Thailand are the latest government to distort a food market. They are offering a premium of about 50% to rice farmers to buy up rice in unlimited amounts. The claimed motive for this policy is to raise the income of farmers who are amongst the lowest paid in the country.
But such policies, however well intentioned, distort the market. This effectively raises the price in the local market, (see the diagram above) but will inevitably lead a situation of excess supply in Thailand and a distortion of the international market.
As a major rice exporter changes to the local market will inevitably lead to changes in the international price. Why would a Thai farmer sell on the open market when the government will pay more? So the supply of Thai rice to the international market will fall, forcing up the world price and causing problems for the poor of other nations.
There is also the question of what to do with the rice the government buys. Some schemes stockpile food in years of surplus to release in lean years. Doing so helps moderate price fluctuations and smooth out farm incomes. However the Thai floods mean production is actually down this year so its not the time to start buying up stocks.
The EU pursued a disastrous agricultural policy from the 1950's to the mid 2000's where they paid farmers far to high a price for food. This caused an inefficient over production in Europe and reduced the incomes of farmers in LDC's where the market would produce the food most cheaply and efficiently. The solution for the EU was to move to direct income payments, simply giving money to the farmers and so avoiding the incentive to them to produce ever more unwanted food.
Could the distortion of the global markets which is affecting the EU who seemed "so concerned" with rice all of a sudden be because of Thailand's corrupt politics??? As the prime minister, Yingluck Shinawatra is attempting to raise the income of the rural and poorer community in return for their votes which propelled her into winning the July elections in Thailand. I understand that all rice farmers should be credited more for their hard work all year in the rice terraces, Yingluck's method is more like a compulsory fair-trade.
ReplyDeleteA main staple of the Asian Diet is rice which makes up appoximately eighty percent of the calories in billions of Asians and is their main export to the world.
I believe that what there are other rice producers such as the Philippines that the global market should turn to in these situations during a depression if they want to buy rice, and stop treating Thailand as the only rice producer in the market causing a monopoly power as she gives extortionate prices.
Rice production in the Philippines has tripled from 5.32 million tons in 1970 to a peak of 16.82 million tons in 2008. lol