How can poor rice farmers
increase their share of rice profits?
By Jon Fernquest |
This week Korn Chatikavanij, shadow finance minister for the Democratic Party and member of parliament, in his weekly Bangkok Post column, visited Isan with a group of students and discussed ways to ensure poor farmers get the portion of rice profits that they deserve.
Simple projects, like three kilometers of irrigation canals to existing water sources, that could improve the lives of farmers significantly at low cost are often neglected.
In the sugar industry, farmers and refiners already share revenues and split profits. Rice farmers might be able to do the same if they were able to join together and derive power from their numbers.
Recent inefficient and price distorting interventions planned by the current government are also critiqued. Like selling stockpiled rice at a high price and re-purchasing it at even higher prices, instead of giving a subsidy to poor farmers from profits on market-priced rice sales. Selling stockpiled rice is also likely to depress the price of rice for farmers growing a third crop this year, making life even more difficult for them.
The difference between rice production and oil production is also covered and how a cartel of rice producers similar to OPEC is infeasible.
Here is the article in full:
SHADOW BOXING
Co-op structure ideal for rice farmers
Korn ChatikavanijTuesday May 06, 2008
I took time out from my usual Bangkok routine to go spend a night in a village in rural Ubon Ratchathani last week. The Democrat Party organises a bi-annual Internship Programme for university students and the current group were spending three days living and learning about life in a typical Isan village.
They were also tasked with reporting on how we could help improve the quality of life for the villagers.
I joined them and the villagers for a night and, apart from the pleasure of being woken up for the first time in a while by a rooster, I left the next day with some answers and many questions.
Briefly, it is clear that the recent surge in the price of rice has passed these villagers by pretty much entirely. As with most Isan farmers, given poor access to water, they only manage one crop a year and that was harvested back in December last year before the price surge.
Since then they have been growing their other main crop, chillies, the price of which has inexplicably collapsed.
Pretty much the only concern the villagers had was the issue of water. In the case of this particular village, a natural year-round water source is available only 3km away, but as a result of poor irrigation it might as well be 3,000km. Indeed, they often face the depressing situation of parts of their land being flooded and parts being completely arid at the same time. They claim that an expenditure of 12 million baht on construction of Klong Sai Gai ("chicken entrails" canal) would allow an additional 1,000 rai of farming to take place. Finally, they tell me that their request for funds has been turned down during the past several years simply because they are known Democrat voters.
Interestingly, they refused to believe that they would fare any better if they changed their allegiance, given that the tambon next door, known TRT/PPP supporters, have fared no better in terms of real improvement in infrastructure.
In contrast to the plight of the rice farmers, back in Bangkok the cabinet last week approved an increase in the domestic price of sugar by 5 baht a kilogramme - a decision that, while hurting consumers, directly benefits sugarcane farmers, given the unique revenue-sharing system between farmers and refiners in our sugar industry.
The legal framework determines that revenues are shared 70:30 between farmers and refiners and is a model that ensures the interests of farmers and traders are largely aligned.
Readers will, like me, at this point ask the question: Why can't we legislate the same deal for rice farmers? The Ubon farmers would not need to worry that they had sold their paddy for 9,000 baht a tonne in December while milled rice price has more than doubled since. A fair division of the revenue between traders, millers and farmers would be pre-agreed, even net of input costs such as land rental and fertiliser. Effectively, the creation of a legal framework creating a co-op structure for the rice industry. I posed the question to one of our MPs in a sugarcane constituency (Dr Preecha Musikul, MP for Kamphaeng Phet), who surmised that it was an issue of the inability of rice farmers to club together in the same way that sugarcane farmers have been able to. If and how this could be resolved is surely a question worth asking, and I will be seeking expert opinion on this henceforth.
In the meantime, though raising sugar prices domestically has an obvious beneficial impact on farmers, the 25% increase in consumer prices is dramatic and, given the current cost of living issues and accelerating inflation, the method and timing is questionable, especially now that export prices are beginning to look better after a two-year decline.
Back to rice: the government has decided to become more interventionalist and has decided to bag and sell the 2.1 million tonnes of rice at its disposal at a discounted price. The government has also pledged to replace the rice sold with new stock to be bought at 12,000-13,000 baht a tonne from farmers.
Our view has been made clear from the start: we believe that the optimum way to derive benefit from this stock of rice is for it to be sold at market prices, with the profits received used to the benefit of those who pledged the rice to the government in the first place - the farmers.
This could be done through the provision of subsidy for the necessary purchase of fertilisers for the next crop, so as to reduce farmers' costs and thus risks. Indeed, the 2.1 million tonnes of rice were never a strategic stock and the use of taxpayers' money to re-acquire the stock at a higher price is inefficient, given that there is no shortage of demand for our rice in the current world market.
I have read columnists writing that Thais ought to have the right to access cheap rice as we are a rice producer, similar to the people of oil-producing countries whose domestic price is set at a deep discount to the world price. I think there is a major flaw in this argument, since oil is a natural resource owned effectively by the whole population and save for the cost of exploration and marketing, is effectively free.
With rice, however, half our population is engaged in the hard work and risk-taking to produce the rice without the contribution of the other half, who are simply consumers. The farmers thus have a right to be able to sell their produce at the highest price. Even more so since they are the poorest component of our society.
Low-wage consumers who are genuinely suffering from the cost of living increase could be assisted by food coupons and increases in minimum wage guarantees. This is more efficient because even the government acknowledges that it cannot ensure the discounted rice would fall into the hands of those who most need it.
Furthermore, there was an immediate impact on futures prices of rice on the announcement of the discounted rice scheme, impacting directly the selling price for farmers for the second crop about to be harvested.
The issue of wage increases was one I wrote about a fortnight ago and the tri-partite discussion has concluded an increase in the minimum wage raging from 2-11 baht across different provinces in the country. This is clearly the minimum amount necessary for low wage earners to survive in this new inflationary environment, for it represents a maximum of just over 5% increase when inflation is running at 6% on an annual basis and the cost of many basic products is rising by much more than that.
Clearly, the issue of inflation is one that will be most challenging for us politicians for sometime to come.
In times of inflation, what becomes even more pressing is the concentration on productivity and the adding of value to our products. You cannot fight inflation by throwing money at it.
I was thus more than happy to see our intern students drafting ideas and plans to their village hosts as to how to process and package their raw chillies so as to capture higher value up the product chain.
The organisation of cooperatives and investment in improving quality and quantity of all goods is a national agenda that requires immediate attention.
Korn Chatikavanij is shadow finance minister.
(Source: Bangkok Post, op-ed section, 06-05-08, Korn Chatikavanij, temp-link)
Vocabulary:
a co-op structure, a farmer's cooperative, an agricultural cooperative - when farmers join together to process, store, and market their crops
shadow finance minister - an MP from the opposition party (Democrats) who follows what the government (party in power) is doing and suggests alternatives (follows like a shadow whereever the real minister goes)
shadow boxing - boxing with your shadow as practice and training
derive - get
interventions - when the government buys and sells in markets
critiqued - evaluate, assess, look for faults, errors, flaws, and shortcomings
stockpiled rice - rice stored for long periods of time
infeasible - not practical, cannot succeed if tried
took time out - stopped doing what you normally do, to do something else for a while (take a break from)
a routine - regularly doing things in a fixed order to get work done quickly
bi-annual - happens two times every year
an internship - when a student gets practical training under supervision
tasked with - given a task or job to do
inexplicably - could not be explained
the price collapsed - the price suddenly fell by a large amount (causing hardship for those who relied on it)
.
arid - very dry so few plants can grow
chicken entrails - the insides of chickens that most people do not eat (intestines, stomach, heart, liver, etc)
allegiance to X - support for X, loyalty to X
X fared no better than Y - Y did better than X, X did worse than Y
in terms of - measured by
a plight - a difficult situation full of problems
revenue-sharing system - a system for sharing profits from producing something
revenues are shared 70:30 between farmers and refiners - farmers get 70% of revenues and refiners get 30% of revenues
refiners - the companies that take raw sugar from the fields and turn it into packaged sugar sold in stores
interests - what particular people hope to gain from a situation
aligned interests - when people have the same interests (and therefore the same motivation for acting, which makes it easier to work together and cooperate)
interests of farmers and traders are largely aligned - farmers and traders are roughly working for the same goal
legislate X - make a law X in parliament
paddy - harvested rice straight from the fields
milled rice - rice that has been dehusked, dried, and processed at a rice mill
club together - join together in a group
resolve a problem - solve a problem
henceforth - from this time forwards, in the future
obvious - easy to see and understand
accelerating inflation - inflation getting worse and worse, prices increasing at a faster and faster rate
timing - judging the right time in a situation to do something
interventionalist - when the government buys and sells in markets (instead of just lightly regulating and guiding markets)
disposal of rice at a discounted price - selling rice to the public at a lower than usual price
pledged - promised to do
the optimum way - the best way
provision of subsidy - giving money to do something
strategic - plans to achieve something over long periods of time
strategic stock or rice - rice kept for an emergency, in case there is s severe rice shortage
domestic price is set at a deep discount to the world price -
a flaw - a mistake or error (making less true and effective)
a component - a part
cost of living issues - problems caused when the costs of everyday things such as food and transportation rise
cost of living increase - extra money given to workers to pay for increase daily expenses of food and transportation
food coupons - pieces of paper that can be exchanged for food at stores
X falls into the hands of Y - Y gets X (accidentally)
fortnight - 14 days, two weeks
tri-partite discussion - discussion between three groups (employees, employers, government)
throwing money at a problem - using a lot of money to solve a problem without really thinking how to solve the problem effectively (throwing = not thinking)
capture higher value up the product chain - when a middleman does something between initial production and consumption of a good to add a lot of value
hosts - people who invite you (their guests) to their home (village or heighborhood)
village hosts - people in the village who invited you to their village
the national agenda - the plan for the country's future, the things that must be done to achieve the country's goals
