Thai Rice Mortgage Policy

2NA00E Thesis in Economics

Thai Rice Mortgage Policy:

Nice Dream or Nightmare?

1. Introduction

Thailand is considered as a developing country, an emerging economy and a newly industrialized country which national income mainly comes from agricultural products, especially exporting rice. According to the Bureau of Agricultural Economic Research of Thailand (OAE), in 2008 agricultural population is accounted for 35 percents of the total population of the country.

While Thailand is the number one rice export country compared to other countries in the world, including China, India and Vietnam which are also the world's leader rice producers and exporters, Thai farmers are still earning a very low level of income and still, living in a very poor level of living standard. Not that increasing in exports does not benefit Thai farmers; it, more or less, does improve farmers' welfare, but there are some reasons behind farmers' poor standard of living, some that might relate to the government's policies, which we will discuss further.

Nowadays, Thai Government plays a very important role in agricultural sector activities. They are not only trying to improve Thai rice market, but also trying to find the way to help Thai farmers to earn more income and to have a better standard of living. Recently, Thai government proposed a rice mortgage program in order to help Thai farmers especially in harvest season. While some people support this program, some argue that it is not an appropriate one.

This paper will give some point of views about Thai rice market while mainly focus on the government intervention of rice mortgage policy on Thai rice market and its effects on Thai farmers' well-being which measured by using the data of price of rice per tons received by Thai farmers in the period before the mortgage program was introduced (1991-1999) and after the government intervened in the Thai domestic rice market (2001-2007) compare to the consumer price index to see if it is an appropriate, sustainable policy for Thai farmers' well-being and whether the government should intervene in the domestic rice market or not.

1.1 Purpose

The purpose of this paper is to show the effect of the government's Thai rice policy; especially on the rice mortgage policy, whether it is a policy of sustainability development on farmer's welfare. And a brief discussion of what should be done to help Thai farmers improve their welfare.

1.2 Method and Data

We have got the information mainly from the IRRI and USDA. We measure farmer's welfare by using price of rice received by farmer's compare with Consumer Price Index (CPI).

1.3 Delimitation

In this paper, we will mainly focus on the mortgage policy, even though there is a new policy; pledge income payment introduced by the Prime Minister Abhisit's government. Also, there is no exact information and data about Thai farmer's welfare; we use the price of rice per tons received by Thai farmers as a measurement of Thai farmer's welfare since Thai farmer's income mainly comes from selling agricultural products, especially rice.

2. Theoretical Framework

2.1 Government Intervention

A. What is government intervention?

"Government Intervention is an action taken by a government in a market economy or market-oriented mixed economy, beyond the basic regulation of fraud and enforcement of contracts, in an effort to affect its own economy." Many countries or almost every country around the world may experience different type of government intervention since there are differences in each country's characteristics, political, social, and economic situations. Also, the objectives of each government intervention act could be different It could emphasize on accelerating the economic growth, increasing level of employment, increasing standard level of wage rates, stabilizing price levels, promoting equality, or even controlling money supply and interest rates.

The rice mortgage scheme is considered one tools of government intervention in Thai domestic rice market. The aim is not only to improve Thai rice market but also to help improve farmer's welfare and to increase their living standards since farmers are the majority and important people in agricultural sector of Thailand.

B. Why intervene in agricultural sector?

The FAO estimates that over 50 percent of population as a whole world engaged in the agriculture activities . Agricultural sector usually contributes a major part of national income of developing countries. Intervention the markets could be a way to increase the government' capability to reach the target goal of country growth. The main objectives of intervention in general are:

 To ensure adequate food supplies;

Nowadays, World food supplies decline over time. Government need to intervene into the market to assure that people in the country will have enough food for their life.

 To protect / preserve small-scale farming;

Industrialization has become one problem of declining in small- scale farming. As it is rarely that small scale farming can survive without government intervention, to compete with large scale company, it is necessary that government play role in the market.

 To maintain economic viability of rural businesses and communities;

The same reason why government play role in the market, Long term development, country need to expand economics communities to rural area.

 To minimize dependence on imports;

With government intervention, it helps reducing country's dependency on import good.

 To expand agricultural exports; and

As for developing country, major part of its economy growth comes from Agriculture sector. By setting the good policy, it will boost up the country to grow in long term

C. How to Intervene?

Type of intervention

Different countries have different characteristics of their own economy. If there is a reason to support that market allocations are inefficient/ or inequitable, tailoring action