Rice export chief says mortgage plan a feast for big firms, famine for small farmers

WITH THE GRAIN: Vichai Sriprasert of the Thai Rice Exporters’ Association says that African nations will not be able to afford Thai rice once the government’s rice mortgage scheme goes into effect.

Any change in government rice policy enters the volatile area of the national psyche where economics, food security and politics overlap.

The government rice mortgage scheme, set for introduction on Friday, will guarantee farmers 15,000 baht per tonne for paddy (unhusked) rice, up 50% over that guaranteed under the Abhisit administration.
With a 30% share of global exports, Thailand is the biggest player on the international rice market. And with government control over national supplies, there are concerns that the government will manipulate global prices or that buyers will look instead to Vietnam, India, Brazil and elsewhere for cheap rice, leaving Thai farmers to bear the brunt of a downturn in exports.
After Thailand's cancellation of a 300,000-tonne government-to-government rice contract last week, Indonesia announced it would scrap a separate plan to buy 70,000 tonnes of rice, worth 1.37 billion baht, from Thai exporters in protest, and look to purchase more from Vietnam.
The Yingluck Shinawatra government hopes the new policy will bring rice prices to a level it considers more realistic, which will benefit farmers. Detractors worry it will benefit landowners and companies with close ties to the government, and that it will encourage corruption and have huge additional storage and implementation costs.
Bangkok Post Sunday spoke to Vichai Sriprasert, CEO of Riceland International Ltd, a leading rice exporter, president emeritus of the Thai Rice Exporters' Association and a member of Thailand's Board of Trade, about the programme's implications for the global rice market, the Thai economy and local farmers.
What will change through the rice mortgage programme?
The competitiveness of the Thai rice industry will be retarded significantly by the government setting prices rather than letting market forces dictate them. We can expect disastrous effects on the currently healthy rice sector. A massive amount of tax money will be needed to implement the government's rice policy. The government plans to set the paddy price at US$500 (15,565 baht) per metric tonne compared to $350, which is what it is trading at in Thai and US markets. That will result in paddy from Thai farmers flowing into government hands. Low farm income cannot be blamed on low prices as the margins are more than adequate but small farm sizes. Thailand has been selling rice to the world market at top prices which provide 50% to 100% profit margins to our farmers. The high mortgage price will prevent rice surpluses from being exported and a lot will remain in the warehouses until it becomes unfit for human consumption.
Who will benefit most?
I don't think it will support small farmers. Under mortgage schemes only big farmers benefit. Thailand has four million farmers, but only 600,000 have signed up to the mortgage programme. One assessment by Ammar Siamwalla [former president of the Thailand Development Research Institute], said 37% of the increase would go to farmers, 46% to businessmen, the rest for warehouse costs, etc.
Can the global market absorb the changes?
If some of them do, it will be just short term. Thailand normally ships about four million metric tonnes to Africa. The poor consumers there cannot afford such a huge hike in the rice price.
India has 25 million metric tonnes in stock, 10 million of which they want to keep for food safety. Just India alone will make the high price policy of Thailand unworkable.
Burma used to export four million tonnes prior to World War II. They can rise to that position again without much difficulty.
China is so advanced in rice technology that their hybrid rice can yield double what our best can do.
The financial woes in the EU and US are spreading. Our pricing must be flexible and is best set by market forces, not the government.
Will the government have to subsidise exports to keep them competitive?
The Pheu Thai government has said it won't sell government rice stocks below the mortgage price plus costs, which means they won't subsidise the price for exporters.
Will this result in large stockpiles?
Stockpiles will be so great the small farmer will have to stop growing rice eventually. Under the previous government's 10,000 baht scheme, there was no surplus as the government did not interfere with the workings of the market mechanism.
Will buyers look to other markets?
It is natural for buyers to look for a better alternative or a substitute. India alone has 15 million tonnes available for sale.