Assessing the Thai Paddy Pledging Policy: Its Performance and Social Costs

Abstract

The paper assesses the benefits and costs of the Thai paddy pledging policy between October 2011 and May 2014. The scheme, which purchased 52 percent of total paddy production from the farmers, was to date the largest intervention by the government in the rice market. Its total costs were 984 billion baht (or 41% of the 2013 fiscal budget). The government also became the largest rice seller, trying unsuccessfully to corner the export market by withholding large supplies of rice from the market. Thai rice export dropped sharply as the export prices of Thai rice were much higher than those of India and Vietnam which toppled Thailand from the world largest exporter position. The attempt to release rice through the channel of Government‐to‐government sales failed. But the government refused to admit its failure and kept all rice sale information in secret. In fact, most of the claimed G‐to‐G sales were sold to the connected traders who in turn sold them in the domestic market. The policy directly benefited at least one third of the rice farmers who sold rice to the government. Other non‐participating farmers also benefited from the higher domestic price. Yet most of the benefits went to the medium‐ and large‐scale farmers. Thai consumers also gained because the government maintained a smooth flow of rice in the domestic market at the prices prevailing at the end of the previous government, despite higher paddy price. The study also finds that there was corruption in the government rice sale as it sold rice to a few connected traders at the prices below the market prices. That explained why the fiscal loss is estimated at 595 billion baht to 885 billion baht, depending on the time it will take to dispose 18 million tons of rice in the government stock. The policy also creates other social costs. Thus the social costs exceeded its benefits.

Becoming citizens: Policy feedback and the transformation of the Thai rice farmer

“…2 Jacobs and Weaver (2015) have argued that some policies also exhibit self-undermining characteristics, wherein policy feedback leads to policy change via democratic mechanisms rather than continuity. The Thai paddy pledging policy, because of its costly nature (see Laiprakobsub, 2014;Poapongsakorn and Pantakua, 2014), likely had some of these characteristics, and, over time, it may potentially have resulted in policy reorientation, although it is likely that subsidies for farmers would have remained an important part of any future policy direction. Unfortunately, the 2006 and 2014 coups short-circuited any hope of such democratic processes.…”

Examining Global Competitiveness of Indian Agribusiness in the Twenty-first-century Asian Context: Opportunities and Challenges

“…Of the total benefits of the policy, 39 per cent went to rich and 42 per cent to middle farmers though poor (44% of all) farmers received only 18.4 per cent of the benefits. The three major reasons for the failure of the scheme were setting the pledging price above the world rice price, attempt to corner the export market by withholding large enough amount of rice from the market to increase the export price and execution failure of not mandating the operating agencies to prepare financial accounts of the transactions (Poapongsakorn & Pantakua, 2014).…”

Effects of Paddy Price Intervention on the Rice Mill Business: A Case Study of the Paddy Pledging Programme in Thailand

“…In the early years of the paddy pledging programme, it was operated more like a loan package for farmers, using the paddy as a collateral for the loan. Initially, the amount of the loan given was between 80 and 90 per cent of the estimated market value of the paddy (Poapongsakorn & Pantakua, 2014). Farmers would then receive the money from the BAAC and must redeem their paddy within an agreed period.…”

“…The pledging prices ranged from USD 469 to 625 per ton depending on the type of rice, which was USD 181-250 per ton above market prices, in excess by 29-40 per cent. As a result, the government carried the heavy cost of storing huge amounts of paddy (Einhorn, 2013;Poapongsakorn, 2013;Poapongsakorn & Pantakua, 2014). Dealing with the stockpiled paddy rapidly became a problem for the Thai government (Poapongsakorn & Jarupong, 2010;Poapongsakorn & Pantakua, 2014;Warr, 2014).…”

“…As a result, the government carried the heavy cost of storing huge amounts of paddy (Einhorn, 2013;Poapongsakorn, 2013;Poapongsakorn & Pantakua, 2014). Dealing with the stockpiled paddy rapidly became a problem for the Thai government (Poapongsakorn & Jarupong, 2010;Poapongsakorn & Pantakua, 2014;Warr, 2014). It was reported that the Thai government had stockpiled 18 million tons of rice, much of which was poor quality and decaying due to bad storage conditions (Permani & Vanzetti, 2015;Pratruangkrai, 2013;The Economist, 2013).…”