The Rice Pledging Policy: Its Effect on Security

     However, the rice pledge policy has restrictions when apply to paddy because of high operational costs, especially transportation costs and storage costs. There are also rice degradation costs. Thus, for rice farmers who pledge their rice it is necessary for the rice pledging price to be much lower than the market price, so as to motivate them to redeem the rice, or else to make the rice pledge receivers profit or not have loss when the unredeemed rice is sold.

     In practice, the government's rice pledging project is not operated according to the method mentioned above, but the government buys rice from farmers, which the government then keeps and distributes by itself. Meanwhile, this also provides income assistance for farmers because the government buys rice from farmers at a so much higher price than the market's, that it is impossible for farmers to return to redeem their rice.

     Although the government's rice pledging policy has advantages in terms of giving rice farmers an income that is certain and foreseeable,  their income is much higher than the revenue generated from market rice sales, while being the cause for small farmers to have higher income.

     First, this policy provides assistance to all rice farmers who pledge rice, regardless of their need. Moreover, poor farmers who grow rice for their own consumption will not gain benefit from this project. This policy will make budget spending lack effectiveness.

     Secondly, this policy will create a very high budget burden due to the relatively high price of rice pledging. The policy will make the trend of loss to be very high. The government must also pay for rice milling to mill rice, store rice and transport rice, as well as the cost of inspection, cost of rise distribution, and also including damages due to the deterioration of rice quality. The high pledge rates will encourage farmers to grow more rice and then will create more budget burden. The cancellation of the policy is going to be difficult because there will be strong opposition from farmers who are supporters of the government.

     Third, the policy will destroy the efficiency deriving from the market mechanism. (although rice market may not be a perfect competitive market, it is a competitive one), because the state will be the only rice merchant. This policy will cause the mill to lack motivation to improve the mill due to the project having no competition in selection the efficient mills to join the rice pledging scheme.

     Fourth, this policy will undermine the competitiveness of Thailand's rice industry. The rice industry in the country has weakened, with the government becoming the sole rice merchant. Meanwhile, rice exporters or traders of rice in bags will have to auction to buy rice from the State. This will bring each manufacturer into a situation of risk, as to whether or not they will buy rice from the State to deliver to customers according to the price, quantity and quality that customers require.

     Fifth, the rice pledging policy risks high corruption as the government must hire the private sector for work operations instead of the government undertaking these, such as the purchase of rice grains, the milling of rice, the keeping of rice and so on. Meanwhile, the government has a limited capacity to monitor (such operations as the checking of rice quality and the monitoring of stockpiles). This will be a government project where government officials or the private sector will have channels seeking benefit from the implementation of several processes.

     Sixth, the rice pledging policy may undermine the strength of social networks, causing farmers to make the transition from dependence on one another to dependence on the State. There are farmers' social organizations, (such as cooperatives, or community enterprises) that do business with rice milling, grain warehousing or the selling of grain products. If the farmers' social organizations are not the mills under the rice pledging scheme, these organizations' roles will be reduced or farmers will reduce their use of such services.

     In my opinion, the success of the rice policy should achieve three key objectives: to raise the income of farmers, create efficiency in the economy and create food security for the country. The rice pledging policy of the government could achieve the goal only by raising the income of farmers, however not by sustainably increasing their income due to the community enterprises and the Thai rice industry becomes weaker. The project also fails to perform economically because the government must spend on a very high budget.  It may destroy the diversity of the country's food production because farmers turn to grow rice instead of producing other agricultural products.

     The rice pledging policy should be implemented under the right concept as I have mentioned above. In particular, there should be suitable rice-pledge pricing that will not cause too much burden on the State budget and cause the government to interfere too greatly in the rice market.  However, if the government wants to use the rice pledging policy as a tool to raise the revenue of rice farmers, then the government should determine groups of farmers who will join the project, considered according to necessity, such as only poor farmers, farmers having small farming areas or farmers who have to rent land from others, and so on.

     However, in the long run, the government should support the implementation of agricultural futures to prevent the risk of uncertain rice pricing instead of the rice pledging policy. This can be achieved by developing the knowledge of farmers on the agricultural futures market, developing information technology that is appropriate for farmers. This will be a signal for farmers to know the direction of agricultural production and product prices in advance and will be the way to access agricultural market services in advance.

     The government should also focus on increasing rice productivity, including the development of irrigation where farming in many areas relies on rainfall only, receives low production yields. The government should support the development and use of technology in rice production such as, the development of rice varieties, or cultivation and harvesting technologies and storage and processing in order to increase the value of rice production.

     The promotion of competition in the rice industry is another measure that should be given priority.  Efficiency should be achieved in rice production, creating incentives to improve the quality of rice and thus to benefit the rice industry, giving it fairness.

     The government should importantly encourage the adjustment of production and labour structures by developing the knowledge and skills of agricultural labourers, allowing agricultural workers to move into other economic sectors with higher productivity, higher incomes and more stability, including support for agricultural mechanization (farm mechanization). This would require farmers to gather together to form large productions, such as the establishment of a community business, integration to be a strong cooperative, to have joint ventures with the private sector, and so on. This approach would make it possible to produce with high productivity and cause farmers to have more bargaining power.

     The rice pledging policy is a clear example of the use of rice policy to seek political benefit. It focuses on the implementation of policies which see results quickly. Although the policy is the trump card of the government to win in politics, it may however cause loss to the government and defeat them due to risks that the government itself has created.

Kriengsak Chareonwongsak.
Senior Fellow at Harvard University?s Center of Business and Government.
kriengsak@kriengsak.com, http://www.kriengsak.com