How Rice is Causing a Crisis in Thailand

Posted on November 10, 2012

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After years as the world’s top rice exporter, Thai PM Yingluck Shinawatra‘s populist policies are causing serious problems.

As the elected senator of northeastern Nakhom Phanom province, Dr. Vitthaya Inala is in a difficult position.

The majority of his roughly 750,000 constituents, many of them poor paddy farmers, are in full support of a year-old government scheme that promises them 15,000 baht ($488) per ton of white rice, he says, far more than they earned in the past.

“If this is a success, and poor farmers get the benefits, it will be very good for the Thai people,” says Dr. Vitthaya. Except the government’s rice-pledging policy is already proving to be a monumental failure, he adds.

Last week, the Senate Committee on Economics, Commerce and Industry, of which Dr. Vitthaya is vice-chairman, filed a damning report blaming the scheme over rampant corruption and a rising mountain of debt as big as the piles of unsold rice fill warehouses across Thailand. A populist policy that was part of the platform propelling the relative unknown Yingluck Shinawatra to power last May, the scheme now threatens to severely damage the government. Some say it could even bring the Prime Minister’s coalition down.

The chairman of the central bank has already criticized the scheme – so too have academics, economists and even the U.S. Department of Agriculture, the latter of whom warned of the policy’s effects on international rice prices – and at the end of this month Prime Minister Yingluck Shinawatra’s Pheu Thai party faces a two-day grilling from the opposition and the Senate all asking the same question: How did it go so wrong?

In theory, the policy makes perfect sense. If you pay farmers above the market rate for paddy they will earn more, Thai rice – already known for its quality – will rise in price and in turn force up prices on world markets.

But at 15,000 baht a ton, and 20,000 baht for high-quality Hom Mali jasmine, critics argue that Thai rice has simply become too expensive. As the government has struggled to sell rice to foreign governments at cost price, an increasing stockpile has accumulated costing the taxpayer a spiraling bill.

A recent Senate report said public debt, which was 42.4% of GDP at the end of April, would rise by an average of 4% per year if the scheme continues, and the Prime Minister  has already admitted as much. Having spent 300 billion baht on its rice-pledging scheme this year, the government has earmarked an additional 405 billion baht  for 2013, a combined roughly U.S. $33 billion.

Meanwhile, the rice needed to fund this policy remains holed up in storage slowly going bad, according to rice millers. With Thailand in the middle of its second harvest, the government is under pressure to either sell off as much as possible or risk running out of warehouse space. An estimated 14 million tons of rice are currently in storage across Thailand, a new record, and more than the country can sell in a year, even by the government own ambitious goal to export 8.5 million tons of rice in 2013.

Last month, Thai press reports said the Ministry of Commerce had made a deal “in principle” to store rice in an aircraft hangar at Bangkok’s Dong Muang Airport in a bid to find somewhere to put the incoming harvest.

“We are looking for warehouses anywhere,” says Amraporn Suntivong, vice president of the government’s Public Warehouse Association. “We are inviting warehouse owners to come forward.”

When the Democrat Party quizzes the government on the scheme at the end of this month, it is widely expected to point to mounting evidence that warehouse owners are benefiting from the scheme with storage rents having risen sharply in recent months.

Critics also say that coalition politicians are taking kickbacks on contracts from the millers and exporters to whom they have chosen to sell quotas of rice overseas, all while many of the poorest farmers are seeing their prices reduced significantly by the time the money filters down the food chain, albeit while still earning more than before Yingluck Shinawatra took power.

“We don’t know how much rice is in the warehouses, how much is being exported and how much the farmers are actually making – we don’t know anything,” says Democrat Party spokesman Chavanond Intarakomalyasut.

Kreetha Charatkulangkun, director of Tek Seng Rice Mill, a rice export company based in Bangkok, says the scheme has proven devastating for the country’s rice industry.

For years, Thailand was the world’s number one exporter in the world, but is expected to slip to the third position this year, with the U.S. Department of Agriculture estimating it will export 6.5 million tons of rice in 2012 compared with India’s 9.75 million tons and Vietnam 7 million tons.

“In my and many other opinions, the government’s rice-pledging scheme is very extreme and is clearly a vote-buying policy,” says Kreetha. “It is the worst political policy in the history of Thailand.”

As enemies of the state’s rice scheme have queued up to criticize Yingluck’s government, most have pointed fingers squarely at her brother, former Prime Minister Thaksin Shinawatra, who has calmly defended the policy in exile where he remains on the run from a two-year prison term for corruption. A day rarely passes without a Thai newspaper reporting on efforts by Yingluck to smooth her brother’s passage back to Thailand.

Meanwhile, the main farming areas in the north of the country remain as supportive of the current government as they were of Thaksin when he was in power from 2001 to 2006.

In a poll last month by Khon Kaen University in the northeastern Isan region (which includes Nakhom Phanom province), 81% of respondents said they supported the government’s overall performance, even if only 46.8% backed its performance on the economy, a figure much lower than in many other areas including the coalition’s handling of democratization, social issues like crime and drug use, foreign policy, and environmental protection.

Suthin Wainwiwat, director of E-Saan Poll which conducted the survey, said as long as the Shinawatras continue their populist policies aimed at the millions of families who farm in the north they will remain unstoppable at the ballot box, no matter the criticism in Bangkok.

“They support Yingluck because they hope that Thaksin will be able to come back and help them again,” he said.

Steve Finch

Posted in: Economy, Politics, Society