Vietnam, the world's second-biggest rice exporter, could topple Thailand from its perch and become No 1 if the Yingluck government goes ahead with the rice-pledging scheme, former finance minister MR Pridiyathorn Devakula warned.

"Losing the No 1 position also means losing foreign-exchange earnings," Pridiyathorn said while pointing out that the unrealistically high price of Thai rice will make exports difficult.

Pridiyathorn warned that the government would face big trouble - corruption in its huge rice stockpile, and loss of budget spending to subsidise the programme. In addition, the government will monopolise the rice market and that would damage the market mechanism and the rice export business.

Thailand has experienced under the many governments who have implemented the rice-pledging scheme that it leads to loss of bargaining power to importers, loss of export opportunities amid rising market prices, degradation of quality and corruption among politicians, officials, rice millers and exporters, he said. The rice-pledging policy has also made the country shoulder its biggest loss ever. The Bank for Agriculture and Agricultural Cooperatives, which will facilitate implementation of the programme, would be spending an estimated Bt400 billion while the government would subsidise a projected loss of Bt250 billion.

Pulling out supplies from the market when prices are rising, and when other rice-exporting countries have plentiful production, is not the right way to implement the programme, Pridiyathorn said. These factors will not push up the world prices much and eventually Vietnam will be the biggest beneficiary thanks to its competitive prices.

"If the government stops the rice-pledging scheme, it can stay in power for longer," Pridiyathorn predicted.

In principle, the pledging price should be quoted at 80 per cent of market price to enable farmers to have working capital when prices are low. However, it will also encourage them to withdraw their rice and take benefit when rice prices increase. As a result, the government has a lower rice volume than targeted amount joining in the project and able to maintain its export champion in terms volume and value for decades.

Since 2004, under the Thaksin government, the rice-pledging scheme has been implemented at unrealistically high prices, prompting farmers to burden the government with their produce, Pridiyathorn said.

Due to the high prices, the total rice volume under the scheme was sharply increased from 2.38 million tonnes of paddy rice (main crop) in 2003-04 to 5.29 million tonnes in 2004-05. However, the targeted volume was set at the same level of 9 million tonnes.

Drop In export volumes

The country's export volume significantly dropped from 10.11 million tonnes of rice in 2003-04 to 7.28 million tonnes in 2004-05, paving the way for Vietnam to increase its export volume from 4.30 million tonnes to 5.17 million tonnes in the same period.

During the Samak Sundaravej government in 2008-09, not only was the pledging price fixed higher than 100 per cent, the Cabinet also approved additional subsidy of Bt2,000 per tonne. This caused Thailand's total exports to drop again to 8.52 million tonnes while Vietnam boosted its exports to 5.95 million tonnes.

Pridiyathorn added that the government had shouldered a combined loss of Bt26.49 billion from the pledging scheme between 2005-06.

Even during the Democrat-led government, the pledging price was quoted higher than market price at Bt2,000 per tonne before its income-guarantee scheme was implemented. The scheme aimed to pay for the price difference between market price and the government's reference price. With a huge stockpile of 5.32 million tonnes and the high pledging price, it caused government losses of Bt33.33 billion.

Pridiyathorn believes that the total volume of paddy rice under the mortgage scheme this year will reach 27 million tonnes, accounting for 90 per cent of the country's projected production, which is expected to be 32 million tonnes.

"For sure, farmers will leave their rice stocks as a government burden," Pridiyathorn said, adding that it would create a loss of Bt135 billion. The figure has been calculated from the difference between market price and pledging price of Bt5,000 per tonne.

This would mount the government stockpile leading to sluggish exports, as exporters would not have rice supplies to sell overseas.

Pridiyathorn questioned how the government planned to release the huge stockpile. Government-to-government deals are not an easy way, he said. In cases of open bidding, it will lead to corruption as in the past, with politicians and exporters sharing the spoils.

Source: The Nation