Rice Price Policy in Thailand

Abstract: Formulating and implementing agricultural policies are important for the development of the agricultural sector and the rural population. The process of policy making is a political bargain between politicians and citizens. The outcome of this process, the policies, cannot be expected to be Pareto efficient resource allocations since altruistic behaviour is not very likely. All participants in the process have their own agenda. Thailand is the world’s largest rice exporter and one of the most efficient producers. Rice policies in Thailand have always been rather sensible due to the export orientation of the agricultural sector. Interventions in the rice market were first introduced after the Second World War, when export taxes were implemented. Influenced by the development on the world rice market and the domestic economy, rice policies have been altered during the decades. In the 1980s Thailand abolished the export taxes and rice policies were liberalized. In the beginning of the 21st century the Thai government introduced a new rice price policy that has been in use on and off since the introduction. The policy functions as a mortgage program in favour of the producers. When the Samak government reintroduced the price policy for the crops in 2008, the pledging price was the highest ever. This had a negative effect on the domestic rice market and also consequences for the rice trade. Due to the high prices, export orders went down as the importers decided to wait for rice from cheaper producer countries. Millers had problems joining the mortgage program due to lack of credit and high requirements. The policy has undermined the market forces and therefore also negatively affected the integration of the rice market. If the policy is sustained with high pledging prices, there is a risk of large negative effects in the long run since farmers’ incentives to reduce costs and become more effective might be harmed. The rationale behind the program was most likely not economic but rather political. The peculiar political situation in Thailand might have triggered the new government to launch the program in order to receive support from farmers even though a negative impact on the domestic rice market and the rice trade was very likely.