Experts worry over fiscal impact of rice-subsidy

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RICE SUBSIDY

Experts worry over fiscal impact of rice-subsidy
By Wichit Chaitrong
The Nation 2011-09-22

The cost of the rice-subsidy scheme threatens fiscal sustainability and may leave the government with little money for much-needed investment in infrastructure projects, experts have warned.

The cost of populist policies such as tax breaks for first-time buyers of vehicles and homes, and a guaranteed monthly income of Bt15,000 for newly graduated civil servants, will not be very high, said Narongchai Akrasanee, economist and former commerce minister.

"But we are worried about the rice-pledging scheme, as we don't know how much it will cost," he said yesterday on the sidelines of a seminar on fiscal sustainability hosted by the Fiscal Policy Research Institute, which is part of the Finance Ministry.

The Pheu Thai-led government will start to implement the rice-pledging project next month, with the party having promised during its election campaign to buy rice from farmers at the high prices of Bt15,000 per tonne for white rice and Bt25,000 per tonne for fragrance rice.

Olarn Chaipravat, adviser to Prime Minister Yingluk Shinawatra, earlier said the government would buy up to 25 million tonnes of rice from farmers at a cost of about Bt400 billion in the first year.

Kanit Sangsubhan, director of the Fiscal Policy Research Institute, shared Narongchai's concern, saying that the damage caused by the cost of the rice-pledging scheme was difficult to estimate.

"Populist policies implemented by governments have drawn money away from much-needed investment in infrastructure projects,"he said.

For example, the farmers' income-guarantee scheme implemented by the Abhisit Vejjajiva administration cost as much as Bt55 billion.

"If the damage from the new government's rice-subsidy programme is not great, then we will have a cushion, but we don't know how much of a negative impact [on the fiscal position] there will be," he added.

Kanit said the country over the next five years needed to invest about Bt4.4 trillion in water management, railroads, port facilities, energy and healthcare in order to improve its competitiveness. Water management alone, including measures to prevent flooding, requires an investment of about Bt300 billion over the period.

Gross investment, public and private, has declined sharply since the 1997 financial crisis to 25 per cent of gross domestic product from 1997 to 2010, against 39 per cent of GDP between 1993 and1997.

Public investment should be about 25 per cent of the annual budget, but it has not yet met the target, currently standing at just 19 per cent, he said.

Ticking time bomb

The rising cost of the Social Security Fund, the universal healthcare scheme and student loans will also pose a greater risk to government finances, Kanit warned.

He said the social-security burden would rise to Bt430 billion over the next 40 years, if there is no reform. Reform is therefore needed to lower the fiscal burden in order to support universal healthcare and student loans.

He said the government may need to increase value-added tax from 7 per cent to 10 per cent in 2014, as the plan to cut corporate income tax to 20 per cent will result in a revenue loss of Bt160 billion annually.

Tax reform could help the government to balance the budget in 2016, he added.
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Thai Rice Exporter Association voices concern over govt policy
NNT 2011-09-22

BANGKOK, 22 September 2011 (NNT) - Thai Rice Exporter Association has voiced concern over the government’s rice pledging scheme, which it fears, will boost competitive edge of other exporting countries.


The Association explained that the well-meant scheme, which the government expects to push up Thai rice prices in the world market, was likely to cause customers to turn to cheaper products from Vietnam.

The Yingluck government plans to buy jasmine rice at 20,000 THB per ton. Other kinds of rice are offered at 13,800 to 18,000 THB per ton. It is estimated that the rice pledging program will push Thai white rice on the world market currently sold at about US$600 per ton to a new high of $800-$850 per ton.

The Association disclosed that the neighboring country had begun to hoard rice in order to adjust prices upwards. Despite the price increase, Vietnamese rice will still be US$ 250-300 cheaper than Thai rice per ton.

Most importers of Vietnamese rice are ASEAN countries while African countries are major customers of Thai rice.

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Thailand admits losing $4.4bn from controversial rice scheme

Read more: http://www.foxnews.com/world/2013/06/18/thailand-admits-losing-44bn-from-controversial-rice-scheme/#ixzz2WdKzo7ss


BANGKOK –  Thailand's government has acknowledged losing more than $4.46 billion in a much-criticized scheme to support rice prices that ended up dislodging the country from its top spot as the grain's exporter.
 
Prime Minister's Office Minister Warathep Rattanakorn said Tuesday the government's sales of the rice failed to cover the sum it paid to farmers under the 2011-2012 subsidy program.
 
Under the scheme, the government buys rice from farmers at about 15,000 baht ($490) a ton, hundreds more than the market price. Its inability to resell much of it on the international market allowed India and Vietnam to surpass Thailand in export value .
 
The government was criticized for refusing to disclose the losses and the amount of stockpiled rice. Prime Minister Yingluck Shinawatra said Thai farmers gained from the program




I mentioned in another posting somewhere that Thailand will run into real economic issues with the rice subsidy, plus the impacts of the Thai minimum wage.  Common sense is that increased labor costs are going to increase rice prices, which loses the competative edge with countries like Vietnam that has lower labor costs. 

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Rice pledging price cut to B12,000

http://www.bangkokpost.com/news/local/355905/mixed-reaction-on-the-government-decision-to-cut-pleading-price

Published: 19 Jun 2013 at 17.02 Online news: Local News

An emergency cabinet meeting on Wednesday agreed to reduce the price paid under the rice-pledging scheme by 20 per cent, effective with the second crop beginning on July 1.

The decision cuts the rice-pledging price from 15,000 to 12,000 baht per tonne, as proposed by the National Rice Policy Committee, PM’s Office Minister Varathep Rattanakorn said.

The reduction in the pledging price will take effect from July 1. In addition to the 20% cut, the amount paid to each farming family will be capped under the new rules at 500,000 baht, he said.

Mr Varathep said the decision was based on the changing price of rice on the world market, the baht’s appreciation, and the increase in global rice supply.

The price cut is also aimed at reaching a balanced budget in 2017, he added.

Council of State secretary-general Atchaporn Jaruchinda endorsed the price change as lawful, the minister said.

But Prasit Boonchoey, chairman of the Thai Farmers Association, said his group will petition Prime Minister Yingluck Shinawatra, asking her to review the cabinet’s decision.

He said rice farmers, particularly those in the central plains, disagreed with the reduction. He said 12,000 baht per tonne for ordinary paddy is too low.

Rice costs more than 8,000 baht per tonne to produce and the 12,000 baht pledging price can be reduced by up to 15% to account for moisture content in the rice, he explained. Farmers could receive just 9,000 to 9,500 baht per tonne after deductions for excessive moisture, Mr Prasit said.





Looks like things are going to get tougher for Rice Farmers