Just like its predecessors, the Prayut Chan-o-cha government has over the past years injected large sums of cash into the rural economy, channelling a total of 143 billion baht through different forms of funds and soft loans. More recently, the cabinet on June 21 decided to revitalise the rural economy with another 45 billion baht in the form of aid schemes, subsidies and soft loans, in an attempt to assist farmers who are feeling the pinch of the worst drought in a decade and sagging prices of farm products.
Indisputably, these financial injections in the short term will definitely revive the rural economy. It is, however, not a sustainable and long-term approach to tackle the root causes of chronic problems in agriculture: production costs, product quality, productivity, drought and flood management.
I have no objection to the Prayut government's financial stimulus packages for this sector which accommodates some 20-30 million people. Farmers are clearly in need of help. The prices of rice and rubber products are sinking. The Fiscal Policy Office reports contracted agricultural indices during the first four months of this year: the agricultural production index contracted by -3.9% while the agricultural price index contracted by -2.8%. Actual farmer revenues stood at -7.4% and the agricultural employment rate stood at -3.8%. Under such circumstances, we need to cushion the impact on the rural economy.
Wichit Chantanusornsiri is a senior economics reporter, Bangkok Post.
Previously, the Yingluck Shinawatra government spent roughly 600-700 billion baht for its controversial rice-pledging scheme over a two-year period. The scheme set the buying price of paddy at a much higher rate than the market value, forcing the government to absorb losses of hundreds of billions of baht. With the aim of assisting poor farmers, the current government has adopted similar measures. The latest 45.6 billion baht package approved by the cabinet on June 21 covers four new schemes that will aid 3.7 million farmers for the 2016-2017 season.
The first measure is a two-year debt repayment suspension to 2 million rice farmers who cultivate in the 2016-2017 season and take loans, of up to 500,000 baht each, from the state-run Bank for Agriculture and Agricultural Cooperatives (BAAC). The repayment suspension, however, is not applicable to accumulated interests on their loans. But the bank will offer an interest rate cut of 3% to farmers.
Second, the government is providing a training scheme for small-scale farmers in areas such as financial literacy, crop diversification, marketing and contract farming. Designed under the marketing-led production principle, the aim is to equip farmers with management skills and improve their productivity.
Third, as a safety net, the government and the BAAC will jointly subsidise the farmer-paid crop insurance premium, covering a combined 30 million rai of rice fields. For a 100-baht-per-rai premium, the government will pay a 60% portion of farmers' premiums and let them pay the rest. For farmers who are customers of the BAAC, the remaining 40% portion will be shouldered by the bank.
Finally, the government also plans to spend roughly 37 billion baht for cash handouts to 3.7 million rice farmers to ease their hardship and help provide them with extra cash on hand to buy production inputs. Each farmer will receive a sum of 1,000 baht per rai under a maximum quota of 10 rai per household.
These new assistance packages will be provided to farmers in addition to a set of farmer aid schemes previously implemented since September last year which included a 35-billion-baht cash handout that allocates each of the 79,556 village and community funds nationwide with a 500,000-baht freebie. In addition, a sum of 15 billion baht has been set aside for village-level direct financing, channeling 200,000 baht to each village.
Another package is a six-billion-baht soft loan scheme for drought-hit farmers to alleviate their plight. The one-year lending waives the interest for the first six months and offers a 4% interest rate for the rest of the year.
The BAAC, meanwhile, has made available 72 billion baht as a soft loan scheme to farmer groups who invest in product processing facilities and run efficient small and medium-sized enterprises. A 4% interest rate is offered for a 10-year borrowing period.
The government has also allocated 15 billion baht for another one-year soft loan scheme, offering a 0.01% interest rate to farmers' groups who want to substitute rice with less water-intensive crops that yield higher profits.
Even though many of these measures seem to show the government's efforts to solve farmers' plight in a sustainable way, the agriculture sector requires policy continuity and a more intensified approach to policy reform, something that sets clear and tangible goals. A good example in this area is the Vietnamese government which has effectively implemented reform measures to boost the nation's rice production. Its policy is earmarked to reduce both input costs and farm chemical use. Meanwhile, its policy aims to increase productivity, quality and profitability. As a result, Vietnamese rice farmers have enjoyed tangible outcomes. Their productivity is higher than that of Thai farmers, standing at 853kg per rai against Thai productivity of 447. Their average production cost is lower, at 4,978 baht per rai compared to 5,800 baht per rai invested by Thai farmers.
During the past five years, Thailand has injected nearly one trillion baht to assist farmers through several soft loans, aid schemes and funding. It is doubtful whether they have truly brought about tangible reforms to the Thai agriculture sector or whether they are just short-term remedies that do not tackle the problems at their root cause.
From government to government, Thailand has repeatedly adopted the same solutions to its agricultural woes. Rural problems have been capitalised to build political power bases of different governments. Populist policies with enormous financial injections usually translate into increased support from voters for forthcoming elections, while long-term and sustainable solutions are postponed.