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

Abstract

The paper assesses the benefits and costs of the Thai paddy pledging policy between October 2011 and May 2014. The scheme, which purchased 52 percent of total paddy production from the farmers, was to date the largest intervention by the government in the rice market. Its total costs were 984 billion baht (or 41% of the 2013 fiscal budget). The government also became the largest rice seller, trying unsuccessfully to corner the export market by withholding large supplies of rice from the market. Thai rice export dropped sharply as the export prices of Thai rice were much higher than those of India and Vietnam which toppled Thailand from the world largest exporter position. The attempt to release rice through the channel of Government‐to‐government sales failed. But the government refused to admit its failure and kept all rice sale information in secret. In fact, most of the claimed G‐to‐G sales were sold to the connected traders who in turn sold them in the domestic market.The policy directly benefited at least one third of the rice farmers who sold rice to the government. Other non‐participating farmers also benefited from the higher domestic price. Yet most of the benefits went to the medium‐ and large‐scale farmers. Thai consumers also gained because the government maintained a smooth flow of rice in the domestic market at the prices prevailing at the end of the previous government, despite higher paddy price. The study also finds that there was corruption in the government rice sale as it sold rice to a few connected traders at the prices below the market prices. That explained why the fiscal loss is estimated at 595 billion baht to 885 billion baht, depending on the time it will take to dispose 18 million tons of rice in the government stock. The policy also creates other social costs. Thus the social costs exceeded its benefits.