Bangkok Post 06/05/08

Bangkok Post: 06/05/08

Co-op structure ideal for rice farmers

I took time out from my usual Bangkok routine to go spend a night in a village in rural Ubon Ratchathani last week.

The Democrat Party organises a bi-annual Internship Programme for university students and the current group were spending three days living and learning about life in a typical Isan village.

They were also tasked with reporting on how we could help improve the quality of life for the villagers.

I joined them and the villagers for a night and, apart from the pleasure of being woken up for the first time in a while by a rooster, I left the next day with some answers and many questions.

Briefly, it is clear that the recent surge in the price of rice has passed these villagers by pretty much entirely. As with most Isan farmers, given poor access to water, they only manage one crop a year and that was harvested back in December last year before the price surge.

Since then they have been growing their other main crop, chillies, the price of which has inexplicably collapsed.

Pretty much the only concern the villagers had was the issue of water. In the case of this particular village, a natural year-round water source is available only 3km away, but as a result of poor irrigation it might as well be 3,000km. Indeed, they often face the depressing situation of parts of their land being flooded and parts being completely arid at the same time. They claim that an expenditure of 12 million baht on construction of Klong Sai Gai (``chicken entrails'' canal) would allow an additional 1,000 rai of farming to take place. Finally, they tell me that their request for funds has been turned down during the past several years simply because they are known Democrat voters.

Interestingly, they refused to believe that they would fare any better if they changed their allegiance, given that the tambon next door, known TRT/PPP supporters, have fared no better in terms of real improvement in infrastructure.

In contrast to the plight of the rice farmers, back in Bangkok the cabinet last week approved an increase in the domestic price of sugar by 5 baht a kilogramme a decision that, while hurting consumers, directly benefits sugarcane farmers, given the unique revenue-sharing system between farmers and refiners in our sugar industry.

The legal framework determines that revenues are shared 70:30 between farmers and refiners and is a model that ensures the interests of farmers and traders are largely aligned.

Readers will, like me, at this point ask the question: Why can't we legislate the same deal for rice farmers? The Ubon farmers would not need to worry that they had sold their paddy for 9,000 baht a tonne in December while milled rice price has more than doubled since. A fair division of the revenue between traders, millers and farmers would be pre-agreed, even net of input costs such as land rental and fertiliser. Effectively, the creation of a legal framework creating a co-op structure for the rice industry. I posed the question to one of our MPs in a sugarcane constituency (Dr Preecha Musikul, MP for Kamphaeng Phet), who surmised that it was an issue of the inability of rice farmers to club together in the same way that sugarcane farmers have been able to. If and how this could be resolved is surely a question worth asking, and I will be seeking expert opinion on this henceforth.

In the meantime, though raising sugar prices domestically has an obvious beneficial impact on farmers, the 25% increase in consumer prices is dramatic and, given the current cost of living issues and accelerating inflation, the method and timing is questionable, especially now that export prices are beginning to look better after a two-year decline.

Back to rice: the government has decided to become more interventionalist and has decided to bag and sell the 2.1 million tonnes of rice at its disposal at a discounted price. The government has also pledged to replace the rice sold with new stock to be bought at 12,000-13,000 baht a tonne from farmers.

Our view has been made clear from the start: we believe that the optimum way to derive benefit from this stock of rice is for it to be sold at market prices, with the profits received used to the benefit of those who pledged the rice to the government in the first place the farmers.

This could be done through the provision of subsidy for the necessary purchase of fertilisers for the next crop, so as to reduce farmers' costs and thus risks. Indeed, the 2.1 million tonnes of rice were never a strategic stock and the use of taxpayers' money to re-acquire the stock at a higher price is inefficient, given that there is no shortage of demand for our rice in the current world market.

I have read columnists writing that Thais ought to have the right to access cheap rice as we are a rice producer, similar to the people of oil-producing countries whose domestic price is set at a deep discount to the world price. I think there is a major flaw in this argument, since oil is a natural resource owned effectively by the whole population and save for the cost of exploration and marketing, is effectively free.

With rice, however, half our population is engaged in the hard work and risk-taking to produce the rice without the contribution of the other half, who are simply consumers. The farmers thus have a right to be able to sell their produce at the highest price. Even more so since they are the poorest component of our society.

Low-wage consumers who are genuinely suffering from the cost of living increase could be assisted by food coupons and increases in minimum wage guarantees. This is more efficient because even the government acknowledges that it cannot ensure the discounted rice would fall into the hands of those who most need it.

Furthermore, there was an immediate impact on futures prices of rice on the announcement of the discounted rice scheme, impacting directly the selling price for farmers for the second crop about to be harvested.

The issue of wage increases was one I wrote about a fortnight ago and the tri-partite discussion has concluded an increase in the minimum wage raging from 2-11 baht across different provinces in the country. This is clearly the minimum amount necessary for low wage earners to survive in this new inflationary environment, for it represents a maximum of just over 5% increase when inflation is running at 6% on an annual basis and the cost of many basic products is rising by much more than that.

Clearly, the issue of inflation is one that will be most challenging for us politicians for sometime to come.

In times of inflation, what becomes even more pressing is the concentration on productivity and the adding of value to our products. You cannot fight inflation by throwing money at it.

I was thus more than happy to see our intern students drafting ideas and plans to their village hosts as to how to process and package their raw chillies so as to capture higher value up the product chain.

The organisation of cooperatives and investment in improving quality and quantity of all goods is a national agenda that requires immediate attention.

Korn Chatikavanij