The future of the Thai rice industry is at risk if the paddy price insurance programme is scrapped in favour of the costly and inefficient mortgage scheme it replaced, says an industry executive.

The opposition Puea Thai Party has said that it favours reviving the mortgage programme if it forms the government after the elections at midyear.

The Democrat Party for the past two years has been offering crop insurance, arguing that it puts more money directly into the hands of farmers.

However, the programme is expected to cost 65 billion baht this year, more than it should, and needs adjusting, said Pramote Vanichanont, honorary president of the Thai Rice Mills Association.

He said the next government must stabilise paddy prices at levels that will ensure farmers' survival. Price insurance should go hand-in-hand with productivity improvement through research and development, which may require up to 5 billion baht, he said.

The decades-old mortgage scheme was frequently criticised as a political tool to win farmers' votes. Governments set mortgage prices as high as 30% above market prices, attracting huge amounts of paddy into state stockpiles. Most of it had to be sold at a loss.

"The most important thing is that the mortgage system destroyed the market mechanism because the government entered the trading business itself," said Mr Pramote.

However, the government needs to improve the insurance programme as declining paddy prices have widened the compensation gap to around 2,800 baht a tonne from 1,000 baht earlier.

Under the insurance scheme, payments are based on the difference between insured prices and benchmark prices set weekly by the government, regardless of market prices when farmers sell. The insured prices are based on average costs and a 30-40% margin.

The benchmark for white rice last week was 8,165 baht a tonne so the compensation was 2,835 baht as the insured price was 11,000 baht a tonne.

At this rate, total compensation this year would be 65 billion baht, or about one-third of the country's earnings from rice exports. Such a high cost would negate the benefits of the programme.

"Therefore, price stabilisation measures, especially through cost reduction, are important," said Mr Pramote. "Otherwise, the compensation may rise to 80 billion baht next year but farmers will get almost nothing due to rising costs."

Sumeth Laomoraporn, president of C.P. Intertrade Co, supports price insurance but says there needs to be a floor price higher than the market price to prevent the price from plummeting.

As well, he said, the government needs to close loopholes in the programme, noting that increases in farmer registrations for the programme did not match the rise in plantation areas.

He also suggested the government invest more in irrigation and also allocate some land for small roads to help farmers transport paddy to mills in time before the paddy becomes too moist.

Kiattisak Kanlayasirivat, president of Novel Agritrade (Thailand) Co, said prices were rising after two months of declines stemming from the harvest in Vietnam and sales of Thai government stocks.

Source: Bangkok Post