BANGKOK – Prime Minister Yingluck Shinawatra‘s government approved proposals to reduce the top price at which it buys rice from the country’s farmers to 12,000 baht, or $390, a ton starting June 30 compared with 15,000 baht, or $486, a ton when the program was first launched in the fall of 2011—about 50% higher than the global market price at the time.
Government spokesman Teerat Ratanasevi told reporters that under the new arrangement farmers will still be paid 40% more than the average market price for rice.
Farmers’ groups, though, are threatening large-scale protests in response. Vichien Pornlamchiak, president of the Thai Agriculturist Association, called the price cut “unacceptable” and threatened to bring a caravan of farmers and tractors to rally and block roads in Bangkok if the government doesn’t revert to the previous pricing. He said the government should maintain current prices at least until the end of the rice-growing season in September before reassessing the size of the subsidy.
“The government promised it would take care of Thai farmers. Now it has broken its promise,” Mr. Vichien said in a telephone interview, adding that he expects several thousand protesters to join any potential rally.
Thailand, previously the world’s largest rice exporter, introduced the subsidy as a way to drive up rural incomes and mimic the populist policies of Ms. Yingluck’s older brother, former prime minister Thaksin Shinawatra, who was ousted in military coup in 2006 and who now lives overseas to escape imprisonment on a corruption charge that he says was politically motivated. Policy makers bet that by stockpiling local rice, they would increase global prices for the grain, too. Instead, other exporters such as India and Vietnam stepped in to fill the gap in the market, knocking Thailand off its perch as the world’s biggest seller of the grain and leaving the country with millions of tons of unsold rice.
Ms. Yingluck’s government acknowledged Monday that it had lost 136 billion baht, or around $4.4 billion, from the first two phases of the program that ran from 2011 to September 2012. The program is now in its third phase, and the total losses have yet to be finalized. Earlier this month, Moody’s Investors Service warned that the growing scale of the losses could potentially undermine the standing of Thailand’s stable Baa1 credit rating.
Political analysts said the challenge for the government now is to exit the rice program in such a way that it ensures that the country’s farmers—who comprise some 3.7 million households in Thailand—are well compensated, but stressed that there will be relatively little political fallout for Ms. Yingluck’s Puea Thai, or For Thais, party.
“It will affect their perception of the government’s ability to deliver,” said Thitinan Pongsudhirak, a political-science professor at Bangkok’s Chulalongkorn University. “But it also shows that the government is pragmatic and is willing to compromise.”
Industry analysts have suggested that global rice prices could soften, potentially worsening Thailand’s losses if it doesn’t reduce the price at which it buys rice from its farmers. The United States Department of Agriculture forecasts a record 479.2 million tons in global rice production in the 2013/2014 season, up 2% from the previous period, as major exporters continue to expand harvests.
Thai rice exports, though, are continuing to fall. Total exports from January to April fell 10% to 2 million metric tons from the same period last year. Medium grade Thai rice currently sells at $542 a ton, some $150 to $170 more than equivalent grade rice from Vietnam and India. Last year, Thai exports fell 34% from the previous year.
—Wilawan Watcharasakwet contributed to this article.