Thailand is a behemoth in the world rice market by anyone’s definition.
Apparently, that wasn’t good enough. In October of that same year, the Thai government hatched a plan to exert OPEC-like control over the world rice market in 2012 while simultaneously buying some goodwill among the politically powerful domestic rice industry.
The scheme went something like this: The Thai government would buy rice from producers at up to 50% above the going market rate. Then, the government would store the rice in vast state-owned warehouses, depriving the world market of supply before it would finally dump the rice for a profit after world prices surged due to the artificial shortage.
There was one big problem with the plan, which cost Thailand taxpayers an estimated $4.4 billion in 2012 alone. Thailand’s biggest competitors, India and Vietnam, simply increased their exports to fill the void left by Thailand and prices didn’t spike as expected.
Now, Thailand has a big rice problem on its hands. Its new military-run government is still sitting on 18 million tons of stored rice, a big harvest is just around the corner, and prices are in the tank.
So far, the government has avoided selling off the storage in fear of further depressing prices, and according to a recent Wall Street Journal article, it is embracing new subsidy measures to keep the industry afloat.
Those government handouts include preferential loans to producers in exchange for keeping their harvests in storage and a one-time payment of $1.2 billion in cash to rice farmers.
In other words, Thailand is using subsidies and government market intervention to fix the problems created by subsidies and government market intervention.
But rice is just part of the story. Thai sugar is also big business, and the military government hopes it becomes a lot bigger very soon.
Thailand is the world’s second largest sugar exporter behind only Brazil. But unlike Brazil, the Thai sugar industry is rapidly expanding, growing from about 6 million tons of sugar production in 2006 to more than 10 million tons in 2013.
Phillip Hayes, a spokesman for the American Sugar Alliance, says subsidization is the only way to explain Thailand’s rapid growth.
“Thai sugar production is woefully inefficient and un-mechanized, with the average sugar farm being less than 10 acres,” he said. “That’s like a garden in the United States or Brazil, yet government intervention is fueling expansion in Thailand.”
The Thai government sets domestic sugar prices, mandates production quotas, imposes tariffs, and offers up preferential loans.
“In developing countries, preferential loans is a code word for subsidy,” according to Hayes. “Growers get low or no-interest loans then a few years later debts are magically forgiven or restructured. It’s a cash handout in disguise and it’s the preferred subsidy model in places like Brazil, India, and Thailand.”
In addition to the loans, press reports from Thailand note that the country is also considering strategies to encourage rice producers to switch to sugar and is making state-owned land available for cultivation in hopes of adding another 1 million tons of sugar production.
Rapid government-fueled expansion in hopes of becoming the world’s dominant player in a commodity market? Sounds familiar, and Thailand doesn’t appear to have learned much from its past mistakes.
Of course, Thailand isn’t alone in its march for domination. China has manipulated global markets for years with its stockpiling programs and is now eyeing direct subsidies. Brazil continues to bail out its struggling ethanol industry, which was built through government investment and usage mandates. And India is facing WTO scrutiny for its recent run-up in export subsidization.
“This is the intricate web of subsidies that efficient U.S. farmers have to compete with,” Hayes explained. “It’s why we must always strive to improve our efficiency, and it’s why a strong U.S. Farm Bill is so important.”