Thailand’s Rice Subsidy Trap

ARCHIVES 2013

By admin-s On Jul 4, 2013

Given Thailand’s regressive tax system with heavy reliance on value-added tax rather than income taxes, the so-called populist policies only benefit a minority of the populace.

Philip Bowring, Asia Sentinel

Government bends to farmers, restores rice pledging scheme

The Thai government is riding a subsidy tiger it appears unable to dismount politically. It has caved in to the rice farmer lobby and restored the support price for rice to Bt15,000 a tonne (US$484) soon after announcing a cut to Bt 12,000.

The reversal of policy came after a cabinet reshuffle and bore the fingerprints of and bore the fingerprints of exiled former Prime Minister Thaksin Shinawatra who had encouraged his sister to institute this massive rice farmer subsidy last year.

The move is expected to buy some political space for Yingluck Shinawatra, whose administration has been under fire on various fronts. The support of the so-called pledging price for rice delivered to warehouses appears to be popular, and not just among farmers.

However, the cost to the nation of supporting a price which is roughly 30 percent above the world market price will have to be paid by the people at large. At one level it may be seen as a necessary form of income re-distribution away from Bangkok and the cities toward the countryside.

However in the process it raises several other issues. One is that it benefits only rice farmers, not farmers of other crops, many of whom are found in the poorer provinces of the northeast and far south. Second is the wisdom of providing a subsidy for a major export crop, which can only depress global prices and sustain Thai production at a higher level than its unimpressive farm productivity performance justify.

There is scant sign that the subsidy is doing anything beyond support consumption by the beneficiaries rather than invest in raising productivity so that rice farmers could earn a decent income without subsidy.

The cost to the government so far has been put at Bt146 billion to date but the actual losses are said to be hard to calculate because of the lack of reliable information about the true size and quality of stocks, and prices at which the government has sold rice in government-to-government deals.

Unwillingness to sell rice at a loss is natural but accounts for the fact that Thailand has now fallen behind Vietnam and India in volume exports and is likely to have to also face increased competition from a Myanmar whose farmers will likely respond to freer market and access to inputs and boost production as the Vietnamese previously.

With income levels in Thailand being so much higher than Vietnam, India or Myanmar, Thailand desperately needs a farm productivity boost if its taxpayers are not to be saddled with permanent subsidies for rice farmers, which detract from its ability to raise investment and consumption benefitting the population at large.