Prolonged implementation of the government's rice mortgage scheme will only serve to hurt the economy to the tune of at least 70 billion baht, say academics.

Nipon Poapongsakorn, chairman of the Thailand Development Research Institute (TDRI), said extending the scheme for three or four years would result in severe economic damage and place a heavy burden on fiscal expenses.

This would put the country at risk of a crisis in the event of any sudden natural disasters, he said.

The TDRI estimates pledging of the main and second crops will cost the country 70-100 billion baht in export revenue. However, an additional 80-90 billion baht worth of damage is likely if the government holds onto the stocks so long that quality suffers. If the rice is stored longer than two years, then even more damage can be expected.

And this does not even take into account the effect on the overall rice industry from Thailand losing market share to other countries, said Dr Nipon.

"Too high a mortgage price will only end up helping farmers in Vietnam, India and Cambodia," he said.

The Yingluck Shinawatra administration has set the mortgage price at 15,000 baht a tonne for white paddy rice and 20,000 baht for Hom Mali.

Even if the government cancels the programme once the rice industry has shrunk, it will be difficult to for the industry to rebound.

"It could even be irrecoverable, as rice exporting itself would be put at risk. The government has implemented this programme because it has a hidden agenda to help certain rice mills and exporters without caring about the damage to agriculture as a whole," said Dr Nipon.

Somporn Isvilanonda of the Knowledge Network Institute of Thailand, estimates the government has already purchased 200 billion baht for the pledging scheme and may need up to 300 billion for both crops.

The rice programme kicked off last Oct 7. Seven months later, paddy stocks totalled 12.6 million tonnes including 8.5 million of white rice.

Of the total, 6.8 million tonnes was from the first crop and 5.8 million from the second crop. This excludes 2.5 million tonnes of white rice from the previous pledging scheme.

The Bank for Agriculture and Agricultural Cooperatives estimates a loss of 17 to 20.4 billion baht, as the purchase price of 15,000 baht a tonne for white rice is 2,500 to 3,000 baht above market prices.

Assoc Prof Somporn said the use of millers to store rice for the government has caused a surge in their numbers in the past 11 years, resulting in reduced bargaining power for farmers.

A survey showed 871 large millers in 2001 with average production of 69,445 tonnes an hour, rising to 1,148 millers with average production 180,073 tonnes an hour in 2008.

Expansion of the pledging scheme turned the government into a major buyer in the market, crippling the international competitiveness of the private sector, said Assoc Prof Somporn.

Kittiratt Na-Ranong, deputy prime minister and finance minister, has admitted the government may suffer a slight loss from the scheme.

But he said farmers are enjoying a better price, as the mortgage price for white paddy has increased to 15,000 baht a tonne from 10,000 baht before, while Hom Mali paddy is now 20,000 baht a tonne, up from 12,000 baht.

However, a government official said the Pheu Thai Party had thought the scheme would help to push up global rice prices significantly. But since that has not happened, any real benefit to farmers is questionable.

The Thai Rice Exporters Association said the global price for Thai grade-B 5% white rice is now US$624 a tonne, up by $70 from a month ago.

The Thai price is $170 above that of India and Vietnam.

The International Trade Department said the paddy price in the domestic market remains about 5,000 baht below the pledging price.

Source: Bangkok Post