For five decades, Thailand was the world’s leading rice exporter. In past two years, however, since the implementation of a costly rice subsidy program, the country has incurred a 4.4 billion loss in rice exports, thereby opening a gap that Vietnamese and Indian exporters have been able to exploit.

At the end of 2011, as elections approached, Thai President Yingluck Shinawatra decided to implement a rice subsidy benefitting four million farmers. By buying their rice at a price 50% higher than the world market price and thus increasing the farmers’ revenue, he ensured himself heightened popularity with the people.

The original idea, according to the Wall Street Journal, was for the plan to “…first function as a welfare handout by replacing private rice dealers with inflated government payments to farmers. Then, in phase two, the world’s top rice exporter would drive up global rice prices by withholding its crops from the market. Once prices rose high enough, Bangkok could recoup the investment by selling off its stockpiles.”

Unsurprisingly, this attempt to manipulate market prices failed as exporters from India and Vietnam rushed in to increase their share of rice exports and boost their own productivity.

In 2012, market prices remained low and Thailand lost its position as leading rice exporter to India, as its exports dropped by 37%.

Mid-June, the government announced a reduction of the rice subsidy from $485 per ton to $388 per ton, though the price still remained higher than the world market price. This 20% price reduction angered peasants, who constitute a majority of the governing party’s traditional electorate.

Monday July 1st, the government decided to reestablish the price of the subsidy to its initial level and reexamine the question in order to placate peasants who withdrew their demonstration threats.

The loss in Thai rice exports due to the subsidy can be evaluated at 35 percent between 2011 and 2013. In 2012 alone, Thai arrived in third position, exporting 6.9 million tons of rice versus 9.5 million for India and 7.8 million for Vietnam. The ill-planned subsidy program has been disastrous for Thailand so far, and promises to deepen government debt if the Thai government does not take action.

In the meantime, the government must quickly find a way to deal with the 17 million tons of Thai rice amassed in stockpiles. With little time left before the excess rice goes bad in one to two years, the government might already have to bring down prices in order to sell its surpluses, virtually guaranteeing that its investments will never be returned.

– Lauren Yeh

Sources: WSJ, Le Monde, Global Voices Online
Photo: Rice Wisdom