June 28)  that it's own index is nearing a 2 year low, with little or no hope for higher prices. 

Finally

Research on hybrid rice in South Asia concludes that adoption rates are higher with richer farmers but once poorer farmers adopted hybrid rice, the percentage of on-farm consumption was higher for poorer farmers. Which seems logical (source).