Column : Learn from Thailandís mistake

Feb 25 2014, 02:48 IST
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SummaryThe fallout of Thailandís irrational pricing policy for rice has lessons for Indian statesí sugar-cane pricing policies

Thailand produces about 20-21 million tonnes (mt) of milled rice and India processes 23-24 mt of sugar annually. The largest single denominator between the two commodities is that while the Thai government fixes paddy price unrelated to riceís marketability, state governments in India determine the costs of sugar-cane keeping the tradable value of sugar irrelevant. Such electoral populism has backfired in both the countries. The net effect is that the Thai government is accumulating stockpiles of paddy and facing the farmersí wrath for non-payment of arrears while the Indian sugar-millers are left to pay the cane-growers the outstanding amounts even as their inventories of sugar keep growing and can only be disposed at loss in the domestic/export markets.

In 2011, Thailandís government, headed by Prime Minister Yingluck Shinawatra, decided to pay farmers about $500/mt for paddy (unmilled rice), 66% above market value of around $335/mt as part of a strategy of political compassion. She imagined that world prices of rice will climb up in tandem with her wishes and that Thais will rule the global rice trade like kings. But the exact opposite happened. The prohibition on Indian rice exports was lifted in September 2011 and prices tanked, including that of Vietnam.†Thus, Thailand became the highest price payer for paddy globally.

Paddy from neighbouring countries like Vietnam, Cambodia, and Myanmar also landed in Thai warehouses through unholy nexus of the farmers and middlemen looking to earn a fortune. From the worldís largest exporter, Thailand virtually became an importer of rice. Local millers also sold their stockpiles of paddy to the government through farmers.† Farmers laughed their way to the bank.

Price parity of Thai rice exports was derailed. Traditional export businesses came to a halt. Some traders switched sourcing to other countries to salvage their on-going agreements. Paddy processors, dependent on exports of 8 mt of rice, have argued with the government to terminate the scheme but have had little success.

The current rice export price is significantly lower than the acquisition cost. These shipments are met from a blend of pilfered paddy and cheaper, poor-quality rice entering illicitly through the borders while most of official holdings remain intact on paper. What a mess! The trade distortion, thanks to the policy, has the World Trade Organization (WTO) worried as well.

Since the last two years, paddy equivalent to milled rice of 15 mt (a bare cost of $7.5 billion) has been rotting in

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