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Getting the Price of Thai Rice Right
CHAPTER
GETTING THE PRICE OF THAI RICE RIGHT: EPISODE II
18 Suthad Setboonsarng
Former Thailand Trade Representative, Prime Minister Office, Government House, Dusit District, Bangkok, Thailand
CHAPTER OUTLINE 18.1 Introduction ............................................................................................................................... 312 18.2 Origins of the PMS ..................................................................................................................... 312 18.2.1 International Rice Markets .................................................................................... 312 18.2.2 Precursor of the PMS............................................................................................ 313 18.2.3 Overview of the PMS............................................................................................. 313 18.2.4 Analysis of the PMS.............................................................................................. 314 18.3 Price Elasticity of Demand for the Export of Thai Rice .................................................................. 315 18.4 PMS Outcomes........................................................................................................................... 317 18.4.1 Increased Famers’ Income .................................................................................... 317 18.4.2 Increased World Price of Rice................................................................................ 318 18.4.3 Stabilized Farm Gate Price.................................................................................... 320 18.5 Challenges to the PMS ............................................................................................................... 320 18.5.1 External Factors ................................................................................................... 320 18.5.2 Internal Factors: Corruption and Inefficiency........................................................... 321 18.6 Negative Outcomes of the PMS ................................................................................................... 322 18.6.1 Losses from Selling Rice Below Cost ...................................................................... 322 18.6.2 Depletion of Rice Diversity .................................................................................... 323 18.6.3 Erosion of Traditional Market Mechanisms .............................................................. 323 18.6.4 Loss of Exporter Leadership................................................................................... 324 18.7 Domestic Politics ....................................................................................................................... 325 18.8 Policy Recommendations............................................................................................................ 326 18.8.1 An Exit Strategy for the PMS ................................................................................. 326 18.8.2 Regional Rice Market Arrangement ........................................................................ 326 18.9 Conclusion ................................................................................................................................ 327 References ......................................................................................................................................... 328
JEL: Q17; Q18; N55 Sustainable Economic Development. © 2015 Elsevier Inc. All rights reserved.
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18.1 INTRODUCTION Thailand is one of the world’s largest rice exporters, making rice its major source of income. In addition to greatly contributing to the growth of the country’s agriculture sector and the economy, rice is also a source of national pride. As such, a centerpiece Thai government policy typically involves rice. After the 1960s, the Thai government experimented with various agriculture policies, each with different objectives and levels of success. Roumasset and Setboonsarng (1988) explained that the Thai export tax on rice performed at least three functions: an optimum tax given the market power in the international market, generating revenue at a relatively low collection cost, and suppressing the domestic price of rice to help the urban consumer (which supported the lower wages in the manufacturing sector). To compensate the farmer, the government advanced many programs to subsidize the rice farmer, including the investment in irrigation and providing loans. While the export tax on rice was abolished in 1986, the price of rice in the domestic market was still kept at a minimum level to protect the urban consumer and many programs were advanced to compensate the rice farmers. The most recent government rice policy is the Paddy Mortgage Scheme (PMS),1 which was implemented in 2011. The PMS guaranteed Thai farmers a purchase price of THB 15,000 (US$492) per ton of regular rice paddy and THB 20,000 (US$656) for jasmine (hom mali) rice. In 2011, the government purchased through the PMS 53% of rice production, which was milled and auctioned. It hoped to hold a large enough rice stockpile to sell it at a profit. However, the increase in rice export from India, compounded with leakage, corruption, and inefficient management, disrupted the scheme. This chapter explains the motivation for rice policy given the context of the global rice market and analyzes its successes and failures. It also suggests a possible exit strategy and gives policy recommendations for the future of Thailand’s rice and agriculture industry.
18.2 ORIGINS OF THE PMS 18.2.1 INTERNATIONAL RICE MARKETS Before discussing the details and analyzing the outcomes of the PMS, it is important to understand that as a major rice exporter, Thailand has an agriculture policy that caters to a domestic constituency and is influenced by international market conditions. The global rice market shares many characteristics with that of other grains such as wheat, corn, and maize. Most nations keep the consumer price of rice low and provide subsidies to compensate the farmer. They tried to be self-sufficient in production and rely on the international markets for the deficiency or absorbing the surplus. Such a strategy results in transmitting domestic fluctuation to the world market.
1
It is also called the rice pledging scheme. However, the scheme involves acquiring paddy from the rice farmer.
18.2 ORIGINS OF THE PMS
313
As a staple grain in many countries, however, rice is subject to more government interventions and subsidies than other agriculture products. Together, the domestic price control and production subsidies create a downward price bias that results in low rice prices.2 This comes at the cost of rice exporting countries and taxing the livelihood of farmers. The low price of rice also discourages investment in research and development and innovation throughout its value chain, from the production to consumer market. Rice exporting countries often pursue policies to combat these negative price biases.
18.2.2 PRECURSOR OF THE PMS From 1998 to 2000, the world price of rice declined steadily from about US$302 to 202 per ton. Its severe depression became a pressing issue for the Thai government, given that rice production in the country involves about 3.73 million farming households (Office of Agricultural Economics, 2012). Thus, rice is not only a source of national income, but of the welfare of a large number of Thai farmers as well. Understanding this imperative of assisting the agriculture sector, the Thaksin administration, on its assumption of office in 2001, introduced a Paddy Price Guarantee Scheme, a minimum support price scheme. The government announced the buying price of paddy at a fair market price and farmers had the option of pledging their paddy with the Government Warehouse Organization and Marketing Organization for Farmers as collateral for a loan of up to 80% of the crop value. The loan had a 3- to 4-month payback period and carried a 3% interest rate. The scheme attracted little participation because farmers preferred receiving their payment in full. Furthermore, they found the documentation process too cumbersome. From 2002 to 2009, the government adjusted the program to make it more flexible and to increase the transfer to farmers.3 When the Democrat Party took office in late 2009, it replaced the Paddy Price Guarantee Scheme with the Income Guarantee Scheme (IGS), wherein the government covered the difference between the market price and the announced price.4
18.2.3 OVERVIEW OF THE PMS After winning the general election in 2011, the Yingluck administration implemented a full-fledged PMS, which was part of its campaign promise. It cited four key objectives of the PMS: (i) increase farmers’ income, (ii) stimulate domestic consumption, (iii) control the rice market system, and (iv) increase export price.5 It set the buying price at THB 15,000 (US$492) per ton of long grain paddy and THB 20,000 (US$656) per ton of aromatic jasmine (hom mali) paddy. In crop year 2011 12, over 21 million tons of paddy (52% of total production)6 were brought under the scheme, giving the government control of the domestic and export supply of rice. Rice prices increased between August and December 2011, especially for the high quality jasmine rice. 2
Section 18.9.2 discusses the impact of this policy. Isvilanonda (2012) described the development of the minimum price support programs during this period. 4 Poapongsakorn and Siamwalla (2009). 5 National Rice Policy Committee, October, 2012, p. 5. 6 Further details will be discussed in the following section. 3
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However, the increase was not enough to make the PMS profitable, hence the government did not release its rice inventory. The rice stockpile increased from 5.6 million tons in 2010 to 9 million tons in 2011 and 11 million tons by the end of 2012. Unable to sell rice at the desired value, the government was forced to stockpile its rice purchase. Over time, the quality of rice in stockpiling deteriorated. Moreover, leakages decreased the value of the rice inventory. The government continued implementing the PMS in crop year 2012 13 at the same guaranteed price despite criticism and protest from exporters and academics. Mounting losses, inefficient administration, and corruption within the PMS eventually led to the ousting of the Commerce Minister, contributing to the fall of the Yingluck administration.
18.2.4 ANALYSIS OF THE PMS A simple model (Figure 18.1) was devised to serve as a framework in estimating the impact of the PMS. A liner model was used in the estimation. The quantity that will maximize revenue is where marginal revenue (MR) from export quantity equals marginal cost. The optimum price is determined by the price on the demand curve for that quantity. The marginal cost of export or the supply of export (Sw) in the international market is determined by the excess of domestic supply (SD) over the domestic demand (DD). The world demand curve for Thai rice (Dw) is the sum of all the excess demand over domestic supply from rice importing countries. It was found to be elastic because the export quantity of Thailand, being a major exporter, has an impact on the world price. The MR of export, reflecting the incremental revenue from each unit of export, is derived from the world demand Dw. Leaving it to competition, the quantity of rice export would be at Qw, where Sw intersects Dw and the world price is at Pw. However, this quantity and price will not maximize the revenue for Thailand. The quantity of export that maximizes revenue for exporting Thai rice is Q1, where the MR curve intersects Sw (area B). The optimum price of rice is P1.
Domestic market P
SD C
A
r m
B
Sw
P
D
t
Pd1 Pw1
International market
DD
n
P1
c
Pw
d
f
Ew
b
a MR 0
Qd2 Qd Qd1
Qs1Qs Qs2
FIGURE 18.1 Optimum tariff and international rice price.
Q
0
Q1 Qw
Dw Q
18.3 PRICE ELASTICITY OF DEMAND FOR THE EXPORT OF THAI RICE
315
If world price increases from Pw1 to Pd1, the producer surplus will increase from OnPw1 to OrPd1, which is equal to area Pw1nrPd1. This area, consisting of Pw1mtPd1, comes from the reduction of domestic consumer surplus and mnrt, which is the reduction of the consumer surplus in the foreign market. This will raise the farmer’s income at the expense of consumers, with the government bearing the administrative cost. To attain this target, the government can either increase the export price, for example, by imposing an export tax equal to 1/elasticity (Corden, 1974, p. 176) or sell the marginal quantity of rice until Q1 is reached and the price will be at P1. The PMS employed the export quantity management measure. It acquired paddy from the farmer at a price higher than the market to have enough stock in the government’s hand. Then, the government auctioned limited quantities for export to pressure an increase in prices. The government also auctioned the rice in the inventory for the domestic market at current market price to keep domestic prices stable. However, a combination of internal and external factors prevented the government from fulfilling its objectives for the PMS. Its own inability to manage leakages and curb corruption led to heavy financial losses. Externally, good harvest yields and changes in the export law of other rice producing countries dramatically increased the world supply, forcing prices down.
18.3 PRICE ELASTICITY OF DEMAND FOR THE EXPORT OF THAI RICE The fact that Thai rice is facing a downward sloping demand is well established in the past literature.7 A downward sloping demand suggests that Thailand can earn optimum revenue if the quantity of export is reduced. Table 18.1 presents the elasticities of demand for the five categories of rice export—jasmine rice (hom mali, high quality, aromatic), pratum (an aromatic rice), 100% white rice, 5% white rice, and others—which were calculated using data in 2011 and 2012. The results show that • • •
The demand for the higher quality categories is less elastic than that for the normal quality. The average rice price increased by 15.9%, ranging from 8% (100% white rice) to 20% (pratum). The export quantity decreased by 37%, mostly from second quality categories: 5% white rice (266%) and pratum (259.6%). Jasmine rice was the least affected.
Given the demand elasticity for import of each type of rice, the optimum tax varies from 60.3% (hom mali rice) to 23.7% (5% white rice). On average, the optimum export tax is 42.9%. The actual price increase, however, was only 11.4% for jasmine rice and 15.7% for 5% white rice. This suggests that although the PMS increased the price of rice, it did not reach the optimum level. This could be because of the competition from Viet Nam and India, as noted by Chulaphan et al. (2013).
7 Choeun et al. (2006) summarized the various estimation of elasticity of demand for Thai rice export during 1978 1995.
Table 18.1 Calculation of Elasticity of Demand for Thai Rice Export by Types of Rice 2011 Q (mill. ton) Hom mali Pratum 100% 5% Others Total
2.36 0.21 0.82 2.23 5.08 10.71
2012
Changes
V (mill. baht)
P (baht/ ton)
Q (mill. ton)
V (mill. baht)
P (baht/ ton)
dQ (mill. ton)
dV (mill. baht)
dP (baht/ton)
%dQ
%dP
Ed
63,584 4965 13,673 33,309 80,587 1,96,117
26,954 23,416 16,639 14,920 15,860 18,318
1.91 0.09 0.59 0.76 3.39 6.73
57,434 2410 10,564 13,051 59,517 1,42,976
30,028 28,148 17,990 17,258 17,543 21,231
20.4463 20.1264 20.2346 21.4763 21.6883 23.9718
26,150 22554 23110 220,257 221,069 253,141
3074 4732 1351 2338 1682 2913
218.9% 259.6% 228.5% 266.1% 233.2% 237.1%
11.4% 20.2% 8.1% 15.7% 10.6% 15.9%
21.6589 22.9499 23.5159 24.2190 23.1328 22.3332
Note: Q, quantity; V, value; P, price; dQ, dV, dP are changes in Q, V, and P, respectively; Ed 5 elasticity of demand 5 (%dQ/%dP). Source: Rice Export Statistics, Office of Agricultural Economics, Ministry of Agriculture and Cooperatives, 2013.
18.4 PMS OUTCOMES
317
A drawback of this model (Figure 18.1) is that it does not consider the long-run dynamic impact of the PMS. It does not address the issue of leftover stock. For instance, the higher price of paddy would induce further production in the subsequent year. The inventory of leftover rice will accumulate over the years. Therefore, due consideration has to be paid to the long-run implications. As Table 18.1 shows, the demand for hom mali and pratum is less elastic. As such, the PMS could be more effective in enhancing prices of products over which Thailand has market power. On the other hand, most of the reductions in quantity came from the lower quality white rice market. This indicates that the PMS is not appropriate for low quality rice because Thailand has limited market power over it and has high rice production costs due to the relatively higher labor costs. With some modifications, the PMS could be made to focus on appropriate products (i.e., high quality rice) and use other schemes to deliver the intended income transfers.
18.4 PMS OUTCOMES The shortcomings of the PMS have been well documented by experts in and outside Thailand. Still, the scheme had achieved three notable positive effects desired by the Thai government: (i) increased farmers’ income, (ii) increased world price of rice, and (iii) Stabilized Farm Gate Price. There are caveats, however, as to how these achievements were reached.
18.4.1 INCREASED FAMERS’ INCOME In 2011, the Thai government, like other governments in Asia, implemented economic stimulus packages to increase domestic consumption to compensate for the slowdown in global demand. As farmers have higher marginal propensity to consume (MPC), transfer of income to them was expected to generate relatively higher multiplier effects. The rice price offered under the PMS was 30 40% higher than the prevailing market price, resulting in increased income of farmers who participated in the scheme. As market price rose, the income of nonparticipating farmers also increased. Figure 18.1 shows P1Q1 as the optimum price and quantity in the international market. Export reduction is Qw to Q1 and export price increase is Pw1 to Pd1. Domestic production increase is Qs to Qs1 and domestic consumption reduction is Qd to Qd1. The increase in producer surplus is area Pw1nrPd1, which consists of four components: • • • •
Area A—Reduction of consumer surplus because of increase in rice price; Area B—Reduction of consumer surplus in the export market, which is equivalent to PwdcP1 in the export market; Area C—Producer surplus from the additional production in response to higher price; and Area D—Loss from unsold rice stock.
In 2012, the total export revenue from rice increased to THB 192 billion (about US$6.3 billion), from THB 142 billion (about US$4.65 billion) in 2011. This was despite the decline in export quantity from 10.7 million tons in 2011 to only 6.7 million tons in 2012. The average export price increased from THB 18,313 (US$600) per ton in 2011 to THB 21,231 (US$696) per ton in 2012.
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Table 18.2 Calculation of Welfare Transfer Area
Description
Welfare Transfer (billion baht)
Proportion (%)
A B C D Total
Reduction of domestic consumer surplus Reduction of consumer surplus in the export market Producer surplus from the additional output Remaining unsold stock carries by the government
31,194 19,615 1762 16,473 69,043
45.2 28.4 2.6 23.9 100.0%
Note: Based on Figure 18.1.
Domestic retail price did not change and consumption grew slightly from 10.3 million to 10.4 million tons. Rice output increased from 21.89 million tons in 2011 to 23.1 million tons in 2012.8 Given this information, the total transfer of income to rice farmers was calculated at THB 65.51 (US$2.15) billion. The sources of funding for this transfer are given in Table 18.2. Since the government did not increase the selling price in the domestic market, it thus absorbed the cost of area A. The government also incurred costs due to additional production induced by the higher rice price and the remaining inventory. Consumers abroad absorbed about THB 19.6 (US$0.64) billion (28% of the total transfer). In short, it cost the government THB 49.428 (US$1.62) billion to transfer THB 69.043 (US$2.07) billion to Thai rice farmers. It should be noted that if the government increased the price of rice in the domestic market to the level implied by the world price, the government’s cost would be reduced drastically to only THB 18.23 (US$0.59) billion. The effectiveness of income distribution hinges on transferring income to poorer people. However, transferring income by increasing the price of paddy is innately biased in favor of larger farmers. Poapongsakorn (2013) found that among the PMS participants, 52.8% of farm households were in the low income brackets (less than THB 100,000) and they received only 20.4% of the total transfer for the main crop. The transfer went to the medium sized farmers (Table 18.3). However, just because medium size farmers are getting the higher proportion of the transfer is not sufficient reason to write off the potential benefit of the transfer. The effectiveness of using the PMS as a stimulus package depended on the relative MPC of these farm households. Its assessment needs to be further studied to compare with alternative options.
18.4.2 INCREASED WORLD PRICE OF RICE The PMS indirectly increased farmers’ income by increasing world prices. As the largest exporter of rice for many years, Thailand has been the benchmark for the world market price. As such, for Thailand to maximize the revenue from export, the optimum price and quantity should be determined at the quantity where the MR equals marginal cost or the supply for export. This is no easy task because in the real world market imports are usually carried out by government agencies that 8
Based on the assumption that 0.05% of paddy is used for seeding and paddy to rice conversion is 65%.
18.4 PMS OUTCOMES
319
Table 18.3 Number of Farm Household Participating in the PMS and Amount of Money Received, Classified by Income Levels Main Crop
Second Crop
Income Level of Recipient (THB)
Number of Households
Amount of Transfer (billion THB)
Number of Households
Amount of Transfer (billion THB)
,100,000 (% share) 100,000 600,000 (% share) More than 600,000 (% share) Total
4,39,919 52.28% 3,93,590 46.78% 7882 0.94% 8,41,391
24,122 20.36% 88,352 74.56% 6030 5.09% 1,18,504
1,96,804 32.03% 3,84,286 62.55% 33,309 5.42% 6,14,399
11,108 7.83% 1,03,690 73.11% 27,034 19.06% 1,41,832
Source: Poapongsakorn, 2013, Table 7.1
800 700
US$/ton
600 500 400 300 200 100 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12
19
19
98
0
Farm gate price
WR 5%
Gross margin
FIGURE 18.2 Farm gate price and export price of rice (US$per ton). Thai Rice Exporter Association, 2013.
manage their respective countries’ food security, and they have their own legal requirements and conditions. The exporters (countries and companies), on the other hand, compete among themselves. By managing the export of rice through auctioning out stock, the Thai government controlled the quantity and price of rice, but placed pressure on rice exporters. The world price of rice increased from July to December 2011 (Figure 18.2). Without the PMS, it is unlikely that the world price would have increased during this period because of the
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overwhelming amount of rice exported from India. Still, as a consequence, Thai rice exports declined in 2011, leaving a large stock of rice for the subsequent years.
18.4.3 STABILIZED FARM GATE PRICE At harvest time, farmers sell their paddy to pay off their loans and spend on household needs. Storage facilities for paddy at the farm level are usually inadequate. Moreover, holding the stock risks damage from pests, theft, and quality deterioration. Thus it is favorable to sell the paddy as early as possible. On the other hand, farmers are not equipped with appropriate market information and skills to negotiate with middlemen or rice millers. For instance, the paddy’s moisture level is one of the parameters used to determine the value of paddy, and this is usually determined by the middlemen or rice miller. The PMS thus helped farmers achieve stable farm gate price and make appropriate decisions on investment at planting. The PMS is one tool with many objectives. There could be other more efficient measures that can achieve these objectives.
18.5 CHALLENGES TO THE PMS 18.5.1 EXTERNAL FACTORS The PMS had created an impact on the international rice market and vice versa. The attempt to manage the supply of rice in the international market sought to stabilize the market. In 2011, two important events affected the international rice market. •
•
In July 2011, India lifted the control on rice export and subsequently released its surplus into the international market.9 Its export thus increased from 4 million (2010) to 10.7 million tons, making India the world’s largest rice exporter (Figure 18.3). Weather conditions in 2011 negatively affected Chinese production so that the following year its grain import increased by 294%, from about 0.58 million tons in 2011 to 2.2 million tons in 2012. China became the world’s second largest rice importer after Nigeria.10
When India increased its exports toward the end of 2011, world prices took a dive, especially for the lower quality market segment. This segment was the source of the PMS’ main loss. The increase of imports from China helped absorb some of this surplus in the international market, thus preventing the price from dropping further. However, the transition of its leadership constrained China from participating more actively in the international market. 9
http://www.dawn.com/news/643820/india-lifts-ban-on-export-rice-prices-crash-in-local-world-markets. The official statistics of grain production in China between 2011 and 2012 increased slightly. The years 2011 12 saw the transition of leadership from President Hu Jintao to President Xi Jinping. Uncertainty in food security during the delicate transition period was not acceptable to Chinese leadership, thus China’s official rice market information was not transparent. After the political transition was complete, the rice and grain market became clearer. China said that the increase in the rice import will not affect global food security. (http://www.fao.org/docrep/017/ap047e/ap047e00.pdf).
10
18.5 CHALLENGES TO THE PMS
321
Exporters of rice 12 Thailand
Million metric ton
10
India 8
Viet Nam Pakistan
6
United States 4
Cambodia Egypt
2 0
2009
2010
2011
2012
2013
Importers of rice
4
Nigeria
Million metric ton
3.5
China
3
Iran 2.5
Philippines
2
Iraq EU-27
1.5
Saudi Arabia
1
Cote d'Ivoire 0.5 0
Malaysia 2009
2010
2011
2012
Senegal
2013
FIGURE 18.3 Major importing and exporting countries. Grain: World Markets and Trade, USDA, 2013.
By 2013, Thailand had regained its leading position in the world rice market. It also has sufficient stock at hand to prevent exporters from undercutting prices. As a consequence, in the next few years, all else being equal, the price of rice is expected to continue to increase.
18.5.2 INTERNAL FACTORS: CORRUPTION AND INEFFICIENCY Poapongsakorn (2013) reported that corruption occurred throughout the supply chain and many methods of embezzling money were employed. Khoman (2014) noted that corruption already
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existed in the implementation of a similar scheme in 2009 (e.g., falsification of warehouse receipts to claim subsidy). Democrat Party (2013) pointed out five main areas of corruption in the PMS: (i) falsification of warehouse receipts in terms of paddy weight, purity, and moisture level; (ii) surrogating name of nonrice farmers or using smuggled paddy; (iii) rotation of paddy for multiple claims; (iv) false surveyor reports; and (v) nontransparent selling of rice, especially the government-to-government transactions. In other countries, such as the Philippines, the rice self-sufficiency policy is also crammed with corruption throughout the supply chain (Clarete, 2014). Thang et al. (2013) also questioned the allocation of rice export from Viet Nam. However, the scale may be different from the case of PMS in Thailand. These corruptions are crimes which are punishable by law, but the cost of enforcement is high. Violations have been continuously added to the growing pile of cases for investigation, prosecution, and conviction. Because it takes a long time to reach a verdict and deliver punishment, the law has lost its effectiveness. Rampant violations in the PMS have rendered it almost impossible to investigate and prosecute these crimes. It is difficult to measure the cost of inefficiency created by the PMS. As some aspects are of important concern, more research is needed to quantify them.
18.6 NEGATIVE OUTCOMES OF THE PMS The Thai government had been amply criticized and warned against the dangers and corruption of the PMS by both Thai and foreign analysts (over 3500 articles in Thailand and 356 articles by foreign analysts).11 This section discusses the common critiques of the PMS and examines other areas that were overlooked.
18.6.1 LOSSES FROM SELLING RICE BELOW COST The government incurred losses when it acquired paddy through the PMS at above-market prices and then sold it at regular prices. This loss was borne by the government’s budget. In 2011, the world price of rice increased, but it was not sufficient to cover the cost of paddy plus milling costs and other expenses, resulting in a sizeable loss by the government. Poapongsakorn (2013) estimated the revenue earned from 2011/12 was THB 218.1 (US$7.15) billion, while the cost was THB 388.4 (US$12.73) billion, or a loss of THB 170 (US$5.57) billion (Table 18.4). The government objected to the above estimates because it did not consider the value of the rice in the stockpile. The government estimated the cost at about THB 100 (US$3.27) billion. It should be noted, however, that the size of stock had never been made clear because it was recorded by several agencies and done so inconsistently. Moreover, the opaque government-to-government transactions did not disclose the number of buyers, prices, and tonnage. Aside from the accounting cost, the quality of services—milling, storage, and transportation— performed by the rice mill and the owner of storage facilities was different from when they were 11
Democrat Party, 2013, p. 10.
18.6 NEGATIVE OUTCOMES OF THE PMS
323
Table 18.4 Estimated Revenue and Cost of PMS, 2011/2012 Paddy October 31, 2012 (mmt) Rice equivalent (mmt)a Estimated revenue receivedb Loan (cost of paddy)b Interestb Operating costsb: Gov. agencies expenses Rice miller costs Quality deteriorationb Estimated costb Lossb
a
Main crop
Second crop
Total
6.95 4.21 83,889 1,18,594 6616 11,888 4800 7088 5527 1,42,624 258,735
14.81 9.15 1,34,855 2,08,627 9819 20,280 6945 13,335 7063 2,45,789 21,10,934
21.76 13.36 2,18,745 3,27,221 16,434 32,169 11,745 20,424 12,590 3,88,414 21,69,669
Note: a mmt 5 million metric ton. b billion THB. Source: Derived from Poapongsakorn, 2013, Table 7.2
doing these for their own paddy and rice. Added to this, government agencies supervising these operations did not have sufficient time or sufficient expertise to monitor the activities daily. When they did, their level of commitment and expertise did not match that of traditional rice millers.
18.6.2 DEPLETION OF RICE DIVERSITY The more long-term damage of the PMS is the reduction in diversity of rice. Only hom mali and pratum paddy were given different prices; all other varieties of white rice were priced the same. Thus, farmers used the variety with the highest yield, regardless of its quality (e.g., taste and cooking quality). This went against the long-term strength of the Thai rice market, which is based on quality,12 as evidenced by the prominence of hom mali rice in the world market. The PMS signaled the domestic market to focus only on a few strains of high output rice, which reduced the genetic diversity of rice in Thailand. It is difficult to assess the size of damage created by this development.
18.6.3 EROSION OF TRADITIONAL MARKET MECHANISMS Under the PMS, farmers brought their paddy to the designated government warehouses and the government hired millers to process and store the rice until the government would auction it. This
12 The higher cost of farm labor in Thailand prevents Thai rice from competing with lower wage countries. The niche market for Thai rice is higher quality rice (Setboonsarng, 1990).
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250 200 150 100 50
H C
C
U A H N U C AN H TH UA AK N TH S A IN TH KS A IN TH KS A IN TH KS A IN SU KS R IN AY SA UT SO M M AK AB CH H A AB ISI I H TH AB ISI H TH YI IS N IT G H YI LU N C G K LU C K
-
FIGURE 18.4 Gross margin for export (US$ per ton). Calculated from data of the Thai Rice Exporter Association, 2013.
procedure diminished the role of middlemen as well as the local and central paddy markets. Isvilanonda (2012) noted that the central paddy market in the central plain was at risk of bankruptcy as middlemen who held paddy stock to speculate for higher prices no longer had a role in the new scheme. The futures market for paddy also became irrelevant. The income of rice millers and exporters was also affected. This is because the gross margin of export, which is the difference between the cost of rice (calculated from the farm gate price of paddy) and the export price, reflects the revenue accruing to the exporter. The storage cost of rice, on the other hand, adds to the income of the rice miller. Figure 18.4 shows that the gross margin for export exhibits had an increasing trend from 2001 to 2007. Export prices also increased in 2008 during the global food crisis.13 During the PMS’ implementation, however, the margin declined. Middlemen, millers, and exporters made less for each ton of rice.
18.6.4 LOSS OF EXPORTER LEADERSHIP Thailand is equipped with the appropriate infrastructure to be the hub for international rice trading. Some academics and the international media were of the view that the PMS had reduced Thai export and pushed Thailand from the number one rank among rice exporting countries. The concern
13 Gross margin is revenue minus cost of goods sold. In this case, it is the price of rice minus the cost of paddy, assuming a milling rate (i.e., percent of rice from 1 kg of paddy) of 65%.
18.7 DOMESTIC POLITICS
325
is that in the long run Thailand may lose more market share to the other countries. The reduction of Thai export can be attributed to three short-term factors: • •
•
Export decreased because Thailand used the PMS to push up world price. Blocking paddy from Cambodia and Lao PDR diverted these paddies to Viet Nam. Viet Nam has now become an exporter of aromatic rice.14 (It is known, although not officially sanctioned, that some portion of Thai rice exports originate from neighboring countries.) The increase in India’s export put pressure on the global rice price and market.
The determination of price of rice in the international market is carried out not by country, but by the international rice traders.15
18.7 DOMESTIC POLITICS The PMS took place against the backdrop of intense political competition in Thailand between the incumbent Pheu Thai Party and the opposition, Democrat Party. During the Democrat’s government in 2009 11, an IGS was implemented to stabilize farmers’ income. However, this scheme did not become popular and had implementation problems (e.g., cumbersome documentation requirements and corruption charges). The IGS implementation suggests that both political parties share the same objective of transferring income to rice farmers. Since PMS and IGS had been problematic, a more effective and efficient scheme should be considered, especially one designed to minimize corruption. In fact, to say that PMS or IGS is a transfer of income to the farmer is incorrect. As shown in Figure 18.1, if the Thai farmers received the market price, they should have been given the full amount of producer surplus. But in order to keep down the consumer price, the government compensated THB 31 (US$1) billion to the farmer. This brings to fore the issue of consumption subsidies, which is the root cause of the farm subsidy. Although there is no explicit measure to control the retail price of rice but as a product in the “Control List” of the Control of Price of Goods and Service Act, B.E.2542, retailers, wholesalers, and rice millers keep a check on the price of rice. The lower price of rice also invites wasteful consumption. However, such subsidies are politically popular because they are beneficial to the urban population, which is more politically vocal, and they enhance the development of the manufacturing sector by keeping wages down.16 Rice consumption subsidy should be carried out through a more efficient program that directly targets poor consumers, not by keeping the price of rice low. Taking away consumption subsidies will not be politically popular, but it would automatically reduce the bias against the farming sector, which shoulders most of the burden.
14
http://oryza.com/news/rice-news/fao-2013-aromatic-rice-price-sub-index-averages-21-higher-2012. Calpe (2006) provides a description of the role and function of the international rice traders and the list of these entities. 16 Roumasset and Setboonsarng (1988) estimated that this objective is equivalent to an export tax of 6.25 7.32%. 15
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CHAPTER 18 GETTING THE PRICE OF THAI RICE RIGHT: EPISODE II
18.8 POLICY RECOMMENDATIONS 18.8.1 AN EXIT STRATEGY FOR THE PMS •
•
Abolish consumer subsidies through price control If the government sells rice in stock at the world market price for the domestic rice market, the government will earn more revenue to pay the farmer. Domestic price of rice will increase and reduce wasteful rice consumption. Utilize direct subsidies for lower income households Trairatvorakul (1984) found that the price increase will harm the poor consumer more than benefit the farmer. To compensate for this weakness, the government may consider having a program that would directly subsidize rice consumption for the poor household. For example, a rice voucher program for poor households can be introduced.
18.8.2 REGIONAL RICE MARKET ARRANGEMENT Given economic growth in Asia where most of the rice is produced and consumed, the international rice market will be changing in the coming decade. The surge of export from India and the increase in the import from China during the past two years were the prelude of the change in the international rice market. The stability of rice supply will become a bigger issue, affecting the economic welfare of millions of consumers and producers, if governments were to continue lower rice price to benefit consumers and subsidize the production cost. These policies have systematically reduced the world rice price and increased its fluctuation. As Figure 18.5 shows, production subsidies in both importing and exporting countries push out the supply curve of rice, respectively, reducing the world price of rice from Pw to Pw’ and Pw”. The price of rice has been kept lower than that of other staple grains even during the global food crisis in 2008 (Figure 18.6). China and India, the two largest rice producers and consumers, should take the lead in forging a regional arrangement in Asia to improve security in supply, put in place a price stabilizing mechanism, standardize support for poor consumers, and respect the market mechanism. There is already a platform Exporting countries P
International market
Importing countries
P
Sm
P
Sm'
Sw Sw''
Sx Sx'' Pw Pw'
a c
b d
Pw''
e
f
Dw'
Dw Dm
Dx 0
dx
dx'' dx'
Qx
Qx'
0
Qw'
Qx''
FIGURE 18.5 Impacts of production subsidies on world rice price.
Qw
Qw''
Q 0 Qm
Qm'
Qm''
Q
dm dm' dm''
18.9 CONCLUSION
327
3.5 3 2.5 2 1.5 1 0.5
Maize
Barley
08 20 10 20 12 20 14
06
20
04
20
02
20
00
20
98
20
96
Rice
19
94
19
92
19
90
19
88
19
86
19
84
19
19
80
19
19
82
0
Wheat
FIGURE 18.6 Price index for major grains. IMF, World Economic Outlook, October 2013.
that could be developed to perform this function—the ASEAN Plus Three Emergency Rice Reserve (APTERR) Agreement, which involves the 10 ASEAN countries, China, Japan, and Korea. Article 2 of the Agreement indicates the ASEAN Plus Three’s intention to deal with the stability of supply. These 13 countries accounted for 57% of global production, 42% of world export, and 24% of world import in 2012. With India, the coverage increases to about 75% of global production and 68% of world export. Therefore, India should join the APTERR arrangement.
18.9 CONCLUSION There are three broad issues that the government of Thailand has been addressing: (i) increase farmer income, (ii) increase export price, and (iii) ensure affordable rice prices. Agriculture and trade policy of rice importing countries artificially bring down rice prices, causing the government of rice exporting countries to react. Thailand’s PMS was intended to raise world rice price by stockpiling rice purchased at above-market rates. The government purchases paddy from farmers at higher than market price, but as global prices increase, each ton of rice in inventory can be auctioned off for a profit. An important consideration for the government is to purchase only the type of rice over which Thailand can exercise market power. Estimations show that the demand for jasmine (hom mali) rice is more inelastic. This suggests that the Thai government would have more success in pursuing a policy that would increase the world price of hom mali, rather than the low quality white rice, for which demand is elastic. The Thai government should rethink consumer subsidies innate in the PMS. Direct subsidy programs can be directed to low income households, while domestic prices should be allowed to increase and match world prices. The cost of political popularity, however, has prevented politicians from subscribing to an economically sound and efficient policy.
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REFERENCES Calpe, C., 2006. Rice International Commodity Profile, Food and Agriculture Organization of the United Nations, Market and Trade Division, December. Choeun, H., Godo, Y., Hayami, Y., 2006. The economics and politics of rice export taxation in Thailand: a historical simulation analysis, 1950 1985. J. Asian Econ. 17, 103 125. Chulaphan, W., Chen, S.E., Jatuporn, C., Wen, C.H., 2013. Different causal relationships of export rice prices in the international rice market. Am. Eurasian J. Agric. Environ. Sci. 13 (2), 185 190. Clarete, R., 2014. Philippines rice self-sufficiency program: pitfalls and remedies. In: Balisacan, A., Chakravorty, U., Ravago, M.-L. (Eds.), Sustainable Economic Development: Resources, Environment and Institutions. Elsevier Inc, San Diego, CA. Corden, W.M., 1974. Trade Policy and Economic Welfare. Clarendon Press, Oxford. Democrat Party, 2013. In-depth knowledge, Really knowing the Cheating of Paddy Mortgage Scheme. (In Thai). Democrat Party, Bangkok. Grain: World Market and Trade, USDA, 2013. Available from: , http://apps.fas.usda.gov/psdonline/circulars/ grain.pdf . . IMF, World Economic Outlook, October 2013. Available from: , http://www.imf.org/external/pubs/ft/weo/ 2013/02/weodata/download.aspx . . Isvilanonda, S., 2012. 1 Year and Government Economic Policy: Agricultural Policy. Paper presented at the Economics Conference, National Research Council, Bangkok. Khoman, S., 2014. Corruption, transactions costs and network relationships: governance challenges for Thailand. In: Balisacan, A., Chakravorty, U., Ravago, M.-L. (Eds.), Sustainable Economic Development: Resources, Environment and Institution. Elsevier Inc, San Diego, CA. National Rice Policy Committee, 2012. In-depth knowledge, Really Knowing the Government’s Paddy Mortgage Scheme. (In Thai). Department of Internal Trade, Nonthaburi, Thailand. Office of Agricultural Economics, 2012. Basic Information on Thai Agricultural Sector. (In Thai). Ministry of Agriculture and Cooperatives, Bangkok. Poapongsakorn, N., 2013. Impacts of government rice price intervention. (In Thai). In the Report on Thai Rice Strategy: Research and Looking Forward. Thailand Development Research Institute, Bangkok. Poapongsakorn, N., Siamwalla, A., 2009. New approach for rice price intervention. (In Thai). TDRI’s Report No. 75, Thailand Development Research Institute, Bangkok. Rice Export Statistics, Office of Agricultural Economics, Ministry of Agriculture and Cooperatives, 2013. Available from: , http://www.oae.go.th/more_news.php?cid595 . . Roumasset, J., Setboonsarng, S., 1988. Second-best agricultural policy: getting the price of Thai rice right. J. Dev. Econ. 28, 323 340. Setboonsarng, S., 1990. Objectives of Public Agricultural Research in Thailand, Issue 28 of ACIAR/ISNAR Project Papers, Australia. Thai Rice Exporter Association, 2013. Price database. , http://www.thairiceexporters.or.th/database/AVG% 20prices%202013.html . . Thang, T.C., Huong, D.L., Minh, L.N., 2013. Who Has Benefited from High Rice Price in Viet Nam? Oxfam International, Hanoi, Viet Nam. Available from: , http://blogs.oxfam.org/sites/blogs.oxfam.org/files/whobenefits-rice-prices-vietnam-full-20131017.pdf . . Trairatvorakul, P., 1984. The effects on income distribution and nutrition of alternative rice price policies in Thailand. Report No. 46, International Food Policy Research Institute (IFPRI), Washington, DC.
GETTING THE PRICE OF THAI RICE RIGHT: EPISODE II
18 Suthad Setboonsarng
Former Thailand Trade Representative, Prime Minister Office, Government House, Dusit District, Bangkok, Thailand
CHAPTER OUTLINE 18.1 Introduction ............................................................................................................................... 312 18.2 Origins of the PMS ..................................................................................................................... 312 18.2.1 International Rice Markets .................................................................................... 312 18.2.2 Precursor of the PMS............................................................................................ 313 18.2.3 Overview of the PMS............................................................................................. 313 18.2.4 Analysis of the PMS.............................................................................................. 314 18.3 Price Elasticity of Demand for the Export of Thai Rice .................................................................. 315 18.4 PMS Outcomes........................................................................................................................... 317 18.4.1 Increased Famers’ Income .................................................................................... 317 18.4.2 Increased World Price of Rice................................................................................ 318 18.4.3 Stabilized Farm Gate Price.................................................................................... 320 18.5 Challenges to the PMS ............................................................................................................... 320 18.5.1 External Factors ................................................................................................... 320 18.5.2 Internal Factors: Corruption and Inefficiency........................................................... 321 18.6 Negative Outcomes of the PMS ................................................................................................... 322 18.6.1 Losses from Selling Rice Below Cost ...................................................................... 322 18.6.2 Depletion of Rice Diversity .................................................................................... 323 18.6.3 Erosion of Traditional Market Mechanisms .............................................................. 323 18.6.4 Loss of Exporter Leadership................................................................................... 324 18.7 Domestic Politics ....................................................................................................................... 325 18.8 Policy Recommendations............................................................................................................ 326 18.8.1 An Exit Strategy for the PMS ................................................................................. 326 18.8.2 Regional Rice Market Arrangement ........................................................................ 326 18.9 Conclusion ................................................................................................................................ 327 References ......................................................................................................................................... 328
JEL: Q17; Q18; N55 Sustainable Economic Development. © 2015 Elsevier Inc. All rights reserved.
311
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18.1 INTRODUCTION Thailand is one of the world’s largest rice exporters, making rice its major source of income. In addition to greatly contributing to the growth of the country’s agriculture sector and the economy, rice is also a source of national pride. As such, a centerpiece Thai government policy typically involves rice. After the 1960s, the Thai government experimented with various agriculture policies, each with different objectives and levels of success. Roumasset and Setboonsarng (1988) explained that the Thai export tax on rice performed at least three functions: an optimum tax given the market power in the international market, generating revenue at a relatively low collection cost, and suppressing the domestic price of rice to help the urban consumer (which supported the lower wages in the manufacturing sector). To compensate the farmer, the government advanced many programs to subsidize the rice farmer, including the investment in irrigation and providing loans. While the export tax on rice was abolished in 1986, the price of rice in the domestic market was still kept at a minimum level to protect the urban consumer and many programs were advanced to compensate the rice farmers. The most recent government rice policy is the Paddy Mortgage Scheme (PMS),1 which was implemented in 2011. The PMS guaranteed Thai farmers a purchase price of THB 15,000 (US$492) per ton of regular rice paddy and THB 20,000 (US$656) for jasmine (hom mali) rice. In 2011, the government purchased through the PMS 53% of rice production, which was milled and auctioned. It hoped to hold a large enough rice stockpile to sell it at a profit. However, the increase in rice export from India, compounded with leakage, corruption, and inefficient management, disrupted the scheme. This chapter explains the motivation for rice policy given the context of the global rice market and analyzes its successes and failures. It also suggests a possible exit strategy and gives policy recommendations for the future of Thailand’s rice and agriculture industry.
18.2 ORIGINS OF THE PMS 18.2.1 INTERNATIONAL RICE MARKETS Before discussing the details and analyzing the outcomes of the PMS, it is important to understand that as a major rice exporter, Thailand has an agriculture policy that caters to a domestic constituency and is influenced by international market conditions. The global rice market shares many characteristics with that of other grains such as wheat, corn, and maize. Most nations keep the consumer price of rice low and provide subsidies to compensate the farmer. They tried to be self-sufficient in production and rely on the international markets for the deficiency or absorbing the surplus. Such a strategy results in transmitting domestic fluctuation to the world market.
1
It is also called the rice pledging scheme. However, the scheme involves acquiring paddy from the rice farmer.
18.2 ORIGINS OF THE PMS
313
As a staple grain in many countries, however, rice is subject to more government interventions and subsidies than other agriculture products. Together, the domestic price control and production subsidies create a downward price bias that results in low rice prices.2 This comes at the cost of rice exporting countries and taxing the livelihood of farmers. The low price of rice also discourages investment in research and development and innovation throughout its value chain, from the production to consumer market. Rice exporting countries often pursue policies to combat these negative price biases.
18.2.2 PRECURSOR OF THE PMS From 1998 to 2000, the world price of rice declined steadily from about US$302 to 202 per ton. Its severe depression became a pressing issue for the Thai government, given that rice production in the country involves about 3.73 million farming households (Office of Agricultural Economics, 2012). Thus, rice is not only a source of national income, but of the welfare of a large number of Thai farmers as well. Understanding this imperative of assisting the agriculture sector, the Thaksin administration, on its assumption of office in 2001, introduced a Paddy Price Guarantee Scheme, a minimum support price scheme. The government announced the buying price of paddy at a fair market price and farmers had the option of pledging their paddy with the Government Warehouse Organization and Marketing Organization for Farmers as collateral for a loan of up to 80% of the crop value. The loan had a 3- to 4-month payback period and carried a 3% interest rate. The scheme attracted little participation because farmers preferred receiving their payment in full. Furthermore, they found the documentation process too cumbersome. From 2002 to 2009, the government adjusted the program to make it more flexible and to increase the transfer to farmers.3 When the Democrat Party took office in late 2009, it replaced the Paddy Price Guarantee Scheme with the Income Guarantee Scheme (IGS), wherein the government covered the difference between the market price and the announced price.4
18.2.3 OVERVIEW OF THE PMS After winning the general election in 2011, the Yingluck administration implemented a full-fledged PMS, which was part of its campaign promise. It cited four key objectives of the PMS: (i) increase farmers’ income, (ii) stimulate domestic consumption, (iii) control the rice market system, and (iv) increase export price.5 It set the buying price at THB 15,000 (US$492) per ton of long grain paddy and THB 20,000 (US$656) per ton of aromatic jasmine (hom mali) paddy. In crop year 2011 12, over 21 million tons of paddy (52% of total production)6 were brought under the scheme, giving the government control of the domestic and export supply of rice. Rice prices increased between August and December 2011, especially for the high quality jasmine rice. 2
Section 18.9.2 discusses the impact of this policy. Isvilanonda (2012) described the development of the minimum price support programs during this period. 4 Poapongsakorn and Siamwalla (2009). 5 National Rice Policy Committee, October, 2012, p. 5. 6 Further details will be discussed in the following section. 3
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However, the increase was not enough to make the PMS profitable, hence the government did not release its rice inventory. The rice stockpile increased from 5.6 million tons in 2010 to 9 million tons in 2011 and 11 million tons by the end of 2012. Unable to sell rice at the desired value, the government was forced to stockpile its rice purchase. Over time, the quality of rice in stockpiling deteriorated. Moreover, leakages decreased the value of the rice inventory. The government continued implementing the PMS in crop year 2012 13 at the same guaranteed price despite criticism and protest from exporters and academics. Mounting losses, inefficient administration, and corruption within the PMS eventually led to the ousting of the Commerce Minister, contributing to the fall of the Yingluck administration.
18.2.4 ANALYSIS OF THE PMS A simple model (Figure 18.1) was devised to serve as a framework in estimating the impact of the PMS. A liner model was used in the estimation. The quantity that will maximize revenue is where marginal revenue (MR) from export quantity equals marginal cost. The optimum price is determined by the price on the demand curve for that quantity. The marginal cost of export or the supply of export (Sw) in the international market is determined by the excess of domestic supply (SD) over the domestic demand (DD). The world demand curve for Thai rice (Dw) is the sum of all the excess demand over domestic supply from rice importing countries. It was found to be elastic because the export quantity of Thailand, being a major exporter, has an impact on the world price. The MR of export, reflecting the incremental revenue from each unit of export, is derived from the world demand Dw. Leaving it to competition, the quantity of rice export would be at Qw, where Sw intersects Dw and the world price is at Pw. However, this quantity and price will not maximize the revenue for Thailand. The quantity of export that maximizes revenue for exporting Thai rice is Q1, where the MR curve intersects Sw (area B). The optimum price of rice is P1.
Domestic market P
SD C
A
r m
B
Sw
P
D
t
Pd1 Pw1
International market
DD
n
P1
c
Pw
d
f
Ew
b
a MR 0
Qd2 Qd Qd1
Qs1Qs Qs2
FIGURE 18.1 Optimum tariff and international rice price.
Q
0
Q1 Qw
Dw Q
18.3 PRICE ELASTICITY OF DEMAND FOR THE EXPORT OF THAI RICE
315
If world price increases from Pw1 to Pd1, the producer surplus will increase from OnPw1 to OrPd1, which is equal to area Pw1nrPd1. This area, consisting of Pw1mtPd1, comes from the reduction of domestic consumer surplus and mnrt, which is the reduction of the consumer surplus in the foreign market. This will raise the farmer’s income at the expense of consumers, with the government bearing the administrative cost. To attain this target, the government can either increase the export price, for example, by imposing an export tax equal to 1/elasticity (Corden, 1974, p. 176) or sell the marginal quantity of rice until Q1 is reached and the price will be at P1. The PMS employed the export quantity management measure. It acquired paddy from the farmer at a price higher than the market to have enough stock in the government’s hand. Then, the government auctioned limited quantities for export to pressure an increase in prices. The government also auctioned the rice in the inventory for the domestic market at current market price to keep domestic prices stable. However, a combination of internal and external factors prevented the government from fulfilling its objectives for the PMS. Its own inability to manage leakages and curb corruption led to heavy financial losses. Externally, good harvest yields and changes in the export law of other rice producing countries dramatically increased the world supply, forcing prices down.
18.3 PRICE ELASTICITY OF DEMAND FOR THE EXPORT OF THAI RICE The fact that Thai rice is facing a downward sloping demand is well established in the past literature.7 A downward sloping demand suggests that Thailand can earn optimum revenue if the quantity of export is reduced. Table 18.1 presents the elasticities of demand for the five categories of rice export—jasmine rice (hom mali, high quality, aromatic), pratum (an aromatic rice), 100% white rice, 5% white rice, and others—which were calculated using data in 2011 and 2012. The results show that • • •
The demand for the higher quality categories is less elastic than that for the normal quality. The average rice price increased by 15.9%, ranging from 8% (100% white rice) to 20% (pratum). The export quantity decreased by 37%, mostly from second quality categories: 5% white rice (266%) and pratum (259.6%). Jasmine rice was the least affected.
Given the demand elasticity for import of each type of rice, the optimum tax varies from 60.3% (hom mali rice) to 23.7% (5% white rice). On average, the optimum export tax is 42.9%. The actual price increase, however, was only 11.4% for jasmine rice and 15.7% for 5% white rice. This suggests that although the PMS increased the price of rice, it did not reach the optimum level. This could be because of the competition from Viet Nam and India, as noted by Chulaphan et al. (2013).
7 Choeun et al. (2006) summarized the various estimation of elasticity of demand for Thai rice export during 1978 1995.
Table 18.1 Calculation of Elasticity of Demand for Thai Rice Export by Types of Rice 2011 Q (mill. ton) Hom mali Pratum 100% 5% Others Total
2.36 0.21 0.82 2.23 5.08 10.71
2012
Changes
V (mill. baht)
P (baht/ ton)
Q (mill. ton)
V (mill. baht)
P (baht/ ton)
dQ (mill. ton)
dV (mill. baht)
dP (baht/ton)
%dQ
%dP
Ed
63,584 4965 13,673 33,309 80,587 1,96,117
26,954 23,416 16,639 14,920 15,860 18,318
1.91 0.09 0.59 0.76 3.39 6.73
57,434 2410 10,564 13,051 59,517 1,42,976
30,028 28,148 17,990 17,258 17,543 21,231
20.4463 20.1264 20.2346 21.4763 21.6883 23.9718
26,150 22554 23110 220,257 221,069 253,141
3074 4732 1351 2338 1682 2913
218.9% 259.6% 228.5% 266.1% 233.2% 237.1%
11.4% 20.2% 8.1% 15.7% 10.6% 15.9%
21.6589 22.9499 23.5159 24.2190 23.1328 22.3332
Note: Q, quantity; V, value; P, price; dQ, dV, dP are changes in Q, V, and P, respectively; Ed 5 elasticity of demand 5 (%dQ/%dP). Source: Rice Export Statistics, Office of Agricultural Economics, Ministry of Agriculture and Cooperatives, 2013.
18.4 PMS OUTCOMES
317
A drawback of this model (Figure 18.1) is that it does not consider the long-run dynamic impact of the PMS. It does not address the issue of leftover stock. For instance, the higher price of paddy would induce further production in the subsequent year. The inventory of leftover rice will accumulate over the years. Therefore, due consideration has to be paid to the long-run implications. As Table 18.1 shows, the demand for hom mali and pratum is less elastic. As such, the PMS could be more effective in enhancing prices of products over which Thailand has market power. On the other hand, most of the reductions in quantity came from the lower quality white rice market. This indicates that the PMS is not appropriate for low quality rice because Thailand has limited market power over it and has high rice production costs due to the relatively higher labor costs. With some modifications, the PMS could be made to focus on appropriate products (i.e., high quality rice) and use other schemes to deliver the intended income transfers.
18.4 PMS OUTCOMES The shortcomings of the PMS have been well documented by experts in and outside Thailand. Still, the scheme had achieved three notable positive effects desired by the Thai government: (i) increased farmers’ income, (ii) increased world price of rice, and (iii) Stabilized Farm Gate Price. There are caveats, however, as to how these achievements were reached.
18.4.1 INCREASED FAMERS’ INCOME In 2011, the Thai government, like other governments in Asia, implemented economic stimulus packages to increase domestic consumption to compensate for the slowdown in global demand. As farmers have higher marginal propensity to consume (MPC), transfer of income to them was expected to generate relatively higher multiplier effects. The rice price offered under the PMS was 30 40% higher than the prevailing market price, resulting in increased income of farmers who participated in the scheme. As market price rose, the income of nonparticipating farmers also increased. Figure 18.1 shows P1Q1 as the optimum price and quantity in the international market. Export reduction is Qw to Q1 and export price increase is Pw1 to Pd1. Domestic production increase is Qs to Qs1 and domestic consumption reduction is Qd to Qd1. The increase in producer surplus is area Pw1nrPd1, which consists of four components: • • • •
Area A—Reduction of consumer surplus because of increase in rice price; Area B—Reduction of consumer surplus in the export market, which is equivalent to PwdcP1 in the export market; Area C—Producer surplus from the additional production in response to higher price; and Area D—Loss from unsold rice stock.
In 2012, the total export revenue from rice increased to THB 192 billion (about US$6.3 billion), from THB 142 billion (about US$4.65 billion) in 2011. This was despite the decline in export quantity from 10.7 million tons in 2011 to only 6.7 million tons in 2012. The average export price increased from THB 18,313 (US$600) per ton in 2011 to THB 21,231 (US$696) per ton in 2012.
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CHAPTER 18 GETTING THE PRICE OF THAI RICE RIGHT: EPISODE II
Table 18.2 Calculation of Welfare Transfer Area
Description
Welfare Transfer (billion baht)
Proportion (%)
A B C D Total
Reduction of domestic consumer surplus Reduction of consumer surplus in the export market Producer surplus from the additional output Remaining unsold stock carries by the government
31,194 19,615 1762 16,473 69,043
45.2 28.4 2.6 23.9 100.0%
Note: Based on Figure 18.1.
Domestic retail price did not change and consumption grew slightly from 10.3 million to 10.4 million tons. Rice output increased from 21.89 million tons in 2011 to 23.1 million tons in 2012.8 Given this information, the total transfer of income to rice farmers was calculated at THB 65.51 (US$2.15) billion. The sources of funding for this transfer are given in Table 18.2. Since the government did not increase the selling price in the domestic market, it thus absorbed the cost of area A. The government also incurred costs due to additional production induced by the higher rice price and the remaining inventory. Consumers abroad absorbed about THB 19.6 (US$0.64) billion (28% of the total transfer). In short, it cost the government THB 49.428 (US$1.62) billion to transfer THB 69.043 (US$2.07) billion to Thai rice farmers. It should be noted that if the government increased the price of rice in the domestic market to the level implied by the world price, the government’s cost would be reduced drastically to only THB 18.23 (US$0.59) billion. The effectiveness of income distribution hinges on transferring income to poorer people. However, transferring income by increasing the price of paddy is innately biased in favor of larger farmers. Poapongsakorn (2013) found that among the PMS participants, 52.8% of farm households were in the low income brackets (less than THB 100,000) and they received only 20.4% of the total transfer for the main crop. The transfer went to the medium sized farmers (Table 18.3). However, just because medium size farmers are getting the higher proportion of the transfer is not sufficient reason to write off the potential benefit of the transfer. The effectiveness of using the PMS as a stimulus package depended on the relative MPC of these farm households. Its assessment needs to be further studied to compare with alternative options.
18.4.2 INCREASED WORLD PRICE OF RICE The PMS indirectly increased farmers’ income by increasing world prices. As the largest exporter of rice for many years, Thailand has been the benchmark for the world market price. As such, for Thailand to maximize the revenue from export, the optimum price and quantity should be determined at the quantity where the MR equals marginal cost or the supply for export. This is no easy task because in the real world market imports are usually carried out by government agencies that 8
Based on the assumption that 0.05% of paddy is used for seeding and paddy to rice conversion is 65%.
18.4 PMS OUTCOMES
319
Table 18.3 Number of Farm Household Participating in the PMS and Amount of Money Received, Classified by Income Levels Main Crop
Second Crop
Income Level of Recipient (THB)
Number of Households
Amount of Transfer (billion THB)
Number of Households
Amount of Transfer (billion THB)
,100,000 (% share) 100,000 600,000 (% share) More than 600,000 (% share) Total
4,39,919 52.28% 3,93,590 46.78% 7882 0.94% 8,41,391
24,122 20.36% 88,352 74.56% 6030 5.09% 1,18,504
1,96,804 32.03% 3,84,286 62.55% 33,309 5.42% 6,14,399
11,108 7.83% 1,03,690 73.11% 27,034 19.06% 1,41,832
Source: Poapongsakorn, 2013, Table 7.1
800 700
US$/ton
600 500 400 300 200 100 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12
19
19
98
0
Farm gate price
WR 5%
Gross margin
FIGURE 18.2 Farm gate price and export price of rice (US$per ton). Thai Rice Exporter Association, 2013.
manage their respective countries’ food security, and they have their own legal requirements and conditions. The exporters (countries and companies), on the other hand, compete among themselves. By managing the export of rice through auctioning out stock, the Thai government controlled the quantity and price of rice, but placed pressure on rice exporters. The world price of rice increased from July to December 2011 (Figure 18.2). Without the PMS, it is unlikely that the world price would have increased during this period because of the
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overwhelming amount of rice exported from India. Still, as a consequence, Thai rice exports declined in 2011, leaving a large stock of rice for the subsequent years.
18.4.3 STABILIZED FARM GATE PRICE At harvest time, farmers sell their paddy to pay off their loans and spend on household needs. Storage facilities for paddy at the farm level are usually inadequate. Moreover, holding the stock risks damage from pests, theft, and quality deterioration. Thus it is favorable to sell the paddy as early as possible. On the other hand, farmers are not equipped with appropriate market information and skills to negotiate with middlemen or rice millers. For instance, the paddy’s moisture level is one of the parameters used to determine the value of paddy, and this is usually determined by the middlemen or rice miller. The PMS thus helped farmers achieve stable farm gate price and make appropriate decisions on investment at planting. The PMS is one tool with many objectives. There could be other more efficient measures that can achieve these objectives.
18.5 CHALLENGES TO THE PMS 18.5.1 EXTERNAL FACTORS The PMS had created an impact on the international rice market and vice versa. The attempt to manage the supply of rice in the international market sought to stabilize the market. In 2011, two important events affected the international rice market. •
•
In July 2011, India lifted the control on rice export and subsequently released its surplus into the international market.9 Its export thus increased from 4 million (2010) to 10.7 million tons, making India the world’s largest rice exporter (Figure 18.3). Weather conditions in 2011 negatively affected Chinese production so that the following year its grain import increased by 294%, from about 0.58 million tons in 2011 to 2.2 million tons in 2012. China became the world’s second largest rice importer after Nigeria.10
When India increased its exports toward the end of 2011, world prices took a dive, especially for the lower quality market segment. This segment was the source of the PMS’ main loss. The increase of imports from China helped absorb some of this surplus in the international market, thus preventing the price from dropping further. However, the transition of its leadership constrained China from participating more actively in the international market. 9
http://www.dawn.com/news/643820/india-lifts-ban-on-export-rice-prices-crash-in-local-world-markets. The official statistics of grain production in China between 2011 and 2012 increased slightly. The years 2011 12 saw the transition of leadership from President Hu Jintao to President Xi Jinping. Uncertainty in food security during the delicate transition period was not acceptable to Chinese leadership, thus China’s official rice market information was not transparent. After the political transition was complete, the rice and grain market became clearer. China said that the increase in the rice import will not affect global food security. (http://www.fao.org/docrep/017/ap047e/ap047e00.pdf).
10
18.5 CHALLENGES TO THE PMS
321
Exporters of rice 12 Thailand
Million metric ton
10
India 8
Viet Nam Pakistan
6
United States 4
Cambodia Egypt
2 0
2009
2010
2011
2012
2013
Importers of rice
4
Nigeria
Million metric ton
3.5
China
3
Iran 2.5
Philippines
2
Iraq EU-27
1.5
Saudi Arabia
1
Cote d'Ivoire 0.5 0
Malaysia 2009
2010
2011
2012
Senegal
2013
FIGURE 18.3 Major importing and exporting countries. Grain: World Markets and Trade, USDA, 2013.
By 2013, Thailand had regained its leading position in the world rice market. It also has sufficient stock at hand to prevent exporters from undercutting prices. As a consequence, in the next few years, all else being equal, the price of rice is expected to continue to increase.
18.5.2 INTERNAL FACTORS: CORRUPTION AND INEFFICIENCY Poapongsakorn (2013) reported that corruption occurred throughout the supply chain and many methods of embezzling money were employed. Khoman (2014) noted that corruption already
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CHAPTER 18 GETTING THE PRICE OF THAI RICE RIGHT: EPISODE II
existed in the implementation of a similar scheme in 2009 (e.g., falsification of warehouse receipts to claim subsidy). Democrat Party (2013) pointed out five main areas of corruption in the PMS: (i) falsification of warehouse receipts in terms of paddy weight, purity, and moisture level; (ii) surrogating name of nonrice farmers or using smuggled paddy; (iii) rotation of paddy for multiple claims; (iv) false surveyor reports; and (v) nontransparent selling of rice, especially the government-to-government transactions. In other countries, such as the Philippines, the rice self-sufficiency policy is also crammed with corruption throughout the supply chain (Clarete, 2014). Thang et al. (2013) also questioned the allocation of rice export from Viet Nam. However, the scale may be different from the case of PMS in Thailand. These corruptions are crimes which are punishable by law, but the cost of enforcement is high. Violations have been continuously added to the growing pile of cases for investigation, prosecution, and conviction. Because it takes a long time to reach a verdict and deliver punishment, the law has lost its effectiveness. Rampant violations in the PMS have rendered it almost impossible to investigate and prosecute these crimes. It is difficult to measure the cost of inefficiency created by the PMS. As some aspects are of important concern, more research is needed to quantify them.
18.6 NEGATIVE OUTCOMES OF THE PMS The Thai government had been amply criticized and warned against the dangers and corruption of the PMS by both Thai and foreign analysts (over 3500 articles in Thailand and 356 articles by foreign analysts).11 This section discusses the common critiques of the PMS and examines other areas that were overlooked.
18.6.1 LOSSES FROM SELLING RICE BELOW COST The government incurred losses when it acquired paddy through the PMS at above-market prices and then sold it at regular prices. This loss was borne by the government’s budget. In 2011, the world price of rice increased, but it was not sufficient to cover the cost of paddy plus milling costs and other expenses, resulting in a sizeable loss by the government. Poapongsakorn (2013) estimated the revenue earned from 2011/12 was THB 218.1 (US$7.15) billion, while the cost was THB 388.4 (US$12.73) billion, or a loss of THB 170 (US$5.57) billion (Table 18.4). The government objected to the above estimates because it did not consider the value of the rice in the stockpile. The government estimated the cost at about THB 100 (US$3.27) billion. It should be noted, however, that the size of stock had never been made clear because it was recorded by several agencies and done so inconsistently. Moreover, the opaque government-to-government transactions did not disclose the number of buyers, prices, and tonnage. Aside from the accounting cost, the quality of services—milling, storage, and transportation— performed by the rice mill and the owner of storage facilities was different from when they were 11
Democrat Party, 2013, p. 10.
18.6 NEGATIVE OUTCOMES OF THE PMS
323
Table 18.4 Estimated Revenue and Cost of PMS, 2011/2012 Paddy October 31, 2012 (mmt) Rice equivalent (mmt)a Estimated revenue receivedb Loan (cost of paddy)b Interestb Operating costsb: Gov. agencies expenses Rice miller costs Quality deteriorationb Estimated costb Lossb
a
Main crop
Second crop
Total
6.95 4.21 83,889 1,18,594 6616 11,888 4800 7088 5527 1,42,624 258,735
14.81 9.15 1,34,855 2,08,627 9819 20,280 6945 13,335 7063 2,45,789 21,10,934
21.76 13.36 2,18,745 3,27,221 16,434 32,169 11,745 20,424 12,590 3,88,414 21,69,669
Note: a mmt 5 million metric ton. b billion THB. Source: Derived from Poapongsakorn, 2013, Table 7.2
doing these for their own paddy and rice. Added to this, government agencies supervising these operations did not have sufficient time or sufficient expertise to monitor the activities daily. When they did, their level of commitment and expertise did not match that of traditional rice millers.
18.6.2 DEPLETION OF RICE DIVERSITY The more long-term damage of the PMS is the reduction in diversity of rice. Only hom mali and pratum paddy were given different prices; all other varieties of white rice were priced the same. Thus, farmers used the variety with the highest yield, regardless of its quality (e.g., taste and cooking quality). This went against the long-term strength of the Thai rice market, which is based on quality,12 as evidenced by the prominence of hom mali rice in the world market. The PMS signaled the domestic market to focus only on a few strains of high output rice, which reduced the genetic diversity of rice in Thailand. It is difficult to assess the size of damage created by this development.
18.6.3 EROSION OF TRADITIONAL MARKET MECHANISMS Under the PMS, farmers brought their paddy to the designated government warehouses and the government hired millers to process and store the rice until the government would auction it. This
12 The higher cost of farm labor in Thailand prevents Thai rice from competing with lower wage countries. The niche market for Thai rice is higher quality rice (Setboonsarng, 1990).
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250 200 150 100 50
H C
C
U A H N U C AN H TH UA AK N TH S A IN TH KS A IN TH KS A IN TH KS A IN SU KS R IN AY SA UT SO M M AK AB CH H A AB ISI I H TH AB ISI H TH YI IS N IT G H YI LU N C G K LU C K
-
FIGURE 18.4 Gross margin for export (US$ per ton). Calculated from data of the Thai Rice Exporter Association, 2013.
procedure diminished the role of middlemen as well as the local and central paddy markets. Isvilanonda (2012) noted that the central paddy market in the central plain was at risk of bankruptcy as middlemen who held paddy stock to speculate for higher prices no longer had a role in the new scheme. The futures market for paddy also became irrelevant. The income of rice millers and exporters was also affected. This is because the gross margin of export, which is the difference between the cost of rice (calculated from the farm gate price of paddy) and the export price, reflects the revenue accruing to the exporter. The storage cost of rice, on the other hand, adds to the income of the rice miller. Figure 18.4 shows that the gross margin for export exhibits had an increasing trend from 2001 to 2007. Export prices also increased in 2008 during the global food crisis.13 During the PMS’ implementation, however, the margin declined. Middlemen, millers, and exporters made less for each ton of rice.
18.6.4 LOSS OF EXPORTER LEADERSHIP Thailand is equipped with the appropriate infrastructure to be the hub for international rice trading. Some academics and the international media were of the view that the PMS had reduced Thai export and pushed Thailand from the number one rank among rice exporting countries. The concern
13 Gross margin is revenue minus cost of goods sold. In this case, it is the price of rice minus the cost of paddy, assuming a milling rate (i.e., percent of rice from 1 kg of paddy) of 65%.
18.7 DOMESTIC POLITICS
325
is that in the long run Thailand may lose more market share to the other countries. The reduction of Thai export can be attributed to three short-term factors: • •
•
Export decreased because Thailand used the PMS to push up world price. Blocking paddy from Cambodia and Lao PDR diverted these paddies to Viet Nam. Viet Nam has now become an exporter of aromatic rice.14 (It is known, although not officially sanctioned, that some portion of Thai rice exports originate from neighboring countries.) The increase in India’s export put pressure on the global rice price and market.
The determination of price of rice in the international market is carried out not by country, but by the international rice traders.15
18.7 DOMESTIC POLITICS The PMS took place against the backdrop of intense political competition in Thailand between the incumbent Pheu Thai Party and the opposition, Democrat Party. During the Democrat’s government in 2009 11, an IGS was implemented to stabilize farmers’ income. However, this scheme did not become popular and had implementation problems (e.g., cumbersome documentation requirements and corruption charges). The IGS implementation suggests that both political parties share the same objective of transferring income to rice farmers. Since PMS and IGS had been problematic, a more effective and efficient scheme should be considered, especially one designed to minimize corruption. In fact, to say that PMS or IGS is a transfer of income to the farmer is incorrect. As shown in Figure 18.1, if the Thai farmers received the market price, they should have been given the full amount of producer surplus. But in order to keep down the consumer price, the government compensated THB 31 (US$1) billion to the farmer. This brings to fore the issue of consumption subsidies, which is the root cause of the farm subsidy. Although there is no explicit measure to control the retail price of rice but as a product in the “Control List” of the Control of Price of Goods and Service Act, B.E.2542, retailers, wholesalers, and rice millers keep a check on the price of rice. The lower price of rice also invites wasteful consumption. However, such subsidies are politically popular because they are beneficial to the urban population, which is more politically vocal, and they enhance the development of the manufacturing sector by keeping wages down.16 Rice consumption subsidy should be carried out through a more efficient program that directly targets poor consumers, not by keeping the price of rice low. Taking away consumption subsidies will not be politically popular, but it would automatically reduce the bias against the farming sector, which shoulders most of the burden.
14
http://oryza.com/news/rice-news/fao-2013-aromatic-rice-price-sub-index-averages-21-higher-2012. Calpe (2006) provides a description of the role and function of the international rice traders and the list of these entities. 16 Roumasset and Setboonsarng (1988) estimated that this objective is equivalent to an export tax of 6.25 7.32%. 15
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CHAPTER 18 GETTING THE PRICE OF THAI RICE RIGHT: EPISODE II
18.8 POLICY RECOMMENDATIONS 18.8.1 AN EXIT STRATEGY FOR THE PMS •
•
Abolish consumer subsidies through price control If the government sells rice in stock at the world market price for the domestic rice market, the government will earn more revenue to pay the farmer. Domestic price of rice will increase and reduce wasteful rice consumption. Utilize direct subsidies for lower income households Trairatvorakul (1984) found that the price increase will harm the poor consumer more than benefit the farmer. To compensate for this weakness, the government may consider having a program that would directly subsidize rice consumption for the poor household. For example, a rice voucher program for poor households can be introduced.
18.8.2 REGIONAL RICE MARKET ARRANGEMENT Given economic growth in Asia where most of the rice is produced and consumed, the international rice market will be changing in the coming decade. The surge of export from India and the increase in the import from China during the past two years were the prelude of the change in the international rice market. The stability of rice supply will become a bigger issue, affecting the economic welfare of millions of consumers and producers, if governments were to continue lower rice price to benefit consumers and subsidize the production cost. These policies have systematically reduced the world rice price and increased its fluctuation. As Figure 18.5 shows, production subsidies in both importing and exporting countries push out the supply curve of rice, respectively, reducing the world price of rice from Pw to Pw’ and Pw”. The price of rice has been kept lower than that of other staple grains even during the global food crisis in 2008 (Figure 18.6). China and India, the two largest rice producers and consumers, should take the lead in forging a regional arrangement in Asia to improve security in supply, put in place a price stabilizing mechanism, standardize support for poor consumers, and respect the market mechanism. There is already a platform Exporting countries P
International market
Importing countries
P
Sm
P
Sm'
Sw Sw''
Sx Sx'' Pw Pw'
a c
b d
Pw''
e
f
Dw'
Dw Dm
Dx 0
dx
dx'' dx'
Qx
Qx'
0
Qw'
Qx''
FIGURE 18.5 Impacts of production subsidies on world rice price.
Qw
Qw''
Q 0 Qm
Qm'
Qm''
Q
dm dm' dm''
18.9 CONCLUSION
327
3.5 3 2.5 2 1.5 1 0.5
Maize
Barley
08 20 10 20 12 20 14
06
20
04
20
02
20
00
20
98
20
96
Rice
19
94
19
92
19
90
19
88
19
86
19
84
19
19
80
19
19
82
0
Wheat
FIGURE 18.6 Price index for major grains. IMF, World Economic Outlook, October 2013.
that could be developed to perform this function—the ASEAN Plus Three Emergency Rice Reserve (APTERR) Agreement, which involves the 10 ASEAN countries, China, Japan, and Korea. Article 2 of the Agreement indicates the ASEAN Plus Three’s intention to deal with the stability of supply. These 13 countries accounted for 57% of global production, 42% of world export, and 24% of world import in 2012. With India, the coverage increases to about 75% of global production and 68% of world export. Therefore, India should join the APTERR arrangement.
18.9 CONCLUSION There are three broad issues that the government of Thailand has been addressing: (i) increase farmer income, (ii) increase export price, and (iii) ensure affordable rice prices. Agriculture and trade policy of rice importing countries artificially bring down rice prices, causing the government of rice exporting countries to react. Thailand’s PMS was intended to raise world rice price by stockpiling rice purchased at above-market rates. The government purchases paddy from farmers at higher than market price, but as global prices increase, each ton of rice in inventory can be auctioned off for a profit. An important consideration for the government is to purchase only the type of rice over which Thailand can exercise market power. Estimations show that the demand for jasmine (hom mali) rice is more inelastic. This suggests that the Thai government would have more success in pursuing a policy that would increase the world price of hom mali, rather than the low quality white rice, for which demand is elastic. The Thai government should rethink consumer subsidies innate in the PMS. Direct subsidy programs can be directed to low income households, while domestic prices should be allowed to increase and match world prices. The cost of political popularity, however, has prevented politicians from subscribing to an economically sound and efficient policy.
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REFERENCES Calpe, C., 2006. Rice International Commodity Profile, Food and Agriculture Organization of the United Nations, Market and Trade Division, December. Choeun, H., Godo, Y., Hayami, Y., 2006. The economics and politics of rice export taxation in Thailand: a historical simulation analysis, 1950 1985. J. Asian Econ. 17, 103 125. Chulaphan, W., Chen, S.E., Jatuporn, C., Wen, C.H., 2013. Different causal relationships of export rice prices in the international rice market. Am. Eurasian J. Agric. Environ. Sci. 13 (2), 185 190. Clarete, R., 2014. Philippines rice self-sufficiency program: pitfalls and remedies. In: Balisacan, A., Chakravorty, U., Ravago, M.-L. (Eds.), Sustainable Economic Development: Resources, Environment and Institutions. Elsevier Inc, San Diego, CA. Corden, W.M., 1974. Trade Policy and Economic Welfare. Clarendon Press, Oxford. Democrat Party, 2013. In-depth knowledge, Really knowing the Cheating of Paddy Mortgage Scheme. (In Thai). Democrat Party, Bangkok. Grain: World Market and Trade, USDA, 2013. Available from: , http://apps.fas.usda.gov/psdonline/circulars/ grain.pdf . . IMF, World Economic Outlook, October 2013. Available from: , http://www.imf.org/external/pubs/ft/weo/ 2013/02/weodata/download.aspx . . Isvilanonda, S., 2012. 1 Year and Government Economic Policy: Agricultural Policy. Paper presented at the Economics Conference, National Research Council, Bangkok. Khoman, S., 2014. Corruption, transactions costs and network relationships: governance challenges for Thailand. In: Balisacan, A., Chakravorty, U., Ravago, M.-L. (Eds.), Sustainable Economic Development: Resources, Environment and Institution. Elsevier Inc, San Diego, CA. National Rice Policy Committee, 2012. In-depth knowledge, Really Knowing the Government’s Paddy Mortgage Scheme. (In Thai). Department of Internal Trade, Nonthaburi, Thailand. Office of Agricultural Economics, 2012. Basic Information on Thai Agricultural Sector. (In Thai). Ministry of Agriculture and Cooperatives, Bangkok. Poapongsakorn, N., 2013. Impacts of government rice price intervention. (In Thai). In the Report on Thai Rice Strategy: Research and Looking Forward. Thailand Development Research Institute, Bangkok. Poapongsakorn, N., Siamwalla, A., 2009. New approach for rice price intervention. (In Thai). TDRI’s Report No. 75, Thailand Development Research Institute, Bangkok. Rice Export Statistics, Office of Agricultural Economics, Ministry of Agriculture and Cooperatives, 2013. Available from: , http://www.oae.go.th/more_news.php?cid595 . . Roumasset, J., Setboonsarng, S., 1988. Second-best agricultural policy: getting the price of Thai rice right. J. Dev. Econ. 28, 323 340. Setboonsarng, S., 1990. Objectives of Public Agricultural Research in Thailand, Issue 28 of ACIAR/ISNAR Project Papers, Australia. Thai Rice Exporter Association, 2013. Price database. , http://www.thairiceexporters.or.th/database/AVG% 20prices%202013.html . . Thang, T.C., Huong, D.L., Minh, L.N., 2013. Who Has Benefited from High Rice Price in Viet Nam? Oxfam International, Hanoi, Viet Nam. Available from: , http://blogs.oxfam.org/sites/blogs.oxfam.org/files/whobenefits-rice-prices-vietnam-full-20131017.pdf . . Trairatvorakul, P., 1984. The effects on income distribution and nutrition of alternative rice price policies in Thailand. Report No. 46, International Food Policy Research Institute (IFPRI), Washington, DC.