A flawed policy approach

Some of the countries continue to suffer in economic terms but refuse to learn the right lessons. According to a news item in the "Business Recorder" on 28th May, 2013, Thailand has pledged to renew its controversial rice-buying scheme for a third year - a policy that has been blamed for straining government finances and slashing exports while the grain piling up in warehouses. Insisting on the relevance of the policy, Commerce Minister said that "we will be continuing with the scheme, with which we aim to go on supporting farmers. At this stage, we see no change in the intervention".
He also boasted that the country would largely be able to finance the scheme through sales to other governments, thus avoiding loans from other sources for funding. The funny aspect was the government's claim to sell 7.3 million tonnes of rice from stocks to foreign governments like China, Bangladesh and the Philippines who have denied the deals and the activities at ports also did not suggest big deliveries.
The disadvantages of such a policy were of course shocking. Thailand pays farmers 15,000 baht a tonne of paddy, or about 50 percent above market prices, pushing Thai export prices for common grade rice to dollar 550 a tonne, which are almost higher by dollar 170 per tonne than the offers from other countries such as India, Vietnam and Pakistan. The government has spent 410 billion baht in buying paddy since October, 2011, with losses estimated to be at least dollar 6 billion. Thai exports of rice which had reached a record level of 10.6 million tonnes in 2011 were also reduced to only 6.9 million tonnes in 2012. Clearly, the scheme will result in more rice stocks piling up in government silos while exporters of other countries will continue to take advantage of Thailand pricing itself out of the market. India and Vietnam are reported to have already stepped into the vacuum caused by Thai exporters.
Why various countries indulge in such a foolish exercise and go down the same road knowing fully well the extent of harm to the economy is not difficult to understand. Simply put, political exigencies dictate the decisions while economic fundamentals are totally forgotten. In the case of Thailand, the present government was elected due to its popularity in rural areas and the status quo could only be maintained in subsequent elections by following this policy blindly and so far as this policy is maintained, the country would continue to suffer on many fronts. International trade is supposed to be based on the principle of comparative advantage of producing various commodities and services and maximising of gains for every country and any violation of this principle would only yield less than optimum gains. Pakistan has also been following such a policy approach, especially in the past, with disastrous results and several European governments are also in the same category in order to please the agricultural lobbies and win their votes. Such a practice needs to change and market forces should be allowed to play their role in determining the prices. There are other better ways to favour disadvantaged groups in a society but that is another subject. The claim of the Thai Commerce Minister that his country would be able to finance the distorted scheme through sales abroad is simply ridiculous. No country will be interested in purchasing Thai rice of similar quantity if its price is higher by 30 percent or so. In order to be really competitive in the international market, Thailand could subsidise rice exports but that will result in a huge burden on the budget.