High rice prices temporary,
government rice policy "created chaos"
instructs food expert Dr. Ammar Siamwalla
By Jon Fernquest |
Thailand's premier food economist Dr. Ammar Siamwalla spoke at a seminar this week and strongly criticized recent government food and rice policy:
"The government would be better to do nothing at all. Its policies have only created chaos...authorities should focus instead on long-term strategies to raise crop yields and productivity.
According to Dr. Ammar Siamwalla the recent rush to plant a third crop of rice was a big mistake:
"...rice prices had risen as a result of higher wheat prices, where production has been hit by drought in Australia...Rice prices should decline...A price decline could put millions of [Thai rice] farmers in financial difficulty, particularly as production costs such as energy and fertiliser continue to rise..."
He also points out that the government has two policy goals that contradict each other and can only be resolved by....spending more tax-payer money:
"[the government is making an] attempt to keep prices expensive, while also trying to make rice cheap...On the one hand, it wants to sell rice at a cheap price, but on the other it also wants to prop up grain prices. Where can [the government] find the resources?"
A Bangkok Post article reports in detail on the important insights provided by this expert on food economics and rice markets.
Here is the article in full:
RICE POLICY
Private sector wants free market
Farmers should ignore officials, says AmmarPARISTA YUTHAMANOP & VICHAYA PITSUWAN
Thursday May 15, 2008
Government rice policies are misguided and have distorted market forces, according to local experts. Ammar Siamwalla, honorary economist for the Thailand Development Research Institute, said state policies were sending false signals to farmers.
"If the government says anything, the farmers shouldn't listen. The authorities are playing psychological warfare with the operators," he said scathingly at a seminar on the rice market yesterday.
Comments by government ministers that rice prices would only continue to rise had prompted many farmers to rush to plant second crops.
But Dr Ammar said there was no guarantee that rice prices would remain high, particularly as global supply was expected to increase toward the second half of the year.
Rice farmers in several provinces have already begun to complain about low prices offered for paddy by mills, prompting the government on Tuesday to approve a Commerce Ministry plan to purchase rice directly from farmers at guaranteed prices of up to 20,000 baht per tonne for jasmine rice paddy and 14,000 baht for regular grade paddy.
Finance Minister Surapong Suebwonglee said the programme would help reduce market manipulation by "ill-intentioned parties" who were seeking to push down paddy prices even as world prices continued to rise.
He said rice stocks held by the Commerce Ministry would be sold to foreign governments or private buyers, with the funds raised used to finance the paddy intervention programme.
The state-owned Bank for Agriculture and Agricultural Co-operatives would also be directed to increase lending to rice mills to ease complaints of liquidity constraints by business operators.
Dr Surapong said the intervention programme would purchase rice at market prices, which would not cost the state.
Rice has reached a new record at $1,020 per tonne for 100% grade-B white rice, according to the Thai Rice Exporters Association. Prices were quoted at $941 per tonne last week.
Rice prices have doubled over the past year, as key producers such as Vietnam have imposed export bans to meet domestic demand.
But Dr Ammar, speaking at a seminar organised by the Community Organisations Development Institute, said rice prices had risen as a result of higher wheat prices, where production has been hit by drought in Australia, rather than rice demand outstripping supply.
"Rice prices should decline, save if there is a natural catastrophe in rice-producing countries," he said.
A price decline could put millions of farmers in financial difficulty, particularly as production costs such as energy and fertiliser continue to rise.
"Farmers have been driven by good prices to rush to plant a second crop. Demand for fertiliser has risen as a result, pushing up prices. But there should be more rice supply in the future," Dr Ammar said.
He strongly criticised the government's Blue Flag initiative to offer low-priced rice from government stocks to ease consumer complaints, as creating a two-tiered market only distorting market forces. "I think there are two measures that the government has failed. One is the attempt to keep prices expensive, while also trying to make rice cheap," Dr Ammar said.
"On the one hand, it wants to sell rice at a cheap price, but on the other it also wants to prop up grain prices. Where can [the government] find the resources?"
Dr Ammar said such programmes were open to abuse, where subsidised rice was made available to politically connected persons and the public marginalised.
"The government would be better to do nothing at all. Its policies have only created chaos," he said, adding that authorities should focus instead on long-term strategies to raise crop yields and productivity.
Yuthasak Supasorn, a director of the National Food Institute (NFI), agreed separately that national policies needed change.
Food prices had risen due to an "overreaction" by the public to food scarcity fears, he said. Authorities needed to ensure that agricultural production was properly balanced between domestic consumption and exports, with priority given to local needs to minimise the impact on the poor.
Mr Yuthasak cited figures from the National Economic and Social Development Board that more than 50% of household spending by the poor went to food compared with 30% for the middle class.
"The data show that food price increases will affect the poor to a greater extent than the middle class," he said.
Policymakers, he said, needed to minimise price distortions fuelled in part by public panic over potential shortages.
"It's impossible that food will run scarce in Thailand, not when we are the 'Kitchen of the World'," Mr Yuthasak said, referring to the government programme to support agricultural exports.
"We are the top rice exporter in the world, so we shouldn't have to worry about shortages. If people continue to stockpile food, this will only drive up prices unnecessarily."
Food security emerged as a global issue, after the UN Food and Agriculture Organisation reported that 37 countries are facing shortages. Aid experts say Burma is facing possible famine following the destruction of rice stocks in the aftermath of Cyclone Nargis.
Mr Yuthasak said the risk of food shortages was primarily in Africa, where rising fuel costs, natural disasters and a shortage of arable land were contributing to the food crisis.
He said that for Thailand, the government should devote resources to improving yields and increasing the value of agricultural products. A land utilisation strategy is also needed to create a better balance between crops used for food, feed and fuel.
(Source: Bangkok Post, business, front page, 15-05-08, temp-link)
Vocabulary:
Thailand Development Research Institute (TDRI) - an NGO created in 1984 to do policy research, perhaps the most famous center in Thailand for economics research (See website)
Ammar Siamwalla - a leading Thai food economist and former president of the TDRI (See profile)
scathingly - very critically, finding fault with
prompted - caused them to do something
a guarantee - a promise that something will happen (See glossary)
no guarantee that - cannot be sure that
guaranteed prices - prices that someone promises they will buy or sell at
manipulation - control an event for personal gain (See glossary)
market manipulation - control market prices or supply for personal gain
an intention - an idea or plan about what you are going to do
ill-intentioned parties - people who have bad plans (for example, rich and powerful people who personally profit from government rice subsidies meant for the poor)
paddy - rice
paddy intervention programme - the government programme to enter rice markets and buy up farmers' rice at high prices
liquidity - the cash that a business has on hand to do business with (See glossary #1 and #2)
liquidity constraints - don't have enough cash and working capital on hand to fund day to day business operations and the purchase of rice
drought - when there is no rain and therefore no water
demand outstripping supply - demand greater than supply
X save if Y - X unless Y
a natural catastrophe, a natural disaster - a natural event such as an earthquake, tsunami, hurricane, and volcanic eruption causes injury and death and harms the environment (See Wikipedia)
the Blue Flag initiative, the Blue Flag Campaign - the name of the government programme that sells rice to the public from government warehouses at low prices
ease consumer complaints - take action on the complaints, so consumers don't complain anymore
two-tiered market - market split into two two separate markets, one with a market price, one with a subsidized price
distorting - making unclear, difficult to understand what is happening
distorting market forces - when normal market operations that are easy to understand (ro get good, buy at market price), become difficult to understand (subsidized rice secretly goes to people with political connections)
open to abuse - vulnerable to abuse, not protected and therefore easy to abuse
subsidised rice - when the government puts cheap rice on the market, paying the difference between market and the lower price
politically connected persons - people who have friends with political power, in government, who they can ask to do things for them
the public marginalised - to treat a group of people as unimportant
crop yields - the amount of crop produced on land
productivity - the amount of crop produced per rai of land, measures the efficiency of production
long-term strategies to raise crop yields and productivity - government makes long-terms plans to increase the crops produced on existing land, supported by universities and research institutes
National Food Institute (NFI) - a non-profit and independent network organization of the Ministry of Industry, supports and fosters development of the food industry to boost its competitiveness in world markets, established in 1996 (See website)
food scarcity - a large decrease in the supply of food
price distortions - when prices are not determined by supplpy and demand in the market (so it is not clear what is determining them)
panic - a strong feeling of fear that makes you act without thinking carefully
fuelled by X - situation made worse and more intense by X
price distortions fuelled in part by public panic over potential shortages -
stockpile food - store large quantities of food for future use or sale (See glossary)
food security (for a country) - protecting a country from food shortages
food security (for the world) - "when all people, at all times, have physical, social, and economic access to sufficient, safe, and nutritious food to meet their dietary needs and food preferences for an active and healthy life."
famine - a situation when many people have little or no food, so many people die (See Wikipedia)
in the aftermath of - the siutation after a disaster, or a very harmful event (for example, in the aftermath of the hurricane there was a famine)
devote resources to improving yields - government should spend money on solving the problem of how more rice can be produced from the given land
a strategy - a long-term plan for action
land utilisation strategy - a long-term plan on how to use land for agriculture and other uses
