by Vuttiphol Wanglee, Assistant to Managing Director, Production & Purchasing, Chaitip Co.,Ltd. On the current burning debate in Thailand, Khun Vuttiphol will give an industry expert explanation on the pros and cons of the rice mortgage scheme, corruption loopholes in the system, and an overall perspective on the rice subsidy program in the long term. Khun Vuttiphol is the Assistant to the Managing Director in Production & Purchasing at Chaitip Co. Ltd. Previously, he worked at Ayudhya Allianz C.P. Life PCL and Allianz Insurance Management Asia Pacific Pte Ltd. He was educated at Babson College and New York University Stern School Of Business.

1. Rice Mortgage Scheme: The Real
Story
Vuttiphol Wanglee

2. Part I: Prelude to Rice Mortgage Scheme

3. Source: FAO Market Monitor
• World rice supply has outstripped demand for the past 7 years
• Closing stocks is at 12 year high
• More supply -> cheaper price
• We have been in the buyer’s market for the past 7 years
• Farmers get poorer in this market condition
Facts About World Rice Industry

4. Price trend reflected abundant supply
Lower Price, Lower
Income

5. Conclusions:
• Without government interventions, Thai
farmers will be poor (88 Baht/day income*)
• To tackle this problem:
– Democrat Party uses Income Guarantee Scheme
– Puerthai Party uses Rice Mortgage Scheme
*From government publishing: ‘Deep and Real Understanding of the Rice Mortgage Scheme’

6. Part II: Subsidy Programs

7. Farmers Farmers
Rice Mortgage SchemeIncome Guarantee Scheme
Assumption: Government guarantees income
at 10,000 Baht/Ton
Assumption: Government guarantees to buy
from farmers at 10,000 Baht/Ton
Comparison
Get 5,000 Baht ExtraSell 5,000 Baht/Ton
Rice Mill Buys at
5,000 Baht
Government pays 5,000 Baht extra
Farmer sells to government and get 10,000
Baht/Ton
Government buys at
10,000 Baht/Ton Rice Mill has to buy
at 10,000 Baht/Ton
Government sells
G2G, private
companies, or release
to domestic market
Export
Profit/Loss
depends on
world rice price
Source: Thairath

8. Objectives of Subsidy Programs
Rice Mortgage Scheme
• To lift Thai farmers’ well
being
• To create stability of Thai
economy through increased
domestic consumption
• To increase Thai rice price
• To control world market
price
Income Guarantee Scheme
• To lift Thai farmers’ well
being
• To create stability of Thai
economy through increased
domestic consumption
• To allow market mechanism
to dictate rice price
• To encourage export
Source: Department of Internal Trade

9. Part III: Outcomes of the Rice
Mortgage Scheme

10. Successfully Maintain Farm Income at Historic High Level
Source: Bank of Thailand

11. Successfully Increased Thai Rice Price
Source: Oryza
Thai fragrant
rice is 135%
more expensive
than
Vietnamese
fragrant rice
Thai white rice
is 36% more
expensive than
Vietnamese
white rice

12. Miss export value target
Vietnam
India
Thailand
Value Decline:
23.7% in 2012
10.26% in 2013
Source: TDRI

13. Export Volume Ranking Down to # 3
Source: USDA
-35%
-13%

14. Rice stock at highest level causing quality to deteriorate
Source: USDA

15. An Expensive Scheme
Source: Krungtaep Turakit
Loss 136
Billion Baht

16. 1. Some people uses
farmers’ right to
mortgage rice
2. Rice Mill/Farmer
mix low quality rice
3. Rice Mill cheats farmers
by wrongly measure
moisture
8. Corruption
through rice
sell
Corruptions Increases
Source: Thairath

17. Conclusions
Pros:
• Successfully maintains farm income at high level
• Successfully stimulates economy in the rural area
• Successfully increase Thai rice price
Cons:
• Export volume and value decline significantly
• Quality of rice decline (milling, storage, and mixture of sub-
par rice)
• Expensive budget
• Level of corruption has increased
– Millers gain profit through using farmers’ rights
– Millers gain profit through mixing low quality rice to mortgage
– Only well connected firm gets warehouse rice cheaply

18. “If any government thinks they are living above the
market, they are living in a fool’s paradise,”
- Tejinder Narang, an advisor to one of India’s largest grain exporters, Emmsons
International
“I do not know a single independent economist who
thought Thailand’s rice plan would work”
- David Dawe, a senior economist at FAO

19. Part IV: Corruption Evidences

20. 1. Smuggled Rice into Government Warehouse
Source: Cambodia Rice Exports Association
Source: Reuters (Insight: Smuggling rice to
Thailand - like coals to Newcastle)
Thailand has become
Cambodian top importer
through smuggling
Over 750,000 tons of rice
smuggled to Thailand every
year

21. “Up to 300,000 Tons of paddy were smuggled into
Thailand in 2012”
- Thon Virak, director of Cambodian state-owned rice exporter Green Trade
"Clearly shipments (to Thailand) started going up since the
intervention scheme started. It is highly attractive for the
neighboring countries to try and get as much rice across to
Thailand as possible and supply into the scheme.”
-Darren Cooper, Senior Economist at The International Grains Council in London

22. 2. Favor well-connected firm
Company S Export Volume VS Thailand Rice Export
Company S Export
Source: Thai Rice Exporter Association: Exporter Ranking

23. • The increase capacity is equal to 1.3 Million Tons/Year (20% of
total Thailand export)
Source: Buhler e-mail 19/6/2013
While Thai Rice export volume is coming down, the company
is expanding at the fastest pace

24. Evidences suggesting an
influential person in the ministry
of commerce is using a car
belong to that company
Source: http://www.naewna.com/politic/54168

25. Conclusions
• The scheme has its merit in helping farmers increase their
income and stimulate rural economy
• But need to address the following issues:
– How to encourage rice export
– How to maintain good quality rice in storage
– How to reduce corruption from top down
– How to solve long term problem of expensive production cost
My Personal View: This scheme will work only if:
• We can limit production/export volume among major rice
producing nations
• Rice can be stored like oil with no effect on quality