Government stuck with 14,000 baht per tonne price support even though rice prices are falling
By Jon Fernquest
How much will the government lose or gain from
its price support programme for rice?
As rice prices decline this question becomes more and more important.
The market price for rice is 10,000 while the price that the government is offering to pay farmers is 14,000 per tonne. Rice prices have fallen about 20% since the government offered farmers this high price.
If rice farmers just grew their normal rice crop the government could lose money buying this crop up and selling it, but the high rice price also provides farmers an incentive to grow more than normal. An influx of 23-24 million tonnes of second-crop rice into government rice stocks is expected this year.
We can only say that the government "could lose money" because we don't know what the future price of rice will be. The government has enough money to store rice until prices are higher and experts predict that the price will be high for several years to come. The Australian drought that indirectly caused Thai rice prices to soar the first time, threatens to push up world food prices once again, including Thai rice (See article on the causes behind the first wave of rising prices and article on drought).
Rice Price Insurance
A government insurance scheme, rather than an outright subsidy to farmers, might be the best way to protect farmers without possibly losing money. Unlike subsidies, insurance would also not provide farmers an incentive to grow rice when perhaps they shouldn't be growing rice. Thailand's National Rice Policy Committee has come up with just such an insurance scheme:
"National Rice Policy Committee, proposed recently that the government establish a minimum-price insurance system for rice as a way to partially diversify risk from price fluctuations.According to Mr Somporn, the system would function like an options market, with advance agreements made according to the prices agreed in contracts within a determined period.
The price insurance should be based on the farmers' production costs plus a "slight" profit to prevent them from losing money from a paddy price slump.
...the programme would require the establishment of a fund as working capital to manage the minimum-price insurance. The amount was expected to be much lower than the budget of the government's recently announced rice pledging scheme."
The most important benefit of the insurance scheme would perhaps be to get the government out of the rice business and eiliminating the opportunities for corruption that government involvement provides powerful people.
Some experts, however, say that such an insurance system will work if the market mechanism that detemines the price of rice can't be manipulated by large powerful players. Right now Thailand's five largest rice exporters accounting for 60% of Thailand's rice exports have the ability to influence and manipulate rice prices. This might prevent any insurance system from working fairly and efficiently.
(Source: Bangkok Post, business, 11-07-08, PHUSADEE ARUNMAS, temp-link)
Vocabulary:
stuck with Y
- have Y, don't want Y, want something else Â×¹¡ÃÒ¹ ÂÖ´äÇé
price support programme - a government programme to
help farmers by giving them a fixed price for their rice (usually a
little bit above market price) â¤Ã§¡ÒûÃСѹÃÒ¤Ò¢éÒÇ
an incentive - a reward for doing something
¼ÅµÍºá·¹
influx - an amount coming into a place
¡ÒÃäËÅ·ÐÅÑ¡à¢éÒÁÒ
predict - say what to expect in the future ·Ó¹ÒÂ
drought
- a period of time when there is no rain and therefore no water (for
farming) ¤ÇÒÁáËé§áÅé§
a wave of Y - a lot of Y happens at one
time ¡ÒþÃÑ觾ÃÙ »Ãдѧà¢éÒÁҢͧ
insurance - a system for protecting yourself against
loss, you pay an insurance company a regular amount of money (a
premium), in exchange you are paid money if certain types of loss or
damage happen to you (for example, accident, health, fire insurance)
(See Wikipedia)
¡ÒûÃСѹ
a scheme - a plan or system for achieving some goal
á¼¹¡ÒÃ
outright - open and direct (rather than hidden and
indirect) â´ÂÊÁºÙóì
a subsidy - giving money to someone to help them to
pay for something (See glossary) à§Ô¹ª´àªÂ
come up with - create ÊÃéÒ§ (ÇҧἹ¡ÒÃ)
diversify risk - hold a variety of
offsetting risks, so that your overall risk level is reduced
¡ÒáÃШÒ¤ÇÒÁàÊÕè§
price fluctuations - when prices go and down
(usually unpredictably so there's is the risk of losing money)
¡ÒâÂѺ¢Öé¹Å§¢Í§ÃÒ¤ÒÊÔ¹¤éÒ
an option - an agreement that gives you
the right to buy or sell something to someone in the future (used to
hedge and reduce risk)
an options market - a securities market where
options are traded
hedge - take action to protect from
harm (by purchasing a risk in the opposite direction that offsets the
risk that you have) »éÔͧ¡Ñ¹ Å´¤ÇÒÁÊÙàÊÕÂ㹡ÒÃŧ·Ø¹
a price slump - a period of time when
prices are lower than normal ÃÒ¤Òµ¡
working capital - money used to run the
day-t-day operations of a business à§Ô¹·Ø¹ËÁعàÇÕ¹
manipulate rice prices - cause rice prices to move
in direction that will help you to personally make money from the price
changes (See glossary)
¡ÒûÑè¹ÃÒ¤Ò¢éÒÇÊÒÃ˹éÒâçÊÕ