Govt will not heed warnings on rice subsidy scheme

A rice warehouse in Samut Prakan province on the outskirts of Bangkok.

Debt levels are rapidly increasing as a result of price pledges to farmers, which have not been shown to benefit either them or Thai consumers

Former deputy prime minister MR Pridiyathorn Devakula has issued a warning about rising public debt as a result of the rice-price subsidy policy. The government has accumulated a high deficit because of the price-subsidy scheme, which has not been shown to improve the living standard of Thai farmers or the competitiveness of Thai rice in export markets.

The government has been warned repeatedly about excessive debt because of its populist policies. The massive rice price-pledging policy will impose a severe burden on Thai taxpayers for years to come.

The expected loss from the government's rice scheme will accelerate the overall debt level. Pridiyathorn warned that the kingdom's public debt could rise to 61 per cent of gross domestic product by 2019. In July the public debt/GDP ratio reached 44.2 per cent.

The rice price-pledging scheme has been a source of criticism of the Yingluck government from the start of its tenure. Critics argue that, first of all, the policy does not benefit the majority of farmers. Then there are questions about the effective use of taxpayers' money.

In addition, the rice programme - in which the government purchases rice from farmers at extraordinarily high prices - inflates the domestic rice price and erodes the competitiveness of Thai rice overseas.

The overall subsidy programme for the 2011-2012 harvest season, with a projected production of 21 million tonnes of paddy, is expected to reach Bt140 billion.

Previous editorials here have also pointed out that the subsidy programme discourages farmers from producing more and better rice because they can sell whatever they produce to the government regardless of quality.

The accumulative loss from the programme has raised new concerns about excessive public debt. If debt rises to an unsustainable level it will have an overall impact on the baht exchange rate.

The government has assessed losses from the rice-subsidy programme for the main crop of 6.95 million tonnes in the 2011-2012 harvest season at Bt32 billion. However, if it has to wait to release the entire stock over the next two years, the loss could reach Bt45 billion, a figure derived from interest costs together with degraded rice quality, weight reduction and maintenance costs.

It is unfortunate indeed that the government refuses to heed warnings from critics. It stubbornly ploughs ahead with the scheme because of Pheu Thai Party promises to its supporters, regardless of the cost to the nation.

The party promises Bt15,000 per tonne of rice, but in reality the Thailand Development Research Institute has shown that farmers receive only a small portion of that figure. Rice millers and investors, as usual, skim off most of the money from this scheme, which is paid for by taxpayers.

Thailand could experience a financial crisis if the government continues building up public debt and the already existing fiscal burden.

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Article source: http://www.thethailandlinks.com/2012/11/14/govt-will-not-heed-warnings-on-rice-subsidy-scheme/