How Thailand’s Botched Rice Scheme Blew a Big Hole in its Economy

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Paula Bronstein / Getty Images

Unmilled rice is seen at a warehouse at the Settapanich -Samchuk rice mill in on June 20, 2013 in Suphan Buri, Thailand.

The plan was simple: Thailand’s government would buy rice from local farmers at a generous price, some 50 percent above the market rates. It would hold the rice in warehouses, cutting off exports to the rest of the world. The sudden shortage from the world’s heavyweight champion of rice exports would cause a spike in global prices. Then, payday for the government as it swung open the warehouse doors and sold its stockpile to the world at a premium. Farmers win, the government wins, foreign consumers lose, but then they don’t vote in Thai elections, so what do they matter? The plan was a political no-brainer, except for one problem: Thailand’s government underestimated how quickly the market can kick back at any would-be puppeteers.

“If any government thinks they are living above the market, they are living in a fool’s paradise,” says Tejinder Narang, a former rice trader who now advises one of India’s largest grain exporters, Emmsons International. Narang reads a running stream of news reports, trade publications, monthly studies – any news that will keep him up to date on the latest machinations of the market. When he saw Thailand’s pledge to hike up the price of rice, he says he and virtually every global trader knew how to respond.  With the click of a mouse, or sometimes a quick phone call, his traders in Dubai could switch their purchases from Thailand to suppliers in India, Pakistan, Myanmar, or Vietnam. “It doesn’t take five minutes,” he says. “There are no government-to-government contracts. There are only business-to-business contracts. I can buy anything from anywhere.” And it was Thailand’s great misfortune that exactly one week after it slashed exports, India lifted its export ban, flooding the market with 10 millions tons of rice. Rather than orchestrate a price hike, Thailand helplessly stood by as global prices sank.

David Dawe, a senior economist with the U.N.’s Food and Agriculture Organization, can look at a spreadsheet of historic rice prices and see a roller coaster of emotions. He points to June 2011, when the current Thai administration was campaigning on its rice plan. Even before the election, rice traders had anticipated the coming shortage and bid up the price. “You’ve got this big bump of $100 a ton,” says Dawe.  “Thais were probably pretty happy at that point, thinking, ‘Okay not too bad, we can probably drive them even higher.’” Then, in September of 2011, shortly after Prime Minister Yingluck Shinawatra’s administration was swept into office on a wave of votes from the farming sector, India opened the floodgates. Dawe points to this moment and says, “Reality sets in. The Vietnamese started lowering their prices and the Thais just got left behind.” Over the next year, Thailand was knocked from its perch as the world’s top exporter of rice, tumbling behind India and landing just short of Vietnam.

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Not that Thailand’s rice farmers have become any less productive. The government stockpiles their produce, an estimated 17 million tons, in mills across the country. It has completed part “A” of the plan, buy rice at a premium. It’s part “B,” selling it at a premium, that’s proving devilishly tricky. For a year, the government has shied away from public scrutiny of the program, but Moody’s, the credit rating agency, blew the lid off of the story last month when it warned that the program could swallow up an astonishing 8 percent of the national budget, forcing the agency to reevaluate the government’s credit rating. For a government already mired in debt, the warning shot from Moody’s “crystallized their thinking,” Dawe says.

Yingluck, whose Pheu Thai Party draws its support from the country’s rural northeast, has said the program has achieved its goal of boosting incomes for poor, rural farmers. She has now urged them to now give her administration the flexibility to modify the program.  In a public address on a local television series, “Yingluck Government Meets the People,” she said the program would remain in place, and that the government would continue to purchase rice, but it may have to reduce its purchase price to make the program sustainable.  As for the Moody’s report, she has promised to rebut the findings with a government investigation into the true cost of the program.

In the meantime, her administration has to bat away daily reports on the rice “scheme,” as the local papers call it. Stories hint at galloping costs and widespread corruption. The government has acknowledged the program has already cost $4.4 billion in its first year. How much it will eventually cost depends on a factor outside of the government’s control, the global price of rice. Narang takes a dim view of the government’s ability to extricate itself from its mess. “It is easy to distort the market by iterations,” he says, “but it is very difficult to correct the market by intervention.” He adds, “The governments are never rational. The governments are political,” suggesting that the rational politician is an oxymoron.

He has a point. Pressed to name a single independent economist who thought Thailand’s rice plan would work, Dawe paused for a moment to think, then answered, “Not that I know of.” One of the more optimistic forecasts, from Sam Mohanty at the International Rice Research Institute (yes, it exists), predicted that Thailand could at best drive up prices for one growing season. Still, he advised against it. Could the policy-makers have been so fixated on votes that they missed the near unanimous warnings coming from market experts?

Dawe offers a slightly more sympathetic take. Although Thailand has a strong manufacturing sector, he observes that country is still in the process of transformation from agrarian to industrial economy, and this opens up gaping inequalities between urban and rural areas, farmers and non-farmers. “Politicians feels they have to respond to this,” he says, “so they support farmers.” In a sign of how powerful that imperative can be, Thailand’s government recently announced that it would cut the now significantly inflated purchase price of rice by a mere 20 percent. The farmers protested, the government reversed course, and now the matter is working its way through a committee chaired by farmers and officials. Meanwhile, Thailand’s 17-million-ton burden shows no signs of easing.

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46 comments
andrewspoooner
andrewspoooner

Completely bogus title. There is no "hole" blown. Just agricultural subsidies that pale in comparison next to the US/UK's banking bailouts. Get a grip Time. Also why was your usual Bangkok correspondent, Robert Horn, reviewing and staying in hotels owned by members of Thailand's Democrat Party - a party Horn is notoriously sympathetic to in his reports?

adolf
adolf

Corrupt actions result from corrupted teams at the administration and results in the poor Thailand's failed economy for decades to come.

toto_2013469
toto_2013469

@TeamKorn_DP อ่านภาษาอังกฤษไม่แปลให้ด้วย นะเอาเป็นประเด็นกันอยู่เรื่อย

PropertyThailand
PropertyThailand

Only one reason for this plan then is to cover the corruption, Sure not in Thailand as this would hurt corruption.

TipatatChennavasin
TipatatChennavasin

Thailand just need to do what the US Govt tried to do with all that corn and find alternative uses for all that rice. Rice-anol anyone? Then the name Rice Rockets would actually be accurate.

cjh2nd
cjh2nd

you would think they'd have factored this possibility into their plan. piss poor planning

BKKRobert
BKKRobert

@PKinbangkok Govt should link up w Dreyfus or similar, issue quiet mea culpa and ask for help offloading. Backend quid pro quo, of course.

BKKRobert
BKKRobert

@PKinbangkok really? This is pretty spot on according to every trader or market watcher I've spoken with.

moni94587
moni94587

Thank you very much for your post.  I'm glad to see it even though it hurt me so much to see my motherland going downhill.  Thailand has been doing so well until this government come in and stir up so many corruptions!

BTW, Log on to  Facebook, If you'd like to learn the "real" fact of what is really going on in Thailand nowadays.  The number of Thai Facebook users have been increasing skyrocking because of this.    Thais have talked and spread  news among each other there, even though the Information Technology Ministry would frequently come out threatening of spreading the news such as the moldy rice from keeping in the warehouses and eventually sprayed it with all kind of pepticides and put in bags to sell to Thais (after failing to sell internationally).    

Do not trust  Public TV , Radio, and leading Thai Newspapers since all those turn to scam trying to trick  the uneducated Thais and World Community.   All major  journalists and policemen were under the control of this Thai Government.  It's much more than you think.  Hunsein Model is to watch!  

Isn'tMan
Isn'tMan

Is it easy to stir up the rice world price buy keep it in stock?  I don't think so, Thailand rice have so many competitors, and client have many choices to buy.   The writer don't understand the policy and main objective . Actually the policy make Thailand loose its champion exporting rice. The policy is made in favor of Thai rice farmer who have a hard work but pay less for long long time. The aids is dwarf when compare to the US's and UK's.   Now a true winner is  Thai rice farmer, majority one, who have a better income and living. 

DeExil
DeExil

@zenjournalist well that scheme buys up the Red Shirts' happy vote right? But 8% of GDP? Wow

ZetarnCab
ZetarnCab

They are no such thing called "Botched Rice" from the first place.


All of this news orchestrate by anti-thaksin group with help of Nation , Thaipost , ASTV and many more conservertive newspaper agency all with support from Thai Democrat party , the party that have benefit if the gorverment are fall

The political in this country are too dirties than you usually know in the west, some party can make a news by themselves and using news agency that in their control to spread the lie and smack the gorverment's reputation without care that it also smack the nation's reputation too.

dano_solo
dano_solo

@Juarawee Then, such exporter does not know anything about export barriers in which any gov can set to prevent domestic price deflation.

siamscope
siamscope

This plan was a success.  It lined the pockets of a few and made up for that expensive election where PTP gathered the votes for their employer. 

While I agree subsidies are used by many governments.  This scheme never reached the bottom.  Farmers never received the government pledge of 15,000฿ a ton. 

If you were a farmer you go to the mill, they take your rice and then hand you a check that is at 12,000฿ a ton.  You ask why, they rattle off about moisture content or rice quality and you can argue they already have your rice its gone.  They get 15,000 from the government and pocket that difference of 3,000 a ton.  This by far was the most common form of corruption in this scheme I would argue as I have heard many 1st hand accounts of this happening. 

Or 

If you were a real entrepreneur you would have gone to Cambodia, Laos or Burma bought up as much rice as you can at cheaper than 15k and then take it to the mills and get your 15k a ton and pocket the difference.  There were many cases of this happening.

Or 

If you were a miller in cahoots with other millers you would just double report the tonnage you have in storage and pass the phony documents to the next guy and he does the same thing.  


So much waste in this program.

Interested_Observer
Interested_Observer

"In the meantime, her administration has to bat away daily reports on the rice “scheme,” as the local papers call it"

FYI to the writer of this article:  In British English (at least as practiced in Asia) the word "scheme" has no pejorative connotation; it simply means what is called "plan" or "program" in American English.  The "scheme" may be a "plot" but you can't use the wording of the local Thai papers to demonstrate or prove it.

ZeitgeistTH
ZeitgeistTH

This article is full of bias toward Thai economy and Government Policy. Yingluck has tried her best effort to alleviate poverty problem which are most from rice farmer glass root.  This policy is not the permanent one, it will fade out as soon as the farmers are relief from their indebtedness.

PatrickHenry
PatrickHenry

This article is nothing but a political hatchet job. The Thai economy is doing nicely and the rice program didn't "blow a hole" in it. It's also time for people to accept that land in Thailand can no longer be economically farmed.  Some sort of subsidy is in order...and subsidies cost money.

We can also sympathize with the Thai governments which is keen to avoid rural areas falling so far behind the metropolis as to foment urban-rural tensions. Thailand is especially prone to this problem after years of hostility that has occasionally broken into violence.

meebalcom
meebalcom

Excellent synopsis of the rice pledging scheme.  The biggest issue Thailand has is ignorance through the lack of education. In turn their ignorance of the outside world, and how it ultimately affects them, fueled by nationalistic belief they are untouchable, will continue to damage the Thai economy.  These are but the smaller factors Thailand is facing due to the burgeoning and rampant corruption.

Could Thailand next year see sanctions imposed upon it as it continues to as one of the worse abusers of human rights?  

US Government Urging Thailand to Stamp Out Slavery at Sea

SteveInCM
SteveInCM

"For a government already mired in debt..."

 Compared to which other governments/countries? There are many who would kill to have Thailand's relatively low debt position - see http://asiancorrespondent.com/107090/how-does-thai-public-debt-compare-to-other-countries/

I view the current rice-pledging scheme as poorly conceived and badly managed - and this article covers some of the reasons why. But it's unhelpful when the author can't resist overstating hiscase by larding it with such hyperbole.

"In the meantime, her administration has to bat away daily reports on the rice 'scheme', as the local papers call it. Stories hint at galloping costs and widespread corruption."

"The local papers..."? Meaning the persistently and virulently anti-government (English language) Bangkok Post and The Nation? They do more than hint - they're also capable of publishing stories like the one (allegedly based on a "report" from an anonymous "foreign news agency") which imaginatively claimed that the US had started quarantining all imports of Thai rice. That story was comprehensively debunked when responsible US officials flatly denied that any such thing was happening.


ysprefer
ysprefer

Chinese do this also, except in a different way, it's not aimed at profiting, but at protecting the farmers, when the price go down in the market, the government will buy at a stable price which is higher than the market, while when the price go up, the government will sell it at a price lower than the market, and thus make the market price stable, and prevent the farmers from being hurt. It's working, but not enough as to guarantee the farmer has the same earning as the workers who are living in the city.


Jonoinasia
Jonoinasia

This author forgot to mention that the mastermind of the 'scheme', who is driving govt policy though not elected nor appointed to any position and living in exile as fugitive criminal, is Thaksin Shinawatra. He's a man who made his fortune perfecting monopolies (telecoms), that model cannot be adopted at a govt level. His idea was to form a 'rice cartel' Opec-style, to drive up prices which is an utterly shameful and unscrupulous thing to do with a basic staple feeding the word's poor. Also, the poor farmers for whom the scheme was devised only received a  minority portion of the additional money. The tax payer would have preferred simple cheques dished out at election time, much cheaper. 

TeamKorn_DP
TeamKorn_DP

@toto_2013469 แปลให้แล้วครับ อยู่ในลิงค์ที่แนบมาเมื่อครู่

PKinbangkok
PKinbangkok

@BKKRobert As I said, rice-trader-centric. It was a program designed to help farmers. U see any views from farmers in article??

zenjournalist
zenjournalist

@DeExil Indeed. Not defending the policy, just pointing out the widespread failure to understand it.

mahadragon
mahadragon

@ZeitgeistTH If the writer of this article is biased towards Thailand and it's government he's not doing a very good job. A look at the title of the article "How Thailand's Botched Rice Scheme Blew a Big Hole in its Economy" doesn't exactly sound like a ringing endorsement of their actions.

eagle11772
eagle11772

@Jonoinasia I've got six boxes of Uncle Ben's Rice in my kitchen cabinet I'll sell for ONLY $118 a box ! :)  Anybody want em ?

BKKRobert
BKKRobert

@PKinbangkok Only taking exception w "bs" part. Govt should proclaim as much: "yes, we're helping poor farmers. Anyone have a prob w that?"

PKinbangkok
PKinbangkok

@BKKRobert Please tell that to the Thai media. I'm sure they'd listen while libeling about rat-poisoned rice.

BKKRobert
BKKRobert

@PKinbangkok Need to be more effective delivering msg: they're losing PR battle over a policy that aids poor farmers in the era.

PKinbangkok
PKinbangkok

@BKKRobert They ARE saying that. Problem is all the BS from biased media keep drowning out the info.