THE MINISTRY of Finance has set the rice pledging scheme's loss limit at Bt70 billion for the upcoming harvest season this October, while the Bank for Agriculture and Agricultural Cooperatives (BAAC) has suggested six alternatives for setting the pledging price.

The ministry reported to the prime minister that it would not be able to deal with loss of rice pledging scheme by more than Bt70 billion per fiscal year as that was the maximum it could set aside to compensate the BAAC under the pledging programme, a ministry source said. For fiscal year 2014, the Budget Bureau has earmarked Bt70 billion for compensation to the BAAC.

If the government finds it needs more than that for BAAC compensation under the pledging scheme, the target of balancing the national budget by 2017 could not be achieved, the source said.

To lower the cost of the programme, the Commerce Ministry and the BAAC have discussed with farmer associations lowering the current pledging price of Bt15,000 per tonne to Bt13,500, with a pledging quantity of 15 million tonnes. However, the final price has not been concluded yet, the source said. The next discussion is scheduled for next Monday.

The scheme is expected to see losses of nearly Bt300 billion for the 2011-12 and 2012-13 seasons. After having been assigned to analyse the pricing for paddy rice, likely losses and other details of the programme, the BAAC has come up with six alternatives.

The first three assume the same pledging quantity of 15 million tonnes. The alternative prices are Bt12,000, Bt13,000 and Bt15,000 per tonne, with estimated losses of Bt39.7 billion, Bt49.3 billion and Bt70.5 billion respectively. The other three alternatives set another pledging quantity of 17 million tonnes with different prices. They are Bt12,000, Bt13,000 and Bt15,000 per tonne with estimated losses of Bt45.4 billion, Bt56.4 billion and Bt81 billion respectively.

The source said the government had asked the National Rice Policy Committee to consider whether to continue the pledging scheme for paddy, to end it to lessen the fiscal burden arising from the scheme's losses, or to cut the current pledging price.

Meanwhile, Nipon Puapongsakorn, a scholar of the Thailand Development Research Institute (TDRI), has warned the government not to rely on government-to-government (G2G) trade to release rice from its stockpiles as this would be a relatively small amount and would face very intense competition, especially from Vietnam and India.

Nipon said the price-pledging scheme remained a problem for the government, especially on how to release more than 17 million tonnes of rice from its stockpiles.

Based on the assumption that the government will release all the rice by 2016, it will need to spend not less than Bt300 billion to finance the pledging scheme, largely for processing paddy rice and warehouse rental.

"Currently, the Commerce Ministry is seeking ways to release the rice from its stockpiles by increasing the export volume via government-to-government trade. In fact, the overall volume of rice trade via that means is only 3 million to 4 million tonnes per annum," Nipon said. "It is a very tough market with high competition. It is quite difficult for Thailand to compete against rivals, especially Vietnam and India, as they sell rice at very low prices compared with Thailand because of their very low production costs."

In addition, the prices gained through G2G deals will be much lower than the market price, and that will create huge losses for the government, he said. It is a fact that no country wants to buy high-quality or expensive rice to give to their poor citizens. G2G therefore is not a good long-term solution, he added.

Nipon said that in the past, Thailand was one of the global leaders in rice export. At that time, the country exported between 8 million and 10 million tonnes per annum, mainly from 200 exporters in the private sectoer.

Source: The Nation