ASEAN KEY DESTINATIONS
Rice subsidy plan may cause havocBy David Swartzemtruber
One of the crowd-pleasing programs that carried the Pheu Thai party into power on July 3 was a rice mortgage program that will buy rice from farmers at the high prices of 15,000 baht (US$500) per ton for white rice and 25,000 baht ($833) per ton for fragrant rice.
Unfortunately, programs that attract votes often do not make economic sense.
Thailand is the world’s largest rice exporter and its policies affect other countries, notably Vietnam, which is the second largest rice exporter.
The Thai rice-mortgage plan to be implemented in October will put the price of Thai rice above what the market is willing to pay as rice production has improved over the last year in many countries, with India emerging as a leading rice exporter, among others.
Thailand will be stuck with warehouses full of rice that can’t be sold. At some point in time, the rice will have to be dumped below it’s subsidy level and this could cause considerable financial strain to the Thai economy.
Olarn Chaipravat, adviser to Prime Minister Yingluk Shinawatra, earlier said the government would buy up to 25 million tonnes of rice from farmers at a cost of about 400 billion baht ($13 billion) in the first year.
The problem is that the cost of the program could hurt the Thai economy wiping out funds needed for infrastructure improvement such as sorely needed water management projects.
Experts have weighed win, saying the country over the next five years needed to invest about 4.4 trillion baht in water management, railroads, port facilities, energy and healthcare in order to improve its competitiveness. Water management alone, including measures to prevent flooding, require an investment of about 300 billion baht over the period.
The only people smiling about the situation are the Vietnamese, who may enjoy record-breaking export sales starting in October.
The same rice mortgage scheme was implemented by the brother of Prime Minister Yingluck, deposed former prime minister Thaksin Shinawatra, during his term that ended in 2006.
Economists judged the program to be unsuccessful at that time, yet it is being rerun another time.
In experiments, white mice can be taught to learn from their mistakes but in human politics apparently that is not the case.
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