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by Vuttiphol Wanglee, Assistant to Managing Director, Production & Purchasing, Chaitip Co.,Ltd. On the current burning debate in Thailand, Khun Vuttiphol will give an industry expert explanation on the pros and cons of the rice mortgage scheme, corruption loopholes in the system, and an overall perspective on the rice subsidy program in the long term. Khun Vuttiphol is the Assistant to the Managing Director in Production & Purchasing at Chaitip Co. Ltd. Previously, he worked at Ayudhya Allianz C.P. Life PCL and Allianz Insurance Management Asia Pacific Pte Ltd. He was educated at Babson College and New York University Stern School Of Business.
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Rice Mortgage Scheme: The Real Story
Vuttiphol Wanglee
Part I: Prelude to Rice Mortgage Scheme
Source: FAO Market Monitor
• World rice supply has outstripped demand for the past 7 years • Closing stocks is at 12 year high • More supply -> cheaper price • We have been in the buyer’s market for the past 7 years • Farmers get poorer in this market condition
Facts About World Rice Industry
Price trend reflected abundant supply
Lower Price, Lower Income
Conclusions:
• Without government interventions, Thai farmers will be poor (88 Baht/day income*)
• To tackle this problem:
– Democrat Party uses Income Guarantee Scheme
– Puerthai Party uses Rice Mortgage Scheme
*From government publishing: ‘Deep and Real Understanding of the Rice Mortgage Scheme’
Part II: Subsidy Programs
Farmers Farmers
Rice Mortgage Scheme Income Guarantee Scheme
Assumption: Government guarantees income at 10,000 Baht/Ton
Assumption: Government guarantees to buy from farmers at 10,000 Baht/Ton
Comparison
Get 5,000 Baht Extra Sell 5,000 Baht/Ton
Rice Mill Buys at 5,000 Baht
Government pays 5,000 Baht extra
Farmer sells to government and get 10,000 Baht/Ton
Government buys at 10,000 Baht/Ton Rice Mill has to buy
at 10,000 Baht/Ton
Government sells G2G, private companies, or release to domestic market
Export Profit/Loss depends on world rice price
Source: Thairath
Objectives of Subsidy Programs
Rice Mortgage Scheme
• To lift Thai farmers’ well being
• To create stability of Thai economy through increased domestic consumption
• To increase Thai rice price
• To control world market price
Income Guarantee Scheme
• To lift Thai farmers’ well being
• To create stability of Thai economy through increased domestic consumption
• To allow market mechanism to dictate rice price
• To encourage export
Source: Department of Internal Trade
Part III: Outcomes of the Rice Mortgage Scheme
Successfully Maintain Farm Income at Historic High Level
Source: Bank of Thailand
Successfully Increased Thai Rice Price
Source: Oryza
Thai fragrant rice is 135%
more expensive than
Vietnamese fragrant rice
Thai white rice is 36% more
expensive than Vietnamese white rice
Miss export value target
Vietnam
India
Thailand
Value Decline: 23.7% in 2012 10.26% in 2013
Source: TDRI
Export Volume Ranking Down to # 3
Source: USDA
-35%
-13%
Rice stock at highest level causing quality to deteriorate
Source: USDA
An Expensive Scheme
Source: Krungtaep Turakit
Loss 136 Billion Baht
1. Some people uses farmers’ right to
mortgage rice
2. Rice Mill/Farmer mix low quality rice
3. Rice Mill cheats farmers by wrongly measure
moisture
8. Corruption through rice
sell
Corruptions Increases
Source: Thairath
Conclusions Pros: • Successfully maintains farm income at high level • Successfully stimulates economy in the rural area • Successfully increase Thai rice price Cons: • Export volume and value decline significantly • Quality of rice decline (milling, storage, and mixture of sub-
par rice) • Expensive budget • Level of corruption has increased
– Millers gain profit through using farmers’ rights – Millers gain profit through mixing low quality rice to mortgage – Only well connected firm gets warehouse rice cheaply
“If any government thinks they are living above the market, they are living in a fool’s paradise,” - Tejinder Narang, an advisor to one of India’s largest grain exporters, Emmsons International
“I do not know a single independent economist who
thought Thailand’s rice plan would work” - David Dawe, a senior economist at FAO
Part IV: Corruption Evidences
1. Smuggled Rice into Government Warehouse
Source: Cambodia Rice Exports Association
Source: Reuters (Insight: Smuggling rice to Thailand - like coals to Newcastle)
Thailand has become Cambodian top importer through smuggling
Over 750,000 tons of rice smuggled to Thailand every year
“Up to 300,000 Tons of paddy were smuggled into Thailand in 2012” - Thon Virak, director of Cambodian state-owned rice exporter Green Trade
"Clearly shipments (to Thailand) started going up since the intervention scheme started. It is highly attractive for the neighboring countries to try and get as much rice across to Thailand as possible and supply into the scheme.” -Darren Cooper, Senior Economist at The International Grains Council in London
2. Favor well-connected firm
Company S Export Volume VS Thailand Rice Export
Company S Export
Source: Thai Rice Exporter Association: Exporter Ranking
• The increase capacity is equal to 1.3 Million Tons/Year (20% of total Thailand export)
Source: Buhler e-mail 19/6/2013
While Thai Rice export volume is coming down, the company is expanding at the fastest pace
Evidences suggesting an influential person in the ministry of commerce is using a car belong to that company
Source: http://www.naewna.com/politic/54168
Conclusions
• The scheme has its merit in helping farmers increase their income and stimulate rural economy
• But need to address the following issues: – How to encourage rice export – How to maintain good quality rice in storage – How to reduce corruption from top down – How to solve long term problem of expensive production cost
My Personal View: This scheme will work only if: • We can limit production/export volume among major rice
producing nations • Rice can be stored like oil with no effect on quality