Six months since the implementation of the price-pledging scheme for farm goods, it is time the Yingluck government reviewed the policy, which has cost Thailand more than Bt300 billion and left farmers unhappy as commodities prices remain low.

Since October, the government has spent a combined Bt301.27 billion to support price pledging of rice, cassava, garlic and red onions. But the policy has failed to shore up prices of these commodities, due to inefficiencies in the project. The government has focused exclusively on implementing the pledging scheme to encourage price increases, but has failed to support farming, marketing and trading processes, resulting in sluggish trade in both the export and domestic markets.

As it always does, the pledging system has led to corruption relating to the release of government stockpiles. Taxpayers will no longer be willing to subsidise farmers to the tune of billions of baht, while loopholes in the pledging and releasing processes allow corruption that benefits a small group of people.

Thai farmers' production costs for most commodities are higher than in neighbouring countries, while yield per rai is much lower. The Pheu Thai-led government does not have a plan to lower production costs or promote sustainable development of farming, and simply spends the national budget on short-term subsidies.

The production cost of Thai rice farming is Bt6,000-Bt7,000 per rai, while the cost of Vietnamese production is Bt4,900-Bt5,000 per rai. Vietnam has an average yield of 862 kilograms per rai, against a Thai yield of 448kg.

The current domestic market price of paddy rice is Bt9,000-Bt10,000 a tonne, while the pledging price is Bt15,000. Thai rice export volumes plunged by 50.3 per cent to 1.03 million tonnes from January to March 5 this year, as Thai rice is far more expensive than its competitors' crops. The government is expected to spend at least Bt220 billion on the two pledging projects for the main and second rice harvests between October last year and June this year.

Thai cassava production and yield per rai have dropped gradually over the past 10 years, while the budget for shoring up the price of the commodity has doubled this year under the government’s pledging scheme, requiring Bt40 billion for the current harvest season.

The price of cassava remains low at Bt1.30-Bt1.90 per kilo, while the pledging price is Bt2.75-2.90. Pledging of cassava began in February. While it aimed at shoring up the market price, traders have not been able to agree on a high pledging price since it does not reflect the market mechanism.

The cost of cassava production in Thailand, excluding breeding costs, is 85 satang per kilo, compared with 77 satang per kilo in Vietnam and 61 satang in Cambodia.

So far, less than 700,000 tonnes of cassava have entered the pledging project, compared to the target of 10 million tonnes.

The government recently came under pressure from thousands of garlic farmers in the North to extend its pledging scheme to cover the entire garlic crop. The government allocated only Bt70 million for garlic pledging, but this year production has exceeded 46 million kg. The government needs to raise its pledging budget for garlic to Bt1.6 billion if it wants to purchase all of the garlic supply in order to shore up the price.

Garlic growers have complained that they are suffering; the price of the crop has fallen to Bt7-Bt9 per kg, less than the production cost of Bt10 a kilo.

Last year, garlic traded at Bt30-Bt40/kg. Farmers say the government has implemented the pledging project inefficiently, without regard for total production.

The Bt70 million budget assigned to the Internal Trade Department to purchase garlic at Bt40 per kilo would be unable to shore up the price, as production has exceeded the government's expectations.

The budget for red-onion pledging was set at Bt1.2 billion. However, the current retail price is only Bt7-Bt8 a kilo, while the production cost is Bt5-Bt6 a kilo.

The government faces a problem of deteriorating quality of red onions. Bt289 million worth of the pledged crop is rotten. As a result, the government cannot release stockpiles to realise a return after subsidising the crop, as stockpiling has been done inefficiently.

Rather than increasing farmers' dependence on subsidies, which lead to huge losses each year, the government should support the development of farming, marketing and trading to allow the market mechanism to do its work.

The government should also encourage farmers to aim higher and upgrade their quality to ensure competitiveness ahead of the launch of seamless trade under the Asean Economic Community. Thailand can no longer afford to subsidise farmers' goods in the era of liberalisation.

Source: The Nation