Thailand Has No Easy Options to Pay for Rice Subsidy; “It’s not clear where the new fund of 270 billion baht is coming from”

October 7, 2013, 7:22 AM

Thailand Has No Easy Options to Pay for Rice Subsidy

WARANGKANA CHOMCHUEN

BANGKOK – Thailand has decided to continue its costly rice program, but critics are questioning how the government will find the money to pay for it. The controversial program turned three years old this past week, when the government announced it would maintain an earlier agreed-upon subsidy rate for the grain harvested in the wet season, and a slightly lower rate in the off season. It also limited the maximum value of rice each farming household can sell in order to curb the ballooning subsidy expense.The government’s decision to continue the program resulted in farmers of rubber and corn coming forward to ask for pledges to keep their price supports. It also comes as the Thai government is struggling to recover from a technical recession, while aiming to lower its budget deficit to achieve a balanced budget by 2017.

The rice subsidy program, running between October 2013 and September 2014, is expected to need around 270 billion baht, or $8.6 billion, to buy 11 million tons of rice.

“It’s not clear where the new fund of 270 billion baht is coming from,” said Nipon Poapongsakorn, a researcher at Thailand Development and Research Institute, a non-profit policy research center. “It’s a big problem, even though the government has already trimmed the subsidies.”

Since the Prime Minister Yingluck Shinawatra launched the rice subsidy program in 2011 – a populist campaign to help local farmers by buying rice at as much as 50% above market price – the Cabinet has approved a total budget of $16 billion, taken from a state-run bank, to fund the program.

But the government has already spent about $21.4 billion in total since then, Commerce Minister Niwatthamrong Boonsongpaisal told reporters last month. The Commerce Ministry, which manages the program, has paid some $5 billion from rice sales back to the bank.

Ms. Yingluck told reporters in September that the government would use the money from selling rice to fund the subsidy and urged the Commerce Ministry and Finance Ministry to work together to figure out how to make the math work.

There was no immediate response from the Commerce Ministry.

Although Ms. Yingluck told reporters that the government isn’t considering taking out more loans, critics worry that the government may have no other option because it can’t sell rice fast enough to not keep incurring losses.

Vichai Assarasakorn, vice chairman of the Thai Chamber of Commerce, said borrowing would simply create additional problems.

“If the government tries to raise the subsidy budget ceiling and borrow more to fund the program, it will send out a wrong message about its budget and invite more groups to ask for similar kinds of subsidies,” Mr. Vichai said.

Borrowing would also hurt Ms. Yingluck, who has seen her popularity drop amid the fight over the farm subsidies and discontent among average Thais over the rocky economy.

The government is trying to sell rice it bought at higher-than-market prices on the world stage to pay for the rice subsidy, but the cost of the government’s rice stocks has rendered Thai rice uncompetitive as global rice supplies grow. The subsidy incurred losses of about $4.3 billion loss in the first crop year.

The Commerce Ministry offered 660,000 tons of rice via three tenders in July and August, but only sold about a third, or 240,000 tons. In August, the Commerce Ministry said it signed a contract to sell 500,000 tons of rice to Iran.

In September, Mr. Niwatthamrong said the government sold 1.2 million tons of rice to China and promised to show a sale contract to the public soon to ease public skepticism. Last year, the government said it had sold about 7 million tons of rice to foreign governments, but there has been little evidence.

“So far the government produced no evidence and it stirred up a lot of speculation of irregularities,” Mr. Vichai said. “Such state-level transaction must have a record. It’s really bizarre.”

The Commerce minister said last month the government’s rice stocks have fallen to about 10 million tons, from 17 million tons in June.  The remaining stockpile is equal to the country’s total rice exports in 2011.

Last month, a Commerce deputy minister said the ministry planned to ask Public Warehouse Organization, which is under the ministry’s supervision, to pay a lease that the government owes private mills and warehouses in the form of rice, instead of cash. The outstanding bill amounted to $32 million.

“This kind of payment is normal and on a voluntary basis,”  Commerce deputy minister Yanyong Puangrat told reporters late last month. “It’s aimed to boost liquidity of the operators [of warehouse and millers] and also provides a channel to offload the government’s rice stocks.”