In the rice pledging scheme, the government announces the price at which farmers can pawn their rice after the rice has been grown and is in the cultivation period. Farmers can then take their rice to the government, who then stores the rice in silos to be sold later (I'll explain why in a little bit).
Meanwhile, in the price guarantee scheme, the government announces a price that the State guarantee to buy the rice at, before any planting is initiated. Thereafter, a reference price is announced every 15 days, according to various factors. In whichever 15-day interval the farmer's sales of their products fall, the government will pay the difference between the reference price and the guaranteed price if the reference price is lower.
For example, say the guaranteed price at 100 baht per sack. If the farmer sells in one particular period during which the reference price is announced to be at 80 baht per sack, the government will pay 20 baht per sack.
Apart from the difference in timing, the other obvious difference is that there is no burden for the government to store the rice at all.
The truth of the matter is, both the schemes are good in some ways; Both are beneficial to the agricultural sector. On one end, pledging takes supply out of the market to drive the price higher, given demand remains constant. On the other end, the price guarantee scheme can encourage higher quality rice, as the government can pick and choose to support only high-quality species.
This one particular advantage of the price guarantee scheme addresses the problems that the pledging scheme had caused. The pledging scheme basically told farmers that no matter what they grow, the State would buy it if no one else does. On top of that, the State is always pressured to buy at a price equivalent to or higher than the market price, which is why the State is like the middleman that buys at a higher price than they could ever sell. The State holds the rice waiting for the price to rise, as the rice's quality deteriorates. It doesn't make sense.
So with that, the farmers do what make sense. They produced as much as they could to sell as much as possible without regards to the quality of the rice. In other words, the pledging scheme encourages the production of poorer species of rice, hence we face issues in competing with other suppliers in the market. The result is billions of baht being handed out to the farmers for products that end up rotting in the silos.
In concept, if the government buys the rice from the farmers at a price lower than that of the market, the government wouldn't lose money. In fact, they may make some profit. The key is that there should be constant effort to sell the rice, insteading of waiting to dump the rice once they rot. Professionalism and honesty are especially essential to this scheme. We can't be having those involved in using the State funds to buy the rice and setting the price at which to buy, be the same ones growing and selling the rice themselves. They'd obviously set a high price to buy their own products with the State's money.
The price guarantee scheme has the same potential of working well, but only if it is implemented appropriately. Apart from encouraging higher quality of rice, supply can also be controlled as higher quality rice takes time to grow. Thus, farmers won't be able to rely on the quickly-but-badly grown rice which oftens flood the market.
One thing that could possibly prove the price guarantee scheme to be disasterous is if the market price falls below the reference price. We must note that the two are completely different. In the event that supply is heavily increased, the market price can suddenly and dramatically fall below the reference price. The problem is the State is only prepared to pay the difference between the guarantee price and reference price. Remember the 100 and 80 example? The farmer would get only 20 baht per sack in compensation in any event even if they end up selling at 60 or 50 baht per sack.
Supply can be increased all of a sudden with new competitors in the market which is why the Jazzman species in the US is worrying the Thai Jasmine rice farmers so much.
Anyhow, there is always a way out, and it may not be all that complicated. In the event that the price guarantee scheme doesn't do as well in driving the price up, the rice pledging scheme should be used to pull supply off the market to help drive the market price up to the reference price. In concept, these two schemes could very well complement each other.
Meanwhile, in the price guarantee scheme, the government announces a price that the State guarantee to buy the rice at, before any planting is initiated. Thereafter, a reference price is announced every 15 days, according to various factors. In whichever 15-day interval the farmer's sales of their products fall, the government will pay the difference between the reference price and the guaranteed price if the reference price is lower.
For example, say the guaranteed price at 100 baht per sack. If the farmer sells in one particular period during which the reference price is announced to be at 80 baht per sack, the government will pay 20 baht per sack.
Apart from the difference in timing, the other obvious difference is that there is no burden for the government to store the rice at all.
The truth of the matter is, both the schemes are good in some ways; Both are beneficial to the agricultural sector. On one end, pledging takes supply out of the market to drive the price higher, given demand remains constant. On the other end, the price guarantee scheme can encourage higher quality rice, as the government can pick and choose to support only high-quality species.
This one particular advantage of the price guarantee scheme addresses the problems that the pledging scheme had caused. The pledging scheme basically told farmers that no matter what they grow, the State would buy it if no one else does. On top of that, the State is always pressured to buy at a price equivalent to or higher than the market price, which is why the State is like the middleman that buys at a higher price than they could ever sell. The State holds the rice waiting for the price to rise, as the rice's quality deteriorates. It doesn't make sense.
So with that, the farmers do what make sense. They produced as much as they could to sell as much as possible without regards to the quality of the rice. In other words, the pledging scheme encourages the production of poorer species of rice, hence we face issues in competing with other suppliers in the market. The result is billions of baht being handed out to the farmers for products that end up rotting in the silos.
In concept, if the government buys the rice from the farmers at a price lower than that of the market, the government wouldn't lose money. In fact, they may make some profit. The key is that there should be constant effort to sell the rice, insteading of waiting to dump the rice once they rot. Professionalism and honesty are especially essential to this scheme. We can't be having those involved in using the State funds to buy the rice and setting the price at which to buy, be the same ones growing and selling the rice themselves. They'd obviously set a high price to buy their own products with the State's money.
The price guarantee scheme has the same potential of working well, but only if it is implemented appropriately. Apart from encouraging higher quality of rice, supply can also be controlled as higher quality rice takes time to grow. Thus, farmers won't be able to rely on the quickly-but-badly grown rice which oftens flood the market.
One thing that could possibly prove the price guarantee scheme to be disasterous is if the market price falls below the reference price. We must note that the two are completely different. In the event that supply is heavily increased, the market price can suddenly and dramatically fall below the reference price. The problem is the State is only prepared to pay the difference between the guarantee price and reference price. Remember the 100 and 80 example? The farmer would get only 20 baht per sack in compensation in any event even if they end up selling at 60 or 50 baht per sack.
Supply can be increased all of a sudden with new competitors in the market which is why the Jazzman species in the US is worrying the Thai Jasmine rice farmers so much.
Anyhow, there is always a way out, and it may not be all that complicated. In the event that the price guarantee scheme doesn't do as well in driving the price up, the rice pledging scheme should be used to pull supply off the market to help drive the market price up to the reference price. In concept, these two schemes could very well complement each other.
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