Sept. 24 (Bloomberg) -- Former Thai Prime Minister Thaksin Shinawatra said a rice-purchase program should be extended for several more years, rebuffing critics who say the policy has increased government debt and encouraged corruption.
Prime Minister Yingluck Shinawatra implemented the price-support policy to boost incomes of farming families whose support helped her Pheu Thai party win an election last year. The program, under which the government buys rice from farmers at above-market rates, reaps economic gains that are about three times the program’s cost, Thaksin said in an interview.
“If we manipulate the mechanism for two years, three years, then things will be moving naturally,” Thaksin, who was ousted in a 2006 coup and has lived overseas since fleeing a 2008 jail sentence, said in Singapore today. “The rice price in the world market is increasing.”
Yingluck’s opponents have attacked the policy as her party pushes for constitutional changes that would allow Thaksin to return and investigators weigh charges for the deaths of his supporters during protests in 2010. Parties linked to Thaksin have won the past five elections on support from rice-growing areas that are poorer and more populous than the rest of Thailand.
The government spent 282.5 billion baht ($9.13 billion) since October buying about 18 million metric tons of unmilled rice from 2.45 million farmers at above-market rates, according to the Ministry of Commerce. Spending may increase by a further 405 billion baht in the fiscal year starting Oct. 1, as the government seeks to buy as much as 34 million tons, Commerce Minister Boonsong Teriyapirom said on Sept. 21.
“This may help consumer spending to remain well-supported and expansionary fiscal policy may add momentum to growth,” said Enrico Tanuwidjaja, an economist at Royal Bank of Scotland Group Plc in Singapore. Thailand’s fiscal deficit may expand to more than 2 percent of gross domestic product next fiscal year, from 1 percent, because of the rice program, he said.
“We do not just throw away the money,” Thaksin said. The program will lead to higher government revenue through the sale of stockpiled grain, increased local consumption and will help cushion Thailand from the effects of the European debt crisis, he said. “The domestic economy in Thailand accounts for only 30 percent of GDP growth but now is increasing because people have the purchasing power.”
Southeast Asia’s second-biggest economy expanded 4.2 percent in the three months through June from a year earlier, exceeding all 16 forecasts in a Bloomberg News survey that had a median prediction of a 3.1 percent rise. The rice policy “helped boost the economy in the first and second quarter,” Arkhom Termpittayapaisith, secretary-general of the National Economic and Social Development Board, said on Aug. 20.
Government purchases will boost stockpiles of milled rice from the annual harvest that starts next month to a record of 12.1 million tons and may reduce Thailand’s exports this year by 39 percent to 6.5 million tons, less than India and Vietnam, according to the U.S. Department of Agriculture.
Thaksin said the government has about 17 million tons of paddy on hand, and stockpiles of milled rice are estimated at about 4 million tons. Sales to Indonesia, Iraq and Ivory Coast, as well as other countries in the Middle East and Africa, will keep reserves down, he said.
“I don’t think we have much because we keep selling,” he said, referring to the rice stockpile next year.
Thailand’s October harvest accounts for about 70 percent of total output, and a secondary crop is harvested through to July. The United Nations’ Food & Agriculture Organization said in August that Thailand should be able to retain its position as the world’s top exporter, shipping 7 million tons this year.
‘Still Number One’
Shipments at that level would mean that Thailand “is still number one, but with a better price,” Thaksin said. “If we were to push to sell to compete with India when they started dumping the rice at that time we probably end up with $400 per ton. Now it’s $602. We will be doing ok.”
The government is targeting exports of 8.5 million tons this year, boosted by sales to Bangladesh, China and Indonesia. Sales tumbled 45 percent to 4.75 million tons for the year through Sept. 18, according to the Thai Rice Exporters Association.
Thaksin said the previous government “spoiled” exporters by selling them cheap rice and called on them to become better at marketing. About 40 percent of Thailand’s 67 million people who depend on rice farming are satisfied with the policy, he said.
Under the program, the government pays as much as 15,000 baht a ton for unmilled white rice, which accounts for more than 70 percent of all exports, and 20,000 baht a ton for a higher-quality variety. Purchases for the crop year ending this month may increase by a further 5.5 million tons because farmers planted additional grain after floods receded at the end of last year, Boonsong said last week.
The program helped boost prices of unmilled white rice as much as 24 percent to 10,800 baht a ton in local markets from a year ago, and lifted prices of jasmine paddy by 18 percent to 16,000 baht a ton, the Commerce Ministry said on Sept. 12.
Total losses from the program are estimated at about 60 billion baht a year, based on a purchase cost of about $660 a ton, Thaksin said. “We don’t lose that much,” he said.
The cost could rise to 200 billion baht after accounting for losses and storage fees for the grain, Kiat Sittheeamorn, an opposition parliamentarian, said last month.
An income-support program implemented by the previous government, headed by now-opposition leader Abhisit Vejjajiva, provided about 67 billion baht in direct payments to 4 million rice farmers in the 2010-2011 production year, according to the state-run Bank for Agriculture and Agricultural Cooperatives.
While Yingluck’s administration doesn’t disclose prices in sales to other governments, Boonsong said the average price of all rice sold overseas this year is more than $600 per ton -- below the break-even price of about $750 per ton for white rice and up as much as 20 percent from last year.
The proposal of guaranteed prices for rice farmers was among policies directed at lower-income voters that helped Yingluck’s Pheu Thai party win a majority in elections last year to fill Thailand’s 500-member parliament. The party took 149 of 189 constituency seats in the north and northeast, while the Democrat party won 16 seats in those regions, where incomes average about a third of those in Bangkok.
About 86.5 percent of the 1,200 farmers said price-support measures were needed because of high production costs and low prices, according to a July survey by the University of the Thai Chamber of Commerce.
About 35 percent of respondents were more satisfied with the current government’s rice-buying program, compared with about 28 percent who favored the subsidy measures offered by the previous administration. The remainder were equally satisfied by both programs, the surveyed showed.
In 1981, Thailand introduced a policy to allow rice farmers to pledge grain as collateral for loans if they wanted to delay selling their crops to get better prices. After taking power in 2001, Thaksin started raising the pledging price above market rates to boost farmer incomes, according to the FAO.
“Please sympathize with them,” Thaksin said of the farmers. “They are poor. Let them have a chance to survive in this world, to live a better life.”
To contact the reporters on this story: Daniel Ten Kate in Bangkok at email@example.com; Supunnabul Suwannakij in Bangkok at firstname.lastname@example.org; Haslinda Amin in Singapore at email@example.com