Farm Policies Can Only Lead To More Thai Government Debt

[webfact]

EDITORIAL

Farm policies can only lead to more government debt

By The Nation

Farmers are being short-changed with subsidy promises that will only reduce productivity, competitiveness and long-term sustainability

Political candidates have so far failed to offer farmers any platform that would help them improve their productivity. The promises made by the two key parties are only short-term solutions to poverty and debt.

Recently, Pheu Thai and the Democrats announced their farmers' assistance programmes in the run-up to the election. The two key parties clearly differ on what they plan to do. Pheu Thai has offered a pledge programme, while the Democrats have announced a price guarantee programme should either party win the election on July 3.

The farmers' vote is important as the sector employs 14.69 million people from a total 38.97 million workforce in Thailand. Although people in farming account for a majority of voters, many of them still live in poverty. But this group is a powerful force politically.

The Democrat Party says it will continue with its income guarantee plan of the past two years. Under this scheme, farmers receive the difference between the insured price and the benchmark price on their rice produce. At present, the insured price is Bt11,000 per tonne of rice while the market price is around Bt8,000. That means the government has to spend around Bt2,100 per tonne in subsidies. It is also estimated that the government will have to spend around Bt40 billion to Bt50 billion each crop season to subsidise the rice price.

Prime Minister Abhisit Vejjajiva said recently he believed the Democrat Party's income guarantee plan would be more effective in addressing farmers' needs because the payments would reach small farmers directly. Also, he said, every farmer, including smallholders who don't produce substantial amounts of rice, would be entitled to this income guarantee plan.

However, there is a problem with the income guarantee plan. Because farmers realise they will receive the insured price anyway, they have less incentive to improve their productivity. This can only result in a greater number of inefficient farmers in the future.

Another criticism of the income guarantee plan is that the government would have no rice in stock for market intervention if it felt the need to use the rice stockpile to control market prices in the future.

But Pheu Thai's plan is no better, and probably worse. The party's rice pledging programme has also been criticised by economists and some farmers' representatives because it would lead to a windfall for rice millers, not the farmers.

A Thailand Development Research Institute study shows that the rice pledging programme may not benefit farmers because the majority of them do not have the facilities to store their rice to pledge with the government. Farmers are expected to receive only 40 per cent of the money spent on this programme. The remaining 60 per cent is likely to go to rice millers.

The rice millers stand to gain from the programme because they can provide warehouse space to keep mortgaged paddy, as the government also does not have facilities to store the supply from farmers.

In addition, Pheu Thai has promised to accept rice from farmers at Bt15,000 per tonne, which is 40 per cent higher than the insured price of Bt11,000 offered by the Democrat-led government over the past two years. That would mean even higher spending on subsidies.

Even worse, history shows that a very low number of farmers redeem their rice from the mortgage programme. Therefore, the government would also carry the burden of a high loss from the plan.

But Pheu Thai may prefer the rice pledging plan because it could command the supply of rice through a huge stockpile, which it could then use to intervene in or manipulate the market.

At any rate, both the income guarantee plan and the rice pledging programmes are far from perfect. These schemes will distort market prices and very likely lead to corruption.

Neither party has offered any real solution to the problems faced by farmers. In fact, the fundamental issues for Thai farmers are the lack of access to opportunity, education and financial services. At the same time, Thai farmers and consumers will be challenged by the price fluctuations in agricultural produce. Severe weather and global warming could reduce farm output in the future.

Instead of focusing on giveaway subsidies, the future government should work to improve the competitiveness of our farmers to ensure the sustainability of our farm sector and to ensure long-term food security.

-- The Nation 2011-06-17

[OzMick]

".......... the insured price is Bt11,000 per tonne.............."

" Because farmers realise they will receive the insured price anyway, they have less incentive to improve their productivity."

If the subsidy is paid per tonne, why would there be less incentive to produce more?

The Democrats are offering a rice subsidy of around THB3,000/tonne, or "............ Bt40 billion to Bt50 billion each crop season to subsidise the rice price."

PTP are offering a subsidy of THB7,000/tonne (THB15,0000 minus the benchmark price of THB8,000) which equates to around THB115 billion per season, BUT " Farmers are expected to receive only 40 per cent of the money spent on this programme. The remaining 60 per cent is likely to go to rice millers." Rice millers, the starving poor of Isaan who can hardly afford fuel for their Mercedes.

It should be remembered Yingluk actually agreed to THB20,000/tonne at one rally, but it was only a campaign promise.

"...........the fundamental issues for Thai farmers are the lack of access to opportunity, education and financial services."

The fundamental issue is that if you keep propping up an unviable industry, there is no taxation revenue left for govt services. The fundamental problem is that ".....the sector employs 14.69 million people from a total 38.97 million workforce in Thailand." and almost every one of them will vote for the party that promises them the biggest handout, with no recognition that they sending their country down the toilet.

[AleG]

".......... the insured price is Bt11,000 per tonne.............."

" Because farmers realise they will receive the insured price anyway, they have less incentive to improve their productivity."

If the subsidy is paid per tonne, why would there be less incentive to produce more?

...

I think the problem is not so much production quantity, but quality. If paid by the ton irregardless of the quality of the crop then there's no incentive to produce a higher quality product that may also fetch higher sale prices.

[anterian]

I think both parties should examine the Global position on the projected production of staples.

[exbelg]

simple economics? if you spend more money in making a produce that is worth less than your effort : stop waisting your time or start cultivating something more worthwile ???

[HAL9000]

I read there was an international advisory team touring Laos or Cambodia showing them how to increase rice yields by using dry farming instead of wet farming. Why isn't Thailand up to date on this?

[JohnAllan]

I suggest the parties look at the EU, or, as it was, the ECC, and its disastrous farm policies under CAP - particularly where French farmers were concerned . . . . Then go back to the drawing board . . . .

[wildoates]

Someday the fact will have to be faced. Small farmers just can't make a living....it is a thing of the past....all they will do is get deeper in debt....family will suffer .....

[Moruya]

We all know aht will happen here - seen it before.

Cheaper rice will be imported illegally over the adjacent borders - Laos, Burma, Cambodia from as far afield as Vietnam. It will be mixed with the Thai Hom Mali rice, sold at a good profit until it is discovered when the bottom drops out of Thai rice prices and Vietnam cleans up.

In the meantime as stated above the millers will get the best deal on the PTP offer - not the people in the fields.

another Thaksin policy disguised as helping the poor but really helping his buddies.

[Thai at Heart]

A rather good way to insure that governments balance their budgets is to make sure that those that should pay tax, pay the correct amount.

The amount of tax evasion among the parliamentarians alone would go some way to solving this issue,

[warfie]

simple economics? if you spend more money in making a produce that is worth less than your effort : stop waisting your time or start cultivating something more worthwile ???

my thoughts exactly...

[OzMick]

A rather good way to insure that governments balance their budgets is to make sure that those that should pay tax, pay the correct amount.

The amount of tax evasion among the parliamentarians alone would go some way to solving this issue,

What, B50,000,000,000 in subsidies to those who pay no tax isn't enough. Sorry, make that B115,000,000,000 if PTP are elected and keep their moron promise!

When Mrs Thatcher took the hard choices and sorted out the coal industry, she did what had to be done. Of course, she needed a war to win the next election. Here the taxpayers might even be happy that their money isn't wasted, but they will be out-voted by those being subsidised (and there is a lot of words, much less polite, that come to mind!)