Farm policies can only lead to more government debt

Farm policies can only lead to more government debt
By The Nation
Published on June 17, 2011


Farmers are being short-changed with subsidy promises that will only reduce productivity, competitiveness and long-term sustainability

Political candidates have so far failed to offer farmers any platform that would help them improve their productivity. The promises made by the two key parties are only short-term solutions to poverty and debt.

Recently, Pheu Thai and the Democrats announced their farmers' assistance programmes in the run-up to the election. The two key parties clearly differ on what they plan to do. Pheu Thai has offered a pledge programme, while the Democrats have announced a price guarantee programme should either party win the election on July 3.

The farmers' vote is important as the sector employs 14.69 million people from a total 38.97 million workforce in Thailand. Although people in farming account for a majority of voters, many of them still live in poverty. But this group is a powerful force politically.

The Democrat Party says it will continue with its income guarantee plan of the past two years. Under this scheme, farmers receive the difference between the insured price and the benchmark price on their rice produce. At present, the insured price is Bt11,000 per tonne of rice while the market price is around Bt8,000. That means the government has to spend around Bt2,100 per tonne in subsidies. It is also estimated that the government will have to spend around Bt40 billion to Bt50 billion each crop season to subsidise the rice price.

Prime Minister Abhisit Vejjajiva said recently he believed the Democrat Party's income guarantee plan would be more effective in addressing farmers' needs because the payments would reach small farmers directly. Also, he said, every farmer, including smallholders who don't produce substantial amounts of rice, would be entitled to this income guarantee plan.

However, there is a problem with the income guarantee plan. Because farmers realise they will receive the insured price anyway, they have less incentive to improve their productivity. This can only result in a greater number of inefficient farmers in the future.

Another criticism of the income guarantee plan is that the government would have no rice in stock for market intervention if it felt the need to use the rice stockpile to control market prices in the future.

But Pheu Thai's plan is no better, and probably worse. The party's rice pledging programme has also been criticised by economists and some farmers' representatives because it would lead to a windfall for rice millers, not the farmers.

A Thailand Development Research Institute study shows that the rice pledging programme may not benefit farmers because the majority of them do not have the facilities to store their rice to pledge with the government. Farmers are expected to receive only 40 per cent of the money spent on this programme. The remaining 60 per cent is likely to go to rice millers.

The rice millers stand to gain from the programme because they can provide warehouse space to keep mortgaged paddy, as the government also does not have facilities to store the supply from farmers.

In addition, Pheu Thai has promised to accept rice from farmers at Bt15,000 per tonne, which is 40 per cent higher than the insured price of Bt11,000 offered by the Democrat-led government over the past two years. That would mean even higher spending on subsidies.

Even worse, history shows that a very low number of farmers redeem their rice from the mortgage programme. Therefore, the government would also carry the burden of a high loss from the plan.

But Pheu Thai may prefer the rice pledging plan because it could command the supply of rice through a huge stockpile, which it could then use to intervene in or manipulate the market.

At any rate, both the income guarantee plan and the rice pledging programmes are far from perfect. These schemes will distort market prices and very likely lead to corruption.

Neither party has offered any real solution to the problems faced by farmers. In fact, the fundamental issues for Thai farmers are the lack of access to opportunity, education and financial services. At the same time, Thai farmers and consumers will be challenged by the price fluctuations in agricultural produce. Severe weather and global warming could reduce farm output in the future.

Instead of focusing on giveaway subsidies, the future government should work to improve the competitiveness of our farmers to ensure the sustainability of our farm sector and to ensure long-term food security.