After years as the world's top rice exporter, Thai PM Yingluck Shinawatra's populist policies are causing serious problems.
As the elected senator of northeastern Nakhom Phanom province, Dr. Vitthaya Inala is in a difficult position.
The majority of his roughly 750,000 constituents, many of them poor paddy farmers, are in full support of a year-old government scheme that promises them 15,000 baht ($488) per ton of white rice, he says, far more than they earned in the past.
“If this is a success, and poor farmers get the benefits, it will be very good for the Thai people,” says Dr. Vitthaya. Except the government’s rice-pledging policy is already proving to be a monumental failure, he adds.
Last week, the Senate Committee on Economics, Commerce and Industry, of which Dr. Vitthaya is vice-chairman, filed a damning report blaming the scheme over rampant corruption and a rising mountain of debt as big as the piles of unsold rice fill warehouses across Thailand. A populist policy that was part of the platform propelling the relative unknown Yingluck Shinawatra to power last May, the scheme now threatens to severely damage the government. Some say it could even bring the Prime Minister’s coalition down.
The chairman of the central bank has already criticized the scheme – so too have academics, economists and even the U.S. Department of Agriculture, the latter of whom warned of the policy’s effects on international rice prices – and at the end of this month Prime Minister Yingluck Shinawatra’s Pheu Thai party faces a two-day grilling from the opposition and the Senate all asking the same question: How did it go so wrong?
In theory, the policy makes perfect sense. If you pay farmers above the market rate for paddy they will earn more, Thai rice – already known for its quality – will rise in price and in turn force up prices on world markets.
But at 15,000 baht a ton, and 20,000 baht for high-quality Hom Mali jasmine, critics argue that Thai rice has simply become too expensive. As the government has struggled to sell rice to foreign governments at cost price, an increasing stockpile has accumulated costing the taxpayer a spiraling bill.
A recent Senate report said public debt, which was 42.4% of GDP at the end of April, would rise by an average of 4% per year if the scheme continues, and the Prime Minister has already admitted as much. Having spent 300 billion baht on its rice-pledging scheme this year, the government has earmarked an additional 405 billion baht for 2013, a combined roughly U.S. $33 billion.
Meanwhile, the rice needed to fund this policy remains holed up in storage slowly going bad, according to rice millers. With Thailand in the middle of its second harvest, the government is under pressure to either sell off as much as possible or risk running out of warehouse space. An estimated 14 million tons of rice are currently in storage across Thailand, a new record, and more than the country can sell in a year, even by the government own ambitious goal to export 8.5 million tons of rice in 2013.
Last month, Thai press reports said the Ministry of Commerce had made a deal “in principle” to store rice in an aircraft hangar at Bangkok’s Dong Muang Airport in a bid to find somewhere to put the incoming harvest.
“We are looking for warehouses anywhere,” says Amraporn Suntivong, vice president of the government’s Public Warehouse Association. “We are inviting warehouse owners to come forward.”
When the Democrat Party quizzes the government on the scheme at the end of this month, it is widely expected to point to mounting evidence that warehouse owners are benefiting from the scheme with storage rents having risen sharply in recent months.
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