Thailand: Government rice subsidy intended to help farmers backfires
February 20, 2014
A controversial rice subsidy program that the Thai government had hoped would increase rural incomes may actually backfire and even help bring down the ruling Pheu Thai Party (PTP). The political turmoil in recent weeks - which started nearly four months ago in Bangkok - has been fueled by farmers protesting and demanding overdue rice payments totaling USD 4.0 billion, which should have been paid in October 2013. The losses from the rice subsidy scheme the government has incurred have swelled to nearly USD 4.6 billion since the subsidy was implemented when the PTP came in power in 2011. In addition, the government has recently faced difficulties in selling the rice on the global market, mainly due to weak global demand for Thai rice and the strong rivalry of countries such as India and Vietnam.
Since the elections were disrupted on 2 February, Prime Minister Yingluck Shinawatra has been governing in a caretaker capacity with limited power to make spending decisions. As a result, the rice subsidy scheme will not be renewed after it expires in late February. The government has struggled to garner loans from commercial banks in order to pay the farmers. Thus, it may need to find alternatives to solve its payment issues, such as selling stock of rice at auctions. Meanwhile, a Chinese state-run enterprise called off a deal to buy nearly 1.2 million tons of Thai rice due to lack of confidence, which was sparked by the Thai anti-corruption body's graft probe into the rice subsidy "scheme".
Populist actions, such as the rice subsidy program helped the PTP win the election in 2011. However, recent developments may risk farmers' previously-loyal support.
Author: Dirina Mançellari, Senior Economist