Assessing the Thai Paddy Pledging Policy: Its Performance and Social Costs

• DOI: http://doi.org/10.18278/wfp.1.2.1
• Published date: 01 September 2014
• Date: 01 September 2014

2

World Food Policy - Volume 1, Number 2 - Fall 2014

Introduction

Like other countries, ai agricultural

price intervention has changed from

a regime that penalized the farmers

to one that provides farm subsidy in the

late 1980s, the sugar industry being an ex-

ception (Ammar and Suthad 1987). Before

1986, rice export in particular was heavily

taxed at the border. In addition to this direct

imposition, the rice sector was hurt by the

tari protection in favor of the manufactur-

ing sector and the resulting over-valuation

of baht. One consequence is the large net

resources transfer from the agricultural sec-

tor (Ammar and Suthad, 1987). anks to

e paper assesses the benets and costs of the ai paddy pledging policy be-

tween October 2011 and May 2014. e scheme, which purchased 52 percent

of total paddy production from the farmers, was to date the largest interven-

tion by the government in the rice market. Its total costs were 984 billion baht

(or 41% of the 2013 scal budget). e government also became the largest

rice seller, trying unsuccessfully to corner the export market by withhold-

ing large supplies of rice from the market. ai rice export dropped sharply

as the export prices of ai rice were much higher than those of India and

Vietnam which toppled ailand from the world largest exporter position.

e attempt to release rice through the channel of Government-to-govern-

ment sales failed. But the government refused to admit its failure and kept all

rice sale information in secret. In fact, most of the claimed G-to-G sales were

sold to the connected traders who in turn sold them in the domestic market.

e policy directly beneted at least one third of the rice farmers who sold rice

to the government. Other non-participating farmers also beneted from the

higher domestic price. Yet most of the benets went to the medium- and large-

scale farmers. ai consumers also gained because the government maintained

a smooth ow of rice in the domestic market at the prices prevailing at the end

of the previous government, despite higher paddy price. e study also nds

that there was corruption in the government rice sale as it sold rice to a few

connected traders at the prices below the market prices. at explained why the

scal loss is estimated at 595 billion baht to 885 billion baht, depending on the

time it will take to dispose 18 million tons of rice in the government stock. e

policy also creates other social costs. us the social costs exceeded its benets.

Keywords: social costs, scal loss, government-to-government sales, rice ex-

port , benets, economic rent

Nipon Poapongsakorn1& Kamphol Pantakua2

Assessing the ai Paddy Pledging Policy: Its

Performance and Social Costs

1 Distinguished fellow, ailand development Research Institute.

2 Researcher, ailand development Research Institute.

3

Assessing the ai Paddy Pledging Policy: Its Performance and Social Costs

the depression of world agricultural prices,

the rice premium was abolished in 1986,

resulting in a more neutral trade policy

(Warr and Achanun 2007). ere was also

a major political change aer 1986 when

ailand began to have elected prime

ministers, except for two short periods of

military governments and a recent mili-

tary coup on May 22, 2014. Since then, the

elected governments had begun to increase

farm subsidy in order to secure more votes

from the farmers who account for almost

40% of the workforce.3

A major instrument used to sub-

sidize farmers was by a so-called “paddy

pledging”. is instrument was introduced

in the 1981/82 crop year, originally to pro-

vide short-term liquidity to enable the

farmers to delay the selling of their paddy

during the harvesting period. Its ai name,

“Jam Nam Khao,” literally means “paddy

pawning”. e farmers pledged their paddy

as a collateral against a subsidized non-re-

course loan4 from the state owned Bank for

Agriculture and Agriculture Cooperative

(BAAC). Since the loan was 80-90% of the

market value of farmers’ collateral, only a

small amount of paddy was pledged, e.g.,

0.001%-19% of production (Nipon 2010).

In 2001/02, the aksin Shinawa-

tra government, which won a landslide

election based on a populist policy plat-

form, raised the pledging price of paddy to

100% of the market price, and then further

to 110% - 135% in 2004/05 and 2006/075.

Since then the instrument was used to

support the price for farmers at levels sub-

stantially above market levels, yet its mis-

leading name “Jam Nam Khao” has been

retained. As a result, the volume of pledged

paddy jumped to 38% of paddy production

in 2004/05. is policy was pursued every

time aksin’s party (under various names)

came to power, notably when it won the

election in 2011, it dramatically increased

the paddy pledging price to 15,000 baht per

ton for ordinary (non-fragrant, non-glute-

nious) white rice, which was about 150% of

the market price at that time. Furthermore,

the government told the farmers it would

stand ready to buy every grain of rice from

the farmers. Although the pledging scheme

allowed farmers to redeem their paddy

within four months, none did so. ere-

fore, the government, in fact, became the

largest rice buyer at this inated price.

e new objectives of the policy

were very ambitious, i.e., to increase the

farmers’ income, to stimulate the economy,

to regulate the supply of rice and maintain

(retail) price stability, and, by cornering the

world rice market, to increase the export

prices of ai rice (National Rice Policy

Committee 2012).

is paper will assess the perfor-

mance of the policy with respect to its objec-

tives, except the simulation of the economy,

which has to be done using the macroeco-

nomic model. Aer describing the size and

operation of the scheme it tracks the ow

of paddy as it le the farm, was pledged to

the government, milled into rice and then

exported, sold to the domestic consumers

or put into storage (Sections 1 to 3). In de-

3 ere is a serious problem of counting the number

of farmers as many of them hold multiple occupa-

tions. Using the full-time denition of 40 hours per

week in the Labor Force Survey, agricultural work-

force is estimated at 27% of total employment in

2010.

4 A non-recourse loan is a loan that is secured by a

pledge of collateral, but for which the borrower is not

personally liable. If the borrower defaults, the lender

can seize the collateral, and the lender’s recovery is

limited to the collateral (Wikipedia)

5 Between the 2004/05 and 2005/07, the pledging

prices of non-glutinous paddy were 4.6%-5.2% high-

er than the market prices, while the pledging prices

of jasmine paddy were 33.7%-35% higher. But there

was a ceiling on the amount of pledged paddy for

each farmer. e pledging price of jasmine variety

declined to 6.4% in 2006/07.