For what a grain of rice is worth

By Claire McNear, on 21 March 2014

By Alia MD Saleh

RicePopulist centric policy is not always a wise choice. A case in point is Thailand. The government’s rice guarantee scheme was the brainchild of Thaksin Shinawatra, the former prime minister of Thailand, who was ousted in 2006 on corruption charges and is now in self-exile for fear of retribution. The hugely expensive government programme guarantees payment to farmers for their entire rice crop, a major component of the economy in the world’s largest rice exporter.

The policy now looks like something of a catastrophe for the Thai government, but has nonetheless been retained by Thaksin’s sister, Yingluck Shinawatra, the current prime minister, who won the office in 2011 in large part as the result of her promise to continue the scheme. The rice guarantee scheme has resulted in a game of tug of war between Thailand’s rural poor, who are predominantly pro-government and support the policy, and the middle and upper classes, who argue that Yingluck Shinawatra’s governing Pheu Thai party is mismanaging the country’s finances.

Two-fifths of Thais work in agriculture and most of them are rice farmers. The BBC reported that, prior to the government’s price scheme, rice farmers had long been plagued by low incomes despite high productivity, as dishonest rice millers routinely made allegations that the quality of rice being sold to them was substandard, forcing farmers to accept lower prices than they deserved. The government intervened with its price guarantee scheme for farmers. Eradicating poverty is a worthy cause, especially if it spurs domestic growth – but if the policy was enacted in good conscience, what went wrong?

The Shinawatra government’s mistake seems to have been twofold: it improperly gauged global rice demand, and it failed to anticipate the result the policy would have on farmers. The government offered a price guarantee 50 to 60 percent higher than the market price at 15,000 baht (about $500) per tonne, which prompted farmers to increase their production – and this ignores whether there was any justification for government intervention in a large and robust industry in the first place.

Who was meant to benefit from the policy? It’s not a stretch to think that the outcome intended here by the governing party was future votes for the Pheu Thai party. It’s these votes that lofted Thaksin’s party back into power in 2007 after being ousted by the Thai army the year before, and it’s these votes that paved the way for Yingluck to come into office. Critics were swift to point out early on that the programme would be costly, but advocates in the Prime Minister’s circle assured the public that they would have leverage in bringing down global prices by virtue of being the world’s biggest rice exporter.

It was simple enough, they thought. Reduce the supply of rice in the global market, keep those supplies in stockpiles, and sit back and wait for a spike in the price of rice before selling the surplus to make a profit, which would in turn offset the cost of the scheme. Unfortunately, it turns out to have been more complicated than they thought. The Thai government seems to have overlooked India and Vietnam in the global scheme of rice production: The Economist reported recently that amidst the debacle, India and Vietnam have surpassed Thailand as the biggest international rice exporters, leaving Thailand with a still-accumulating rice stockpile it has not been able to sell.

Exacerbating the dire situation is the collapse of various deals to sell portions of the rice surplus, most recently with China’s withdrawal from a plan that would have seen 1.2 million tonnes sold. The Thai government has been forced to stockpile more than 18 million tonnes of rice, which is equivalent to half the annual global trade, and the amount is increasing. The rice guarantee scheme cost the Thai government $12.5 billion in the first year alone, and is expected to rise to 4% of the annual GDP. Bear in mind that the payments to farmers are not the only cost the government incurs, as stockpiling comes with administrative and logistical costs, including the need for new warehouses for storage. It would seem that the Thai government might have to sell the rice at a loss if it is looking to reduce its immense stockpile. But doing so would also dent its burgeoning public debt and would not bode well for its economic growth.

What the government seems so far to have ignored is the darker side of welfare support: its tendency to breed dependency. Massive upheaval occurred when Prime Minister Shinawatra tried to reduce the price guarantee from 15,000 to 13,500 baht in her effort to curb government spending on the scheme. The Pheu Thai party, whose base supporters have been built through populist measures, had to backpedal on its plan. It seems the government is increasingly hard-pressed to come up with the funds to pay off the farmers, who are disgruntled over the lack of the promised payment for their crops. The policy is now at the centre of a battle between the current government and the opposition over who might best govern Thailand, with intermittent violence as tensions in the nation rise.

So is the rice guarantee policy worth maintaining? The answer seems to be obviously not, particularly given that the issue is only escalating as the stockpiles and government expenditures grow: the Prime Minister was summoned last month by the National Anti-Corruption Commission for questioning over charges of negligence and corruption stemming from the scheme.

A check for Thailand’s shaky government?

By Lucy Phillips, on 4 March 2014

By Alia MD Saleh

Protests in Bangkok

Protests in Bangkok

On February 12th, the BBC reported that Thailand’s constitutional court rejected the opposition’s request to annul the February 2nd election citing ‘insufficient grounds’. A sigh of relief from the governing Pheu Thai party? Not just yet. The election is intended to solve the political endgame. The government can boast that despite the main opposition’s threat of disruption on polling day, 90% of polling stations were in operation, and voter turnout totalled more than 50%. However, given that the Democrat Party blocked millions of voters by shutting down polling stations in Bangkok and in the South, the results of the election can not yet be announced. The opposition movement began three months ago with a series of mass protests  against the alleged corruption of Ms Yingluck Shinawatra, the current Prime Minister and her government. The opposition aim to push for her resignation, but so far they have only managed to force her hand in calling for a snap election.

Suthep Thaugsuban, the protest leader for the Democrat Party is thought to be the driving force behind the “shutdown Bangkok” movement. So far, his relentless rallying has been done peacefully through the occupation of government buildings. However, occasional violence with the deaths of 10 people have marred the peaceful campaign. The misstep of the ruling government was an attempt to introduce a controversial amnesty bill which critics say would allow former leader Thaksin Shinawatra to return to Thailand without having to serve jail time for his corruption conviction. This triggered the majority of middle-class Thais to begin to question who sits behind the controls of the Pheu Thai party – the sister of Thaksin, Ms Yingluck? Or rather Thaksin himself, currently in Dubai on self-imposed exile.

Uprisings of discontent gained momentum as people began to question the government’s involvement in the corrupt rice-purchase scheme. The scheme guaranteed farmers’ prices well above market prices, and for many, this represented their sole source of income. However, the government has fallen far short of its commitments. Korn Chatikavaniji, a Democrat and a former finance minister, asserts that 1.3m families are owed an average of 100,000 baht (slightly more than $3,000). The government has found itself in a fix as it is difficult to raise money by selling its ballooning rice stockpiles, rendering them useless for payback.

If alleged corruption does not provide a grim enough outlook, Joshua Kurlantzick from the Council on Foreign Relations (CFR)  believes the current status quo amounts to an “unannounced coup” from the military. This assertion is based on the military’s ‘inaction’ in dealing with the protests, and their threats that any violence will result in the removal of the ‘caretaker’ government of Ms Yingluck. Such ‘neutrality’ sends a clear message that the army under Commander Prayuth have sided with the protesters. CFR also points out that whilst in 2010 the military offered up its base as a retreat for the Democrat/Abhisit government during unrest in Bangkok, it has refused to provide the Pheu Thai/Yingluck government with the same luxury.

The struggle to stabilise the ruling Thai government has been, and continues to be, long and tiresome. Prolonged unrest has already rattled investors given Thailand’s previous history, yet the Election Commission have drawn such instability out further by postponing by-elections for the population previously unable to vote until April 28th. Although an unlikely prospect given Ms Yingluck’s refusal to cooperate with the opposition, the best way forward would be to call for a corruption investigation of the ruling Pheu Thai party. Whilst there still remains hope for a better Thai government, when this might materialise remains highly uncertain.