How rice supports far above market prices
can damage Thailand's rice industry
Economist Ammar Siamwalla on why we should worry
By Jon Fernquest
A true rice price support system would protect farmers against the possibility of low prices for their rice during harvest season when they have to sell it.
Instead, nowadays with prices set far above market value, the government rice support system in Thailand has turned into a subsidy to the rice sector at the expense of taxpayers.
There is no guarantee that the rice being bought by the government belongs to poor farmers like many think. In fact, inflated prices in a time of falling prices encourages overproduction, so a lot of the rice being sold is surplus output that wouldn't usually be produced.
The government also has the burden of storing large amounts of rice and there are not enough warehouses and storage facilities.
The rice support programme not only provides ample opportunities to profit for corrupt politicians but also leads to a long-term deterioration in the quality of rice produced since studies show that the rice provided to the government in these programmes tends to be of the lowest quality.
rice price support system
- a government programme to make sure that farners get a fair price for
their crops
a subsidy - part of the cost paid by the government
encourages overproduction - makes people want to produce more than they should
surplus output - extra output, above what is normally produced or above what should have been produced
a burden - a difficult thing that must be done
deterioration - getting worse
a subsidy - part of the cost paid by the government
encourages overproduction - makes people want to produce more than they should
surplus output - extra output, above what is normally produced or above what should have been produced
a burden - a difficult thing that must be done
deterioration - getting worse
Ammar slams 'corrupt' rice scheme
Risk management is what farmers needPHUSADEE ARUNMAS
Friday November 21, 2008
Prominent economist Ammar Siamwalla has blasted the loss-ridden state rice pledging programme, urging the government to scrap the scheme he dubbed "the genesis of corruption".
"Thailand's rice policy still lacks direction and is moving nowhere," said Dr Ammar, an honorary economist with the Thailand Development Research Institute and a rice policy expert, at a seminar on rice policy at Chulalongkorn University.
"The rice-buying scheme should be scrapped, as it squanders the taxpayers' money and creates a burden on the state for keeping massive rice stocks, which leads to rampant corruption among politicians."
loss-ridden - has
lots of losses
rice-pledging program - the government rice support system that guarantees prices to farmers for their rice
scrap the scheme - get rid of the programme, stop using the programme
the genesis of corruption - the origins of corruption, where corruption begins
lacks direction - does not really have useful goals
moving nowhere - not achieving anything
Thailand Development Research Institute (TDRI) - Thailand's first and most famous public policy institute (See website)
squander - waste
a burden - a difficult thing that you must do
rampant corruption - lost of corruption
rice-pledging program - the government rice support system that guarantees prices to farmers for their rice
scrap the scheme - get rid of the programme, stop using the programme
the genesis of corruption - the origins of corruption, where corruption begins
lacks direction - does not really have useful goals
moving nowhere - not achieving anything
Thailand Development Research Institute (TDRI) - Thailand's first and most famous public policy institute (See website)
squander - waste
a burden - a difficult thing that you must do
rampant corruption - lost of corruption
Dr Ammar urged the government to instead encourage farmers to sell their grain through futures contracts to reduce risks.
"Agriculture is naturally prone to high risk, the government should therefore encourage farmers to buy risk management tools whereby the government has set median prices at certain points. Once the rice price falls below the median price, the government will be held responsible for paying the difference," he said.
For instance, the government's median rice price was set at 8,000 baht per tonne. If the market price fell to 7,500 baht, the government would pay compensation to farmers at 500 baht per tonne.
If the market price was higher than the median price, Dr Ammar said farmers would be also allowed to opt to sell their grain in the market.
"This year, rice prices have moved up extraordinarily driven by the panic over a possible food shortage. But it's also the worst year for Thai rice, as the government has run the policy in a directionless and drunkard-like manner, dictated only by political benefits."
urged - requested
them to do, begged them to do
futures contract - a contract to deliver a certain amount of a commodity on a date in the future, the price of the contract takes into account how peopel expect the price of the commodity to change between now and the delivery time (See Wikipedia)
prone to - this usually happens, have a tendency to
risk management tools - things like futures contracts and insurance policies that help people protect themselves against risk
median prices - the middle price (when arranged from lowest to highest price)
paying the difference (between A and B) - paying amount A - amount B
opt to - choose to
driven by panic - caused by people acting getting scared and firghtened
drunkard-like manner - like someone who drank too much beer, wine, or whisky
dictated by - caused by
dictated only by political benefits - what happens is determined only by the political gain that people make from it
futures contract - a contract to deliver a certain amount of a commodity on a date in the future, the price of the contract takes into account how peopel expect the price of the commodity to change between now and the delivery time (See Wikipedia)
prone to - this usually happens, have a tendency to
risk management tools - things like futures contracts and insurance policies that help people protect themselves against risk
median prices - the middle price (when arranged from lowest to highest price)
paying the difference (between A and B) - paying amount A - amount B
opt to - choose to
driven by panic - caused by people acting getting scared and firghtened
drunkard-like manner - like someone who drank too much beer, wine, or whisky
dictated by - caused by
dictated only by political benefits - what happens is determined only by the political gain that people make from it
According to Dr Ammar, the pledging scheme, which generally set prices higher than market rates, aiming primarily for political gain, would be harmful in the long run, as it addicts farmers and weakens their capability to improve rice quality.
He said rice that went to the government was mostly not grain owned by poor farmers but surplus output.
"According to studies, the quality of rice will be mainly determined by the proportion of rice trading by the government. Rice quality has significantly dropped over the last three or four years as the government turns out to be a giant buyer in the market," he said.
"Eventually, we're afraid Thai rice is likely to go for the lower market."
According to Dr Ammar, letting rice trade in line with the market mechanism would help stimulate the entire system, including farmers, to improve grain quality.
"Current farmers are not like their predecessors, as they are becoming more commercially oriented.
"Farmers are indebted, and are willing to be so because of the government's lending support which gives them more capacity for revolving their debts," he said.
addicts farmers - makes
farmers so they can't stop doing it, can't control themselves
surplus output - output above the amount they normally produce (higher prices earlier this year caused them to increase production which led to a surplus)
rice trade in line with the market mechanism - letting supply and demand determine the price of rice
stimulate - make something grow and develop further, increase activity
stimulate the system to improve grain quality
predecessors - people who came before you in the same position
commercially oriented - doing it as a business to make money (not a hobby or a charity)
indebted - owe people money, borrowed money that hasn't been paid back
capacity for revolving their debts - delaying repaying the money you borrowed by borrowing once again
surplus output - output above the amount they normally produce (higher prices earlier this year caused them to increase production which led to a surplus)
rice trade in line with the market mechanism - letting supply and demand determine the price of rice
stimulate - make something grow and develop further, increase activity
stimulate the system to improve grain quality
predecessors - people who came before you in the same position
commercially oriented - doing it as a business to make money (not a hobby or a charity)
indebted - owe people money, borrowed money that hasn't been paid back
capacity for revolving their debts - delaying repaying the money you borrowed by borrowing once again
(Source: Bangkok Post, business, 21-11-08, Ammar slams 'corrupt' rice scheme, PHUSADEE ARUNMAS, link)
