The Pheu Thai-led government's promised policy to bring back the rice-pledging scheme will create market monopolisation, subsidising all rice strains, and result in artificially high prices.

There is no question that Thailand is losing its position as the world's largest rice exporter because of unattractive prices. Farmers will grow rice to sell to the government, but where will the production go if it cannot be exported?

The party plans to use the Public Warehouse Organisation of the Commerce Ministry as its key marketing arm to purchase, stock, pack, sell and export all rice seeds. It also plans to build up the government's stockpile to 6 million tonnes of paddy rice, instead of the 3 million tonnes that normally secures domestic consumption.

Consequently, the government will soon control the entire rice supply chain except for farming. It plans to compete directly with traders and exporters, including purchasing rice via the subsidy programme, storing rice, packing it in 5-kilogram bags for the domestic market and exporting it under government-to-government contracts.

The policy will make the government the biggest buyer and trader of rice and increase monopolies. For this reason, it needs to be investigated whether the government would be breaching the Constitution.

What will become of trade liberalisation? Will Thai rice maintain its competitiveness in the future through the implementation of this policy?

The rice business employs millions of farmers, thousands of millers and hundreds of exporters. Consumers enjoy fair prices as those players maximise their bargaining power cooperating with one another.

Will companies, government officials, and workers enjoy the increased wages proposed by the new government while rises in the cost of living outpace these income gains? Rice is Thai people's main dish.

Local traders and rice exporters will be unable to compete with the government on rice purchase from farmers.

Last Wednesday, the Thai Rice Exporters Association voiced its opposition to the pledging policy, claiming the government would have to deal with unsold stock of 8 million to 10 million tonnes of rice and smuggling from neighbouring countries. It will also force Thai exporters to source cheaper supplies from aboard. How can the government prevent these problems?

The incoming government has promised to implement the policy on November 1, coinciding with the main rice harvest season. Traders and exporters will come under pressure as the government announces monthly reference export prices and forbids them to sell at lower prices.

The cost of white-rice production now averages Bt4,000-Bt6,000 per rai (Bt25,000-Bt37,500 per hectare) to yield an average of 450-500 tonnes per rai (about 2,800-3,100 tonnes per hectare). But farmers often say that their costs reach about Bt7,000-Bt8,000 per rai.

The current market price of B grade white rice is quoted at between Bt15,000 and Bt15,300 per tonne.

However, the government pledging subsidy aims to double the rice price, as the scheme fixes the paddy prices at Bt15,000 per tonne for white rice and Bt20,000 a tonne for jasmine rice. These prices will push up the average retail price to Bt25 per kilogram, compared with the Internal Trade Department's price of Bt15 per kilo.

The most important point is that the subsidy scheme will jack up the export price of white rice from US$545 (Bt16,200) to $550 per tonne free on board to $840-$850.

Thailand's total paddy rice production averages 30 million tonnes, which is processed into about 20 million to 21 million tonnes of rice for consumption. Of that, domestic consumption and exports are almost in balance.

What are the government's measures to ensure fair rice prices for consumers? Who will guarantee that the Kingdom can maintain higher export volume than its rivals?

Thailand will soon be left behind rivals, particularly Vietnam, India and even Burma, in terms of both export prices and volume. It cannot always depend on the prestige of its high-quality jasmine rice, as advanced technology will allow others to develop similar fragrant rice with lower production costs. Rice consumers struggling with unstable economies in importing countries are more concerned about price than premium quality.

No one would argue against the idea that farmers should have higher incomes from selling their crops. But this should be determined by market mechanisms, particularly as rice prices tend to increase because of high demand. In addition, the government should encourage farmers to improve the quality of their rice instead of relying on increased subsidies.

Source: The Nation