The uncertain future of Thailand’s renewable energy sector

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I’ll soon be joining a team working on a clean energy project in the Lower Mekong region. So, I decided to do some preliminary research into the current investment climate and government policy towards clean energy in Thailand, where I am now based.

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The current structure of the Thai power sector is a highly centralized system with the government maintaining its monopoly over transmission and distribution, while there is partial private participation in generation. The three state-owned utilities comprising the power sector are the Electricity Generating Authority of Thailand (EGAT), the Metropolitan Electricity Authority (MEA), and the Provincial Electricity Authority (PEA). MEA and PEA are responsible for distribution, while EGAT—by far the largest and most influential of the three—manages generation and distribution.

In the 1990s, under Prime Minister Anand Panyarachun, Independent power producers (IPPs) were allowed to enter the market. These IPPs competed with EGAT in the generation market, while the latter remained the sole buyer for transmission, resulting in a bizarre setup where EGAT acts as both buyer and seller of electricity. Furthermore, with increased competition in generation, EGAT responded by creating a full subsidiary, the Electricity Generating Company (EGCO), to compete as another IPP.

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*SPPs: Small Independent Power Producers; VSPPs: Very Small Independent Power Producers. SPPs and VSPPs comprise much of the country’s renewable energy supply.

EGCO shares were divested and traded on the stock market in 1995, with EGAT retaining the largest stake. Needless to say, the conflict of interest arising from EGAT’s roles as both buyer and seller poses a potential threat to the competitiveness of IPPs.

Energy Insecurity

Nevertheless, a bigger problem facing the Thai energy sector—although somewhat related to competitiveness of IPPs—is the issue of energy security. Thailand is heavily dependent on natural gas, accounting for 76% of the country’s generating capacity. The natural gas supply in the gulf of Thailand is being rapidly depleted and could run out within the next decade or so (Thai PBS, PDP2015: The Return to Coal, aired September 7, 2015).

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The Thai energy sector is guided by 20-year power development plans (PDP), revised every five years or so, which forecast electricity and energy demand and map out generation needs for the medium to long term. Yet the PDPs have proven to be less than binding, with some projects being pushed for consideration even before they are included in the PDP. Examples include the 1,260MW Xayaburi dam in Laos and the 4,000MW coal-fired power plants in Dawei, Myanmar. Further, some project proposals lack transparency, with a tendency to overestimate projected demand for electricity. The need for electricity generation is measured by the reserve margin, or the capacity in excess of peak demand, which must be at least 15%. The current reserve margin of 25% is well above the minimum (International Energy Agency 2016).

Policy Earthquake

Prior to 2015, the government had seemed supportive of the renewable sector. Since 2007, power purchase agreements (PPAs) were offered to mostly small (SPPs) and very small (VSPPs) independent producers who generated energy from renewable sources. The price of renewable units sold through these contracts was the wholesale price of electricity plus a premium which varied depending on the type of renewable source—known as the “adder” pricing system.

The Power Development Plan 2015–2036 (PDP2015), however, signaled a shift towards coal rather than renewables to counter the projected exhaustion of natural gas reserves. Included in the plan for construction are three coal-fired power plants at Krabi and Thepa in the south, which continue to face fierce opposition from NGOs, local activists, and communities directly affected. Meanwhile, the adder pricing system for renewable power producers, which allowed prices to fluctuate with the wholesale price of electricity, has been abandoned in favor of a fixed price, known as the “feed-in tariff” system (FiT).

The move was a policy earthquake for the renewables sector. SPPs and VSPPs awarded contracts under the adder system were given the option to switch to a FiT contract, while for submitted applicants awaiting contract approval the switch was mandatory. This presented a potential problem since investment decisions made by those producers were no doubt done under the assumption of adder pricing.

Another major issue is that of transmission grid overload in certain areas, causing the utilities to halt purchasing of renewable energy. To operate as an IPP, different licenses need to be obtained from different ministries; for instance, a license to construct a power facility must be obtained from the Ministry of Interior, while the license to sell electricity must be obtained from the Ministry of Energy. The two ministries do not coordinate in awarding licenses, resulting in scenarios where IPPs are granted licenses, only to be refused sales of electricity.

One example is a palm oil company in Krabi that has a 4MW biogas facility. Due to halted electricity purchases, the plant has resorted to burning off its biogas to avoid excess pressure and risk of explosion, costing the company roughly 100,000 baht per day since last September (Thai PBS, aired February 16, 2017). Krabi is also the province in which the new coal-fired plants are to be located. This raises a lot of questions about the necessity of such plants when renewable resource facilities exist, ready to meet demand. Furthermore, the plans seem at odds with the aforementioned reserve margin of 25%, which far exceeds the minimum of 15%. EGAT’s investment in an Indonesian coal mine was another source of controversy regarding potential conflict of interest.

Clear Signals Needed

Up until now, Thailand had been a leader for renewable energy in the region. However, if it is to continue in this role, the government needs to send out clear signals that it intends to continue supporting the sector and maintaining its commitment to reducing emissions, as per the country’s Alternative Energy Development Plan (AEDP2015). This includes increasing transparency and civil society engagement in the PDP process to ensure that renewables are properly considered. For the PDP2015, which proposed the three coal-fired power plants, town hall-style meetings were held only in Bangkok (even though some of the major plans for plant construction were in the South) and after the PDP draft had already been finalized.

To conclude, until the government offers clearer policy directions, the future of the Thai renewable energy sector remains uncertain and investment in the industry will remain low.

 

Trump and Thaksin: the striking parallels between US and Thai politics

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A year ago (or perhaps as recently as the eve of November 8th, 2016), few would have thought to draw comparisons between the politics of the US and Thailand. The former is/was the world’s model liberal democracy, while the latter has suffered through a tumultuous cycle of elections, mass protests, parliamentary dissolutions, and coups d’état. Each time Thai politics became destabilized, the US envoy was quick to express concern for the situation, issue travel warnings, and encourage Thailand’s swift return to democracy, much to the chagrin of Thai officials. Yet, with the US now on the brink of turning into a fascist state, some smug Thai diplomats would no doubt savor the opportunity to ‘express concern’ for the freedom of the American people. Alas, doing so under the current military regime would be all too ironic.

Trump’s rise to power closely mirrors that of Thaksin almost two decades earlier. Both were successful (?) business moguls who, while immensely wealthy, successfully marketed themselves as the poor man’s champion. That Trump left a string of bankruptcies and unpaid contracts in his wake is no matter, since his deal-making persona and lavish lifestyle—signaling financial success—had already been widely propagated to the reality-tv-consuming public. It is immensely curious how two rich men endeared themselves to the lower class so successfully, despite making no attempts to hide their wealth. While they were members of the economic elite, both Trump and Thaksin were political outsiders rather than career politicians. This boosted their appeal to voters who had become disillusioned with the existing political elite. Thaksin’s platform was to run Thailand like a business, with him as its CEO. He referred to the country as “Thailand Company” during his campaign. Similarly, many Trump voters were attracted to his straight-talking, deal-making style, as well as his experience as a businessman.

Many people have attributed Trump’s victory to a “marginalized” white working class, neglected by their government. Whether this marginalization is real or a mere reduction in privilege relative to minorities is irrelevant, because the feeling of being marginalized is enough to create discontent. Social cleavages create opportunities for the rise of radical leaders. Trump and Thaksin rode waves of discontent in much the same way that the Nazis did in the wake of the Great Depression. The only difference would be the lines along which those social cleavages are formed. The exit polls of the 2016 presidential election indicate that the political divide is largely racial rather than income-driven (those above the $50,000 mark voted predominantly republican, although this was also the case in the 2012 elections). Even accounting for education, the racial factor cannot be dismissed; the majority of white college graduates voted for Trump.

In racially-homogenous Thailand, on the other hand, the political divide appears to run along class lines, pitting Thailand’s affluent urban dwellers against the rural poor. The latter largely sat out the economic boom of the early 90s while Bangkok flourished. Furthermore, the bubble and subsequent collapse of the baht during the Asian Financial Crisis drove a large wedge between those crushed by foreign debt that tripled overnight, and those who got out early. The stark inequality was another source of tension which likely fed discontent, paving the way for Thaksin’s radical economic policies.

Another similarity that has emerged is the tendency to wield patriotism as a political weapon. In Thailand, patriotism and loyalty to the monarchy are expressed interchangeably. The blurred line delineating monarchy from state is by design and has its origins in the official nationalism of the 1910s (see “The Origins of Thai-Chinese Identity”). At the height of the anti-Thaksin movement, protestors donned yellow shirts to declare their loyalty to the monarchy, thus granting their cause a moral legitimacy of sorts. Likewise, in the panic since Trump’s executive ban on visitors from seven muslim-majority countries, a term that gets thrown around a lot is “un-American”. Patriotism is powerful: calling someone or something un-American equates them/it to a threat to national values and identity—a sovereign threat.

The reasons for the 2006 coup that deposed Thaksin can be debated, but Thaksin is widely seen as a figure that threatened to unseat the monarchy; and in Thailand, any threat to the monarchy is a sovereign threat. The question is, what kind of sovereign threat would it take for America to see its first coup?

 

Thailand’s Existential Crisis: Turmoil Looms as the Country Mourns the Loss of a Beloved King

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The passing of King Bhumibol has brought out the best in Thais, but also the worst.

Alongside heartwarming stories of unity and kindness, of volunteers handing out water and snacks to the hundreds of thousands of mourners gathered outside the grand palace gates, there are also alarming videos of angry mobs. One mob surrounded a police station, demanding the arrest of a woman who allegedly committed lese majeste by insulting the late king on social media. Another mob stormed a food stall in search of the owner’s son who also posted offensive remarks. The crowd eventually agreed to disperse, but not before singing the royal anthem.

The cultish reverence Thais express for King Bhumibol has been the tenuous bond bridging the political divide over the years. During the brief decade of democratic rule between the mid-90’s and 2006, now-exiled Prime Minister Thaksin Shinawatra emerged as a divisive figure in Thai politics: his populist policies made him highly popular amongst the rural poor, while the urban middle class saw him as corrupt. His critics also accused the pro-Thaksin faction of aspiring to the establishment of a Thai republic — an aspiration that was perhaps prevalent among just a subset of Thaksin supporters. Of course, Thaksin was not the source of division, but he certainly catalyzed the polarization of fragmentary tendencies.

Love of the king was at times brandished as a political weapon, perhaps like patriotism in America. To be accused of being disloyal to the monarchy would have elicited a social wrath similar to (or more extreme than) what Donald Trump faced when he derided Ghazala Khan, the Gold Star mother who accompanied her husband onstage at the Democratic National Convention.

However, another side of this collective respect for the king was its ability to bring people together. Concerned that conflicts and disunity would burden the king, Thais have kept turmoil from boiling over and descending into violence — or, they at least preserved the rarity of such occurrences.

King Bhumibol earned the love and respect of his subjects by devoting himself to development projects and making himself visible and accessible during his active years. Crown Prince Vajiralongkorn, however, does not enjoy the level of reverence that his father did. This begs the question: can a king who is deemed less legitimate in the eyes of the Thai public maintain unity? Or will existing political fault lines reemerge, freed from any need to respect the wishes of a revered king?

If the latter plays out, the monarchy as an institution may be at stake and, because of the historical political alliance between the military and the palace, it is the junta who stands to lose the most. Thailand has been under military rule for most of its history since becoming a constitutional monarchy, but even during democratic rule, the military was never far removed from politics. It has managed to maintain political legitimacy by claiming to defend the interests of the crown.

With the accession of the Crown Prince, underground anti-royalist factions may start gaining traction. Whether the public will acquiesce to the accession — and if not, what the military’s response would be —remains among the many questions in the minds of Thais during this disorienting period. The death of King Bhumibol marks the end of an era, a definitive shift in the monarchy’s place in the hearts of the Thai people, and possibly edges Thailand closer towards institutional reform.

 

Originally published in The SAIS Observer, the Johns Hopkins School of Advanced International Studies Newspaper, on November 6, 2016.

A Clean Coup?

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“Never forget who cheated our country”: One of the sculptures featured at the “Museum of Corruption” depicts a corruption case involving funds intended for building police stations

Almost two years after the 2014 coup, Gen Prayuth Chan-ocha is pleased with the progress Thailand has made in curbing corruption. Last year, Transparency International placed Thailand 76th out of 168 countries on its 2015 Corruption Perceptions Index (CPI), moving it up 9 places to rank third amongst ASEAN countries (behind Singapore and Malaysia), according to Government spokesperson Maj Gen Sansern Kaewkamnerd. However, the self-congratulatory claim may be a little overstated, given that Thailand attained the same score of 38 out of 100 as it did in 2014, where 175 countries were included in the survey (versus 168 countries the following year). The score of 38 is nonetheless up three points from the 2013 CPI, which begs the question of how a military government has seemingly managed to attain a cleaner image than a civilian government.

To be sure, anti-corruption has always been a core initiative of this government; in fact, it was among the justifications for the coup. It is no secret that the 2014 coup was an attempt to redo the one in 2006, which failed to rid Thailand of the influence of ousted prime minister Thaksin Shinawatra, whose sister and brother-in-law have both held the premiership since Thaksin’s removal. The Shinawatra clan has been accused of being heavily corrupt and nepotistic; Thaksin has been in self-imposed exile since he was ousted, fleeing a two-year prison sentence for corruption and Yingluck Shinawatra, Thaksin’s sister, currently faces charges for her involvement in the corruption-plagued rice pledging scheme which cost the government billions in losses. Prayuth’s administration has also initiated popular anti-corruption campaigns such as โตไปไม่โกง (“Growing up Good”), a campaign which promotes emphasizing integrity and social responsibility in school curricula. The publicity of such campaigns, along with the high-profile prosecution of the rice pledging case, has perhaps lifted public perception of the state of corruption. But has the level of corruption actually decreased?

The military government has touted the need for reforms before the prospect of elections can be entertained. Article 44 of the provisional charter allows Prayuth executive power to push many of these reforms through much more quickly than if they had taken the conventional route, thus boosting the government’s reputation for ‘getting things done’. Many of these executive decisions have been controversial, such as a project to build 14 power plants, which was opposed by environmental groups, and the removal of seven National Health Security Office officials accused of corruption. Prayuth has reportedly used Article 44 more than 50 times since he came to power, a number which his critics deem excessive. The draft constitution, which will be decided on in a referendum later this year, contains a provisional clause that states that the National Council for Peace and Order (NCPO) – the group that staged the coup – will maintain power until a new cabinet is installed, following elections. Articles 259 and 260 task the Constitution Drafting Commission (CDC) with drawing up “10 organic laws” for organizing and holding elections, with an 8-month deadline to complete them. If, however, the CDC fails to meet this deadline, the CDC would be dismissed and the NCPO would install a new drafting commission, with no further mention of a deadline. Thus, it appears that the draft, if passed, would consolidate Prayuth’s and the NCPO’s power.

On the positive side, the publicity around anti-corruption has spurred reactions from the general public. Perhaps encouraged by the government’s initiatives, the Anti-Corruption Organization of Thailand, a private sector-led group, launched a successful “Museum of Corruption” exhibition, featuring sculptures of ten high-profile corruption cases. The event was very well attended and the sculptures are now permanently installed at the Office of the National Anti-Corruption Commission. If it is indeed the case that the government’s crackdown on corruption has not effectively reduced the level of corruption,  then at least it has made the public more vigilant and raised the level of intolerance towards corruption. Further, existing legislation which allowed bribery by Thai officials to be punishable by death (though the maximum penalty was never applied) was extended to include foreigners last year. The amendment no doubt signaled the government’s strong stance against corruption, which in turn may have had the effect of discouraging Thai corrupt officials, many of whom may have been unaware of the existing legislation.

The heightened public awareness that the government has raised will hopefully keep it accountable to its promises, including curbing corruption and maintaining the timeline to elections (currently set for 2017). Meanwhile, a public wary of Prayuth’s wielding of Article 44 is likely to keep a close watch on his administration’s behavior, ready to raise the alarm at the first sign of a budding cronyism – something Thailand has unfortunately become all too familiar with.

Quick Thoughts on Development

Ship breakers at Alang, Gujarat

Ship breakers at Alang, Gujarat

With grad school now well underway, I haven’t had much time to write (apart from papers), but I wanted to share a few topics my classmates and I have been discussing in my courses on international development. The material we have covered in classes thus far is so extensive and immensely intriguing but I present here a very tiny snippet…

When we think about international development, we tend to go for the quantifiable indicators, such as GDP per capita, the Gini coefficient (which measures income inequality), literacy rates, infant mortality rates, various indices quantifying corruption, human rights, the list goes on. Yet when a country improves its values on any one of these indices, is it necessarily developing?

At Alang Bay in Gujarat, India, the main industry is ship breaking; the world’s retired ships are sailed to Alang for destruction and the scraps are salvaged and sold. Over the years, the terrible work conditions in Alang, and frequent worker injuries and deaths from exposure to toxic materials, have drawn international outrage from organizations like Greenpeace, who sought to ban exporting ships to Alang. Greenpeace pressured European companies to scrap their ships safely, rather than having it done cheaply in developing countries, and succeeded in some cases, such as the boycott on Shell in 1995.

The reality, however, is that the economy of Alang depends on the ship breaking business. In his article for the Atlantic, William Langewiesche describes the comparatively worse conditions at other ship breaking ports. Workers at Alang earn a living; it is difficult to imagine a better alternative if ship breaking were to be taken from Alang.

Another interesting framework on the difference between developed and developing countries is presented in a paper by Douglass North, John Wallis, Steven Webb, and Barry Weingast. The authors outline the difference between ‘Limited Access Orders’ and ‘Open Access Order’. In the former, access to resources are restricted to the elite population and the way in which (formal or informal) institutions function for an individual depends on personal connections amongst the elite; in the latter, institutions are more standardized and impersonal.

Some degree of development is achievable in a limited access order, and in fact the formal institutions in a developing country can very much resemble those in place in developed countries, for example, a democratically elected government or property laws (enforcement, however is a very different issue). Furthermore, political and economical access orders may develop at a different pace; it may be relatively easier to gain open economic access than it is to gain open political access.

Thailand is a prime example of a limited access order, one where entrance into the economic elite can also facilitate entrance into the political elite (in some countries, barriers may be less fluid, for instance in the case of an elite ethnic group). In Thailand, if one accumulates sufficient wealth, or if one’s business gains commercial prominence, then it is possible to enter into the ranks of the business and hence political elite.
While in the US – a relatively open access order – it can be argued that institutions still favor the elite (whether by categorization of wealth, race, etc.), we see a very obvious breakdown of institutions in Thailand, when they are applied to members of the elite. Case in point: the heir to Red Bull who drove his Ferrari into a traffic policeman, killing him, before dragging his body several blocks down a busy Bangkok street, has yet to appear before a court; Praewa, the underage driver and daughter of a politician who plowed her car into a passenger van, killing nine, received a suspended two-year sentence and community service.

One final thought on development: when access to resources remains limited, is development possible without a transformation of the underlying social, economic, and political structures? I would argue no. Even in the presence of economic growth and relative modernization, the benefits of prosperity will also remain limited until institutions become standardized and independent of inter-elite relationships.

And so it has come to this…

Anti-coup demonstrators face off with soldiers

Anti-coup demonstrators face off with soldiers

I know it might be a little late to comment on last week’s coup in Thailand, but it is quite a challenge keeping up to speed on events as they unravel halfway across the globe… So indeed it has come to this. First off, let me offer a disclaimer: below are my own impressions of what has happened and my sentiments for the future; they are not a claim for whether or not the coup was justified, and I do hope that they may facilitate a deeper understanding of the situation, especially within the international community.

How did we get here?

The country has been plagued with political unrest and on-and-off street protests since the coup of 2006 which deposed prime minister Thaksin Shinawatra, following allegations of conflict of interest. Especially controversial was the sale of Shin Corp shares to Temasek in which Thaksin and his family made 73 billion baht (approximately $1.88 billion) tax-free due to a law amendment shortly before the transaction took place. He was convicted in absentia and has since been living abroad as a fugitive, mostly in Dubai. But his influence over Thai politics has far from diminished; since then, a slew of Thaksin’s nominee governments – except for one brief term under the rival Democrat Party in 2010 – have come and gone thanks to heavily populist policies which, while destroying the budget, established a strong loyalty among the rural poor. Under the administration of Thaksin’s political opponents in 2010, Thaksin’s supporters took to the streets and torched major government buildings and department stores in Bangkok, resulting in a deadly crackdown.

Thaksin’s sister, Yingluck Shinawatra was elected to office in 2011, as another widely known nominee of Thaksin. Her administration’s attempt to pass an amnesty bill which would allow her brother to return free of charges sparked the latest round of protests which began in November 2013. Even after the bill was abandoned, the anti-government movement continued and escalated amid the collapse of the government’s botched rice scheme, which promised farmers unrealistically high prices, lacked transparency, and left phenomenal losses. Reports spread of foreign rice being smuggled in to exploit the price guarantee and widespread corruption amongst the middle men and government officials.

With protests intensifying , Yingluck dissolved parliament in December, and maintained the position of caretaker prime minister. As a result, her caretaker government could not borrow the funds necessary to pay rice farmers who were still waiting on their promised payments. Unable to feed their families and repay debts, at least 8 farmers committed suicide. The situation reached an impasse when the anti-government group, or People’s Democratic Reform Committee (PDRC), demanded reforms before the next election to ensure no more of Thaksin’s puppet cabinets were installed, and protesters subsequently disrupted the February elections until they had to be annulled. No specific set of these reforms were ever issued. Meanwhile, Thaksin/Yingluck supporters also took to the streets and Yingluck was removed by a court for abuse of power.

How did the military get involved?

The military stepped in to mediate talks between the caretaker government, the opposition, and protest leaders from both pro- and anti-Thaksin camps. Martial law was declared on May 20, and when no agreements could be made, Army Chief Gen. Prayuth Chan-ocha announced the coup two days later on May 22. The junta has since dissolved the Senate, scrapped the constitution and detained several political figures including members of the caretaker government and protest leaders, although some have now been released. Media has been censored and a curfew has been enforced, albeit a rather lenient one. Since the coup, the military has raided and seized a sizable hoard of war weapons from individuals allegedly tied to the pro-Thaksin camp. Both pro- and anti-government protesters were ordered to disperse.

Gen. Prayuth is now in absolute command and a committee of advisers have been appointed to assist in running the country. The junta has also received royal endorsement; that said, as a constitutional monarch the 86-year-old King has little say in political developments and royal endorsements like this one are a mere formality. There is no timeline for elections as of yet.

Reflections and hopes

Naturally, the coup has drawn international condemnation and threats of sanctions. The junta has been rather heavy-handed in its strategy: detaining political figures, assuming power of the now dissolved Senate, and authorizing the military court to take up certain cases. It certainly is cause for concern when power is suddenly concentrated in the hands of one individual – that is why a coup is ordinarily considered undesirable and a step towards instability. But did the coup mark a turn for the better? I believe it did. The country had been at a political stalemate for the past six months since the PDRC launched its movement. The PDRC protest site had experienced almost weekly, if not daily attacks in recent months from “unknown third party groups” which may or may not be affiliated with Thaksin’s supporters. Twenty deaths and numerous injuries sustained by the PDRC had raised hostilities between the two camps to a near breaking point, so much so that civil war was not only possible but imminent. The coup certainly provides no guarantee that full-blown violence has been averted, but for now, given the tight security and dispersion of street protests, it has thankfully been delayed at the very least. Ironically, the laws which limited the previous caretaker government from borrowing to repay farmers have been overruled and one of the army’s first priorities was to acquire the funds necessary to begin repayments.

As for the future, no one, possibly not even Gen. Prayuth, knows how long this military junta will remain in power. Even if the general’s sincere intentions were to impose serious reforms to the political system and step down once that is done, the process could take years. If, on the other hand, he intends to secure the military’s influence until after the reign of the present King and to oversee the transition when it does take place, then we can expect a long spell under military rule. It remains to be seen…

Thailand’s Rice Scheme for Dummies: How the government effectively committed suicide

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Most people have probably heard about the government’s highly controversial rice scheme and are now watching as the program implodes on itself and mobs of unpaid farmers take to the streets as the penniless government wrings its hands in despair. But since many may not know what exactly this program is or how it managed to fail so thoroughly, I wanted to explain in simple terms, the notorious policy that has now returned to take a huge chunk out of the government’s butt.

Executive summary: the government promised to buy rice from farmers at a price higher than the market rate; the plan was to wait till the price spiked and sell at a profit. Alas, the market price never went up and now the government is broke and farmers have yet to be paid. Since parliament was dissolved, the caretaker government cannot borrow to pay out the debt owed to farmers and four days ago, a farmer in Roi Et, feeling helpless, hung himself. He is one of now eight farmers to commit suicide following the government’s default on its payments.

The Plan: how (they thought) it was supposed to work

First of all, one must make the distinction between a price floor and a pledging program. Both are forms of subsidies. With a price floor, the farmers sell their rice to the rice mills and receive the market rate; the government then subsidizes that with cash. Under the pledging program instituted under the current administration, the government purchases the rice directly from the farmer at the agreed price, before releasing it for sale, hopefully at a profit.

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Price Floor vs. Pledging Program

In other words, the government promised to buy jasmine rice at 20,000 baht per tonne, glutinous rice at 16,000 baht per tonne, and regular white rice at 15,000 baht per tonne. Back in 2011 when the plan was implemented, Thailand was the world’s leading exporter of rice. The government believed that it controlled a large enough share of the world supply that it could influence the world price, so it was going to restrict the supply until the price went up. And when the moment was right, the rice in stock would be released for sale to the desperately awaiting rice-eaters of the world; the government would reap profits and all would be rosy and glorious. So…

…What went wrong?

A more appropriate question would be What was wrong right from the start? First off, the guaranteed price offered by the government was unrealistically high: 40-50% higher than the market price. Since this policy was unveiled during Yingluck’s electoral campaign, it was no doubt a significant vote magnet.

Ajarn Ammar Siamwalla, one of Thailand’s leading economists and a Distinguished Scholar at the Thailand Development Research Institute (TDRI) has been a prominent critic of the pledging scheme. He pointed out that the government made two mindless assumptions, the first being that Thailand has enough market share to influence the world price of rice, when in fact it only contributed about 30% of the world supply (see FAO report here).

The fact that Thai rice exports are higher than other countries does not mean that its productivity is the highest, or that its production capacity is maximized. For countries like China and India, exports are the excess after domestic demand has been satisfied, and while their exports may be less than Thailand’s, their production capacity is much higher just by the sheer amount of land available. So there is no guarantee that other countries will not adjust their supply especially if they are not already maximizing potential – and that is exactly what they did. India and Vietnam swiftly stepped in where Thailand fell short and claimed the top spots as the world’s new leading exporters of rice within the first 8 months of 2012. Up until September 2011, India’s ban on rice exports ensured that domestic demand was met. Since this ban was lifted, the shortfall of supply was quickly filled. As a result, world prices have gone anywhere but up.

The second mindless assumption was that the rice could just be stored until the price was attractive enough to sell. Well unfortunately like most crops, rice is perishable. *DUH. So the rice is entering a warehouse somewhere to sit for months, rotting away and being devoured by insects. To top it all off, the government has done a shit terrible job of accounting so basically, nobody has got the slightest idea of how much (or how little) rice there is left in stock.

The C-word

Corruption, corruption, corruption. This scheme could possibly be one of the most comprehensively and thoroughly corrupt projects undertaken in the history of … well, you get the point. As mentioned above, there is no accounting – and therefore no accountability – of the transactions taking place: a complete absence of transparency. Rice being “circulated,” i.e. being purchased multiple times, foreign rice being smuggled in to exploit the generous compensation, and good stocks being surreptitiously swapped for rotten rice, are just a few issues that have come to light. Just several days ago, a Lop Buri warehouse went up in flames, destroying (evidence?) thousands of sacks of pledged rice.

How Vietnam surpassed Thailand in rice exports: A Case Study

A very informative episode of the documentary series “ASEAN and beyond” aired in 2012 on the Thai Public Broadcasting Service, within a year of the rice plan’s inception, and I have for some time been meaning to translate some of its key findings.

Above, I touched on how the volume of exports does not necessarily correspond with production capacity or productivity. As of 2012 (when the documentary aired), Vietnam had the highest productivity out of the ten ASEAN members – at 803.2kg of rice per rai (approx. 2 tonnes per acre). Number two was Indonesia, followed by Malaysia, Laos, and the Philippines. Thailand entered in at sixth place with 454kg per rai (approx. 1.1 tonnes per acre). Vietnam produced more rice than Thailand despite possessing about 8 million acres less in rice fields than Thailand. How did they do it?

The “3 Cuts, 3 Boosts” Policy

The Vietnamese government’s strategy is fundamentally different from Thailand’s. Price subsidies are market interventions – farmers enjoy a price that is artificially higher than what they would receive had they simply relied on current demand and supply. Though useful, this is like slapping on a band-aid rather than treating the wound. So the Vietnamese came up with a campaign called the “3 Cuts, 3 Boosts” policy:

3 Cuts:

1) Amount of seeds sowed

2) Chemical fertilizer

3) Pesticides

It may seem counter-intuitive, but reducing the amount of seeds sowed can prevent crowding of seedlings and therefore lower the risk of disease. Chemical fertilizers and pesticides are both expensive; natural fertilizers are a safer and cheaper alternative and cut #1 also helps lower dependence on pesticides.

3 Boosts:

1) Productivity

2) Quality

3) Profit

With the 3 cuts, it seems like Vietnam has easily achieved its goal of boosting productivity. Since 2005, Vietnam increased its productivity by a whopping 90% while Thailand only bumped up 13% within the same time frame. In the past, Thailand wrote Vietnam off as a competitor, claiming that Vietnam targeted quantity rather than quality, and its regular white rice was no match for Thailand’s famous Hom Mali (jasmine) rice. Well big surprise – Vietnam is now exporting its own strain of jasmine rice. The government has set up numerous “farmer’s schools” throughout the country, helping to educate farmers on agricultural methods and researching improvements in rice strains. And with lower costs and higher quality, profits are going up.

The harsh life of a Thai farmer

So it seems like Thailand is going in the wrong direction when it comes to supporting the backbone of the economy. Kanjana Meebootdee of Surin is a Thai farmer interviewed in the documentary. She owns 14 rai of land but that’s not enough so she rents another 46 rai from the rice mill owner. At harvest time, she pays 20% of her crop as rent. Last year she made 300,000 baht (1,000 USD) in profits but this was used to pay off part of her 1 million baht in loans, leaving her with 700,000 baht debt. As a result, she sowed double the amount of seeds the next year.

On the day she brought her crop to the mill to participate in the pledging program, she received 7,000 baht for her 600kg of rice, the price per tonne being about 1,1600 baht (390 USD). That’s 11.50 baht, or 40 cents a kilogramlower than the price guaranteed by the government. The mill claimed the rice was poor quality and contained impurities.

So what now?

Nobody knows. The administration that threw shit at the fan is wiping itself off and pointing the blame everywhere except where it belongs. China has cancelled a contract to buy 1.2 million tonnes of rice from the Thai government, and the caretaker government cannot borrow any more money so the plan is expiring at the end of this month. And our farmers will be the sole bearer of the burden.