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Rice mortgage is one of many methods the government uses to assist farmers by manipulating rice prices. However, there are problems found in the government rice mortgage scheme, including produce adulteration and price arbitrage. The government by Prime Minister Abhisit Vejjajiva therefore initiated the idea to use a rice price guarantee scheme instead of the existing rice mortgage scheme.
Under the rice price guarantee scheme, farmers are required to register and sign a lowest-price guarantee contract with a branch of the Bank for Agriculture and Agricultural Cooperatives in their area. During the price guarantee period, if the market prices of rice are lower than the guaranteed prices, farmers participating in the scheme will receive the price differentials. On the contrary, if the market prices are higher than the guaranteed prices, the farmers will be allowed to sell their produce in the market as usual. In other words, the rice price guarantee scheme is similar to typical insurances—an insurance buyer will be compensated if problems arise. But if there are no problems, the insurance buyer’s premium will be considered as hedging costs. Such costs can in a way prevent the farmers from dishonestly reporting their rice stocks to the government.
The rice price guarantee scheme is also less complicated than the rice mortgage scheme and it gives fixed rice prices the farmers will sell their produce at. The rice price guarantee scheme also rids the government of the necessity to use warehouses to store rice or to process the produce as common in the mortgage scheme. It can therefore be concluded that the rice price guarantee is an effective method to prevent corruption and distortion of the market mechanism and at the same time assure the farmers that they will sell their produce at reasonable prices.
However, the rice price guarantee scheme may cost the government dearly if the market prices are much lower than the guaranteed prices. The scheme also requires clear and easy methods to inspect farmer registration and the government needs to be able to clarify details of the scheme to farmers to prevent misunderstandings.
President of the Horticulture Association of Thailand Dr. Anant Dalodom warned that flaws of the rice price guarantee scheme might cause damages to the agricultural sector although it seemingly had more pros than the rice mortgage scheme. He suggested that the government should clearly set the guaranteed prices and premiums paid by the farmers with the government subsidizing the premiums at the early stage of the scheme.
The rice price guarantee scheme can effectively assist farmers and indirectly expand the nation’s rice plantations as it was designed to increase farmers’ profits from rice sales.