The business system for locally grown rice has been distorted by the government's pledging programme, which guarantees higher prices than in the market.

The practice has also allowed the government and politicians to monopolise the rice-trading system. Achara Pongvutitham reports.

The government's policy of pledging high prices for rice has resulted in market mechanisms, which merchants believe are best, being replaced by a centralised system in which the government actively restrains the market.
The key players in the system - farmers, millers and exporters - must cope with a new trading environment, as this new trading era heralds the end of rice exporters' huge bargaining power.

This new centralised market is empowering politicians to reap benefits from government rice auctions and other farm-goods subsidy programmes.

For instance, farmers are holding back their rice crop, waiting for the government's announcement of its high pledging price instead of going ahead and selling it to rice mills. In the past, farmers would rush to sell their production to millers and benefit from the high prices early in the harvest season. They also did not care to fool with the government's uncertain farm policy.

Nowadays, rice mills do not want to spend much time polishing rice, but concentrate instead on storing rice for the government under its pledging programme. This practice allows some corrupt rice millers to polish government stocks and sell the finished product to exporters if they do not have any paddy rice at the moment, then later buy paddy rice from the market to replace the stocks.

Rice millers now play a particularly important role in price speculation and deciding when to release the stocks into the market.

The situation has turned exporters, which once wielded major bargaining power in terms of rice trading and especially prices, into poor players. At present, they cannot purchase as much rice as they want from millers or the market, but rather must depend on government auctions. They also feel pressured by high bidding prices.
"Clearly, everyone in the rice industry is running to the government for high pledging prices for paddy rice - farmers, millers and exporters," said one exporter.

The exporter said the high local cost had resulted in high export prices, the most important factor undermining the Kingdom's rice-export competitiveness.

Thai white-rice export prices are being quoted at least US$100 (Bt3,400) per tonne higher than rice from Vietnam. Traditional buyers of Thailand's crop are increasingly turning to cheaper price from that country, whose rice-export volume has been expanded by the global economic downturn.

This has caused Thailand to turn more towards exporting parboiled rice instead, so as not to compete directly with Vietnam.

"Thailand is losing its export competitiveness to Vietnam," he said.

Thailand is the world's biggest rice-exporting country, and this year's export volume is targeted at 8.5 million tonnes. Vietnam is No 2, and its rice-export target for this year was recently raised 20 per cent to 6 million tonnes.
India, a major exporter of parboiled rice, has suspended its exports of the crop out off fear that draught will affect local supply. This will mean less competition for Thailand.

Although the government has announced it would reduce its subsidies on farm goods, in fact it has been unable to do so, intervening even more heavily instead. And heavy intervention has already created serious market distortions and fostered corruption among politicians.

In recent years, the government has experienced heavier losses in its rice-subsidy programme. It lost Bt20 billion in its latest auction for 1.95 million tonnes. When then-commerce minister Chaiya Sasomsap announced two rounds of bidding for a combined 2.5 million tonnes, the same amount was lost.

In a recent bid to end controversy among the government coalition parties, Prime Minister Abhisit Vejjajiva cancelled the Commerce Ministry's auction of 2.6 million tonnes of rice. He also ordered the Bank for Agriculture and Agricultural Cooperatives to establish a price-guarantee programme for farmers under which the government directly compensated them for any price difference.

The idea is to encourage the rice-trading system to rely once again mainly on market mechanisms, which reflect actual prices based on farmers' production costs and market supply and demand. It is also hoped the government's huge annual losses can be reduced.

The government's latest idea is a pilot project involving only 200,000 tonnes of rice and requiring farmers to register. However, Thailand produces more than 20 million tonnes.

It is hoped the government will gradually reduce its price intervention and focus more on technology, marketing and irrigation to increase yield per rai. That would enable farmers to lower their production costs and set a competitive price in the long run.

Source: The Nation