Thailand’s Political Turmoil and its Rice Scheme Crisis

Posted on Posted in 2014-2015
By Gabriel Pila and Aaron M. Tanyag

At the heart of the crisis in Thailand is the severe division between the National Democratic Alliance against Dictatorship party (Red-shirts) and the People’s Alliance for Democracy (Yellow-shirts). The Red-shirts are avid supporters of Thaksin Shinawatra, former Prime Minister of Thailand, and maintain that he improved the conditions for the lower class, particularly the farmers. The Yellow-shirts are mostly composed of middle-class supporters of the monarch that are against the influence of the Shinawatra family and protest their alleged corruption.

Overview of the Crisis

Mass protests between these factions became common especially after Thaksin Shinawatra was ousted by a military coup in 2006. The tension between these two groups carried on until Yingluck Shinawatra, previous Prime Minister of Thailand, was elected on 2011. Both sides were on the brink of civil war, holding violent protests, disrupting the economy of Bangkok, and seizing government buildings. The first of these protests happened on November 5, 2013 when Yingluck proposed a blanket amnesty for several politicians including her brother, former Prime Minister Thaksin. Massive antigovernment protests calling for Yingluck’s resignation were held by the royalist and yellow shirts, freezing Bangkok.

By December 8 less than a month later, 153 members of parliament resigned and Yingluck dissolved the House of Representatives with a call for an election. Both Yellow-shirts and Red-shirts took to the streets with the anti-government protesters, blocking the polling stations. The pro-Shinawatra groups clamored for their right to vote.

On May 8, 2014, the constitutional court impeached Yingluck Shinawatra from office after finding her guilty of corruption in relation to the controversial Thai rice subsidy scheme. Twelve days later, the Royal Thai Armed Forces ousted her in a coup d’état. General Prayuth Chan-ocha declared martial law throughout the nation of Thailand. This was supposed to mitigate the political crisis between the polarized factions of the nation, the massive working class Red-shirts and the middle class and royalist Yellow-shirts, and re-establish order from the chaos that was brought about by the violent protests.

Overview of the Rice Scheme

Thai rice farmers seemed to have received the heaviest blow among those who were heavily affected by the political turbulence. The reason behind this was the failure of the rice subsidy scheme, a flagship project by the Shinawatra administration, to deliver its welfare promise to farmers.

Under the program, the government offered to buy rice from local farmers for up to 50% above world market rate in order to increase individual income. The stockpile of rice was then stored in warehouses across the country to cut off Thailand’s exports. With a decrease in supply from the then world’s largest exporter of rice, the Thai government expected the international market price to increase significantly. With the increase, Thailand would have an advantage in the world market once the government started releasing and selling their stockpiles at premium price.

Initially, the program was popular among farmers. However, a year after its implementation, Thailand’s rice export went down extremely, accumulating an estimated loss of $4.4 billion. Rather than drive global prices up, Thailand’s move resulted in a price depression. In other words, their gamble did not pay off.

Thailand’s trade loss could be attributed to two things. First, rice export supply from other rice-producing countries increased. In India, the export ban on rice was lifted just a week after Thailand reduced its exports. The move flooded the international market with an estimated 10 million tons of rice. In Vietnam, the government decided to lower its own prices, anticipating the possible consequences of Thailand’s move. Last year, both these countries dethroned Thailand as the world’s largest exporters of rice.

Another key reason was that rice buyers knew exactly how to respond to Thailand’s policy. When it was revealed that Thailand was pledging to hike up global prices, many immediately switched to other suppliers. Major importers from Africa, the Middle East and the Philippines shifted their purchases to less expensive sellers in India and Vietnam.

Time Magazine quoted Tejinder Narang, current adviser to export company Emmsons International, as saying “[i]f any government thinks they are living above the market, they are living in a fool’s paradise.”

“It is easy to distort the market by iterations,” he said, “but it is very difficult to correct the market by intervention.”

Implications and Future

The failure of the rice scheme has left substantial economic and social implications for Thailand. For one, thousands of farmers were left bankrupt after the government financing for the scheme dried up last year.  Many of them risked their property in order to gain money to produce more rice. Some committed suicide after finding themselves unable to pay their debts.

According to National Farmers Council, the government has so far paid less than 41 billion baht to farmers, far from its promise of 157 billion baht.

Meanwhile, the Thailand Development Research Institute said that the government might need $3.6 billion in order to pay an estimated 1 million farmers nationwide.

Fortunately, the military junta, after taking over the government, immediately ordered the Bank of Agriculture and Agricultural Cooperatives to disburse overdue payments to farmers affected by the crisis. According to the bank, about 75% of those funds have already been distributed. Gen. Prayuth said that the interim government would focus on helping farmers reduce costs of production and on promoting agricultural cooperatives.

However, it remains unclear when and how rice farmers would recover from their losses. For now, it seems that they have to wait for the next administration to be elected as the current military junta does not have the absolute power to implement projects and programs.

Sources:

http://blogs.wsj.com/economics/2014/06/16/thailands-costly-rice-scheme-is-officially-dead-junta-says/

http://world.time.com/2013/07/12/how-thailands-botched-rice-scheme-blew-a-big-hole-in-its-economy/

http://online.wsj.com/news/articles/SB10001424052702304703804579380181754398654

http://www.youtube.com/watch?v=bodSHgCtWCc&hd=1

http://online.wsj.com/news/articles/SB10001424052702304655304579549330357995444

http://www.bbc.com/news/world-asia-26362785

http://www.abc.net.au/news/2014-05-08/an-thai-graft3a-ex-pm-yingluck-guilty-of-rice-scheme-negligence/5440522

http://www.bbc.com/news/world-asia-24802596

http://en.wikipedia.org/wiki/2013%E2%80%9314_Thai_political_crisis#February_2014_election (citations of it)

http://topics.nytimes.com/top/reference/timestopics/people/y/yingluck_shinawatra/index.html

http://time.com/90445/after-six-months-of-fighting-thai-pm-yingluck-is-finally-ousted-by-court/

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