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http://www.bangko...-tdri-says

Economists claim govt will lose tens of billions

Rice scheme a money pit, TDRI says


The government will lose tens of billions of baht in taxpayer money annually if it revives the rice mortgage scheme as planned, economists warn.

The programme will also significantly distort prices in the local market, Thailand Development Research Institute economists said yesterday.

TDRI economist Ammar Siamwalla said the high prices promised under the mortgage scheme would encourage farmers to increase their plantations, resulting in a vicious cycle where the government would have to spend an "unlimited amount of taxpayer money" to keep rice prices at the promised levels.

He dismissed as impractical plans to coordinate with Vietnam and other regional rice exporters to push global prices higher.

"Being able to set rice prices in the world market has been a pipe dream of politicians from almost all of the parties," Dr Ammar said.

Thailand is the world's largest rice exporter, with a target of 11 million tonnes in exports this year, or one-third of the total global trade in rice.

Commerce Minister Kittiratt Na-Ranong said last week the mortgage programme would begin on Oct 7, with farmers able to pledge "every single grain" from the second crop.

The Pheu Thai Party attracted strong rural support with its pledge to reinstate the government crop mortgage programme with prices fixed at 15,000 baht per tonne of paddy rice and 20,000 baht per tonne for Hom Mali rice, prices that are significantly higher than current market prices.

According to the Agriculture Ministry, white rice paddy prices have averaged 8,500 baht per tonne in the first seven months of the year, with Hom Mali paddy averaging 12,244 baht per tonne.

The scheme, essentially a subsidy programme for farmers, was cancelled by the Abhisit Vejjajiva government in favour of a price insurance programme that paid cash if market prices fell below benchmark prices.

Under the mortgage programme, the government is the primary buyer of rice, using funds paid through the Bank for Agriculture and Agricultural Co-operatives (BAAC). The bank estimates first-year costs for the programme at 190 billion baht.

Mr Kittiratt said the government was committed to the programme and that it was his responsibility, as deputy premier and commerce minister, to ensure transparency.

Last week, he said the mortgage programme could be limited or farmland shifted to other crops if supply increases significantly.

But Dr Ammar said such a policy was ludicrous.

"I would like to ask which amat (elite) will tell farmers to stop growing rice," he said. "It's their inalienable right." he said.

Rice prices have begun to increase ahead of programme launch, with traders warning that Hom Mali rice could rise by 25%, or 40-50 baht, per five-kilogramme bag starting next month.

Dr Ammar said the government may have to set aside additional funds to help subsidise rice prices for consumers.

"I believe the cabinet members are just trying to come up with a solution to implement their election promises," he said. "Obviously, the promises were poorly thought out."

Nipon Poapongsakorn, the TDRI president, agreed it was practically impossible to imagine the government avoiding losses from the programme.

Export prices are far below the level required to match the pledging prices. And the government is unlikely to risk consumer anger by selling the rice domestically at a price required to cover costs.

Dr Nipon said the government could be forced to buy more than 10 million tonnes of paddy next year to meet its promises. Any delays in selling its stocks, or if it is sold at a discount, would impose a liability on the state-owned BAAC.

During the 2004/2005 and 2006/2007 rice harvests, the last time the crop mortgage scheme was implemented, the government incurred 141 billion baht in liabilities for 300 billion baht in crop loans by the BAAC.

Of the 10.3 million tonnes in paddy purchased by the government under pledging schemes from 2004 to 2007, only 53%, or 5.5 million tonnes was sold. The rest remains in storage, with its value declining by the day due to storage losses.

The TDRI said the government also incurred 7.6 billion baht in operating expenses over the period from warehouse rentals, miller processing charges and other losses. In 2006, 5.2 million tonnes of paddy were pledged at 316 baht per tonne above market prices. The government lost 19 billion baht as rice was sold at a discount to exporters.

Dr Nipon said that if the government had used a crop insurance programme at the same price, with the same returns offered to farmers, it would have cost 7.4 billion baht to cover the entire year's crop of 23 million tonnes.

He said the programme benefited only 38% of all rice farmers, less than one-quarter of all rice millers and perhaps 10-20 exporters out of a total of 150 firms. The top two rice traders captured as much as 60% of the total benefits, owing to the lack of transparency in the auction process.

"The mortgage scheme also led to a doubling in the capacity of millers, who have since seen their operations fall sharply under the insurance scheme. It is no surprise then that it is the millers, not the farmers, who have lobbied for the return of the mortgage policies," Dr Nipon said.