Of Phantoms and Stinking Rice

[Guest fountainhall]

As an old Chinese proverb says: “If you are planning for a year, grow rice. If you are planning for a decade, plant trees. If you are planning for a lifetime, educate people.”

Seems the Yinkluck government remembered the first, but ignored the other two when it took office. One of its most controversial electoral promises was to introduce a “rice pledging” scheme. The objective was to maintain a high ceiling on the price of rice in order to give farmers more income. Unabashedly populist and playing right into the hands of the Thaksin supporters, it was unsurprisingly welcomed by all farmers. They after all stood to gain from the price of rice being jacked up to US$420/ton – an increase of 60% over the year before. All this despite the fact that the country had warehouses filled with reserves totaling 10 million tons.

However, like most price-fixing schemes, unless it is constantly monitored and adjusted, it gets so out of control as to be positively dangerous fiscally. Talk in all the Thai media of late has been of the huge losses incurred by the scheme. Indeed, not only huge, but monstrous. In its first year of operation, it is estimated that the scheme has cost Bt. 136 billion (that’s estimated at Bt. 40,000 for each taxpayer in the country!!).

That though depends on who you talk to, as others suggest it is actually Bt. 260 billion. Yet some others talk about the value of all the extra rice that is now stored in warehouses around the country, some available for sale overseas if only someone could get their finger out and get a sales mechanism up and running; much of it, though, just rotting.

As usual ministers have been running around like headless chickens denying this sort of loss has any effect on the country and the scheme will continue. Not any more, it seems. The Chairman of the National Rice Policy Committee is now singing a different song. Despite shrugging off all criticism of the scheme only a few months ago, the Minister is now saying it has to come down “to maintain fiscal discipline and not place too much of a burden on the State’s coffers.”

Now, isn’t that a funny thing! A Minster in a government which has given away gazillions of Baht to over a million first-time car buyers, thereby clogging Bangkok’s roads with vast numbers of additional vehicles (anyone hear a Minister talk about “traffic management discipline”?), and which has spent an untold sum on the 2020 Expo before suddenly withdrawing without any reason being given, talking about fiscal discipline?
 

One might wonder why the minister had not felt a similar need for fiscal discipline several months ago, but instead had persistently shrugged off all criticism of the scheme and refused to come clean on almost everything about it -- be it the amount of rice sold and still in stockpiles, the price of rice sold, the buyers, and the estimated losses so far.

 

In legal terms it could well be called submission to evidence – that the incriminating evidence is so overwhelming that the defendant is caught speechless and unable to make any defence.

 

In the case of Mr Boonsong, the loss from the scheme, although just 136 billion baht as now estimated by the Supa Piyajitti panel against 260 billion baht earlier estimated by the same panel, is still huge and can no longer be covered up by the minister without putting the entire government at risk.

 

As for the millions of tonnes of unsold rice, Mr Boonsong said that the Foreign Trade Department had been assigned to explore ways to sell the grain. One of the channels being considered is the futures market.

 

But the idea of turning bureaucrats familiar with desk jobs into rice salesmen is indeed a bad one. Had they been successful at their primary job the warehouses would not still be packed with mountains of unsold and steadily rotting rice.

 

And as for the latest loss figure - 136 billion baht in total for the first year - it is believed that many people are still doubtful that it is right and whether the unsold rice has been taken into account or not.

 

Whether the actual loss is 136 billion baht or 260 billion baht, what really matters about this populist scheme is who are the people who benefit most from the programme, the ordinary farmers who are supposed to be the main beneficiaries, or all the parasites – the millers, rich farmers, corrupt bureaucrats and politicians who have taken advantage of the scheme to line their pockets?

 

Ah! The omnipresent phantom of corruption strikes again! Did anyone seriously believe it wouldn't? As the Bangkok Post summarised in an earlier article last week: “The scheme itself stinks.”

http://www.bangkokpost.com/opinion/opinion/355674/who-really-benefitted-from-the-rice-scheme
http://www.irinnews.org/report/96158/thailand-rice-pledge-scheme-one-year-later
http://www.bangkokpost.com/opinion/opinion/354250/boonsong-botches-chance-to-defend-rice-scheme

[KhorTose]

Sadly, I am afraid i must agree. While I have little use for the democrats, I admit this was not only a stupid idea, but one that did not come anywhere near its goal of helping poor farmers. If they truly wanted to help the farmers they would have limited this buying scheme to small farmers that owned their own land. Instead the only people it seems to have benefited was big land owners and warehouse owners. A mistake or just a different group of the rich lining their own pockets from with the governments money. How sad.

[Guest fountainhall]

What really surprises me about this ridiculous policy is that the Thaksins, brother and sister - for it was clearly the brother's idea, should have been aware that efforts to manipulate international market pricing is almost always doomed to abject failure - and worse.

Hadn’t the Thaksins heard of Bunker Hunt and his brother? In the 1970s, this pair started buying silver at US$2 per ounce with the intention of cornering the world market in the expectation of sending prices skyrocketing? In 1979 alone, the price of that metal shot up from US$11 to $50 per ounce. The Hunts were sitting on a fortune estimated at around US$4 billion. Alas for the Hunts, the market quickly collapsed and that fortune collapsed with it. They declared bankruptcy.
 
As TIME magazine recently reported -
 

“If any government thinks they are living above the market, they are living in a fool’s paradise,” says Tejinder Narang, a former rice trader who now advises one of India’s largest grain exporters, Emmsons International. Narang reads a running stream of news reports, trade publications, monthly studies – any news that will keep him up to date on the latest machinations of the market.

When he saw Thailand’s pledge to hike up the price of rice, he says he and virtually every global trader knew how to respond. With the click of a mouse, or sometimes a quick phone call, his traders in Dubai could switch their purchases from Thailand to suppliers in India, Pakistan, Myanmar, or Vietnam. “It doesn’t take five minutes,” he says. “There are no government-to-government contracts. There are only business-to-business contracts. I can buy anything from anywhere.”

And it was Thailand’s great misfortune that exactly one week after it slashed exports, India lifted its export ban, flooding the market with 10 millions tons of rice. Rather than orchestrate a price hike, Thailand helplessly stood by as global prices sank.

Pressed to name a single independent economist who thought Thailand’s rice plan would work, David Dawe, a senior economist with the U.N.’s Food and Agriculture Organization, told TIME –
 

“Not that I know of.”

http://world.time.com/2013/07/12/how-thailands-botched-rice-scheme-blew-a-big-hole-in-its-economy/
 
Last year Thailand's rice exports fell by 44%. And of course massive corruption is involved. One scam has lower quality rice being imported, mixed with sometimes rotting rice from the stockpiles and then sold here at a much higher price.
 
According to today’s Bangkok Post, the scheme is presently estimated to cost the government about “Bt. 600 billion” – nearly US$20 billion! Meanwhile 17 million tonnes of rice sits “unsold in decaying government stockpiles”.
 
http://www.bangkokpost.com/news/local/364294/rethinking-the-rice-subsidy

Whilst we now live in different times, we might recall that in 1997 the Thai government used up US$28 billion of its $30 billion foreign exchange reserves in a reckless and futile attempt to prop up the Baht. It failed, the economy collapsed and within a few months the Baht crashed to 50% of its previous value. 
 
How far will the Thaksins risk the country's financial future by continuing with this disastrous rice venture?