Every week, I attempt (and usually fail) to read my way through the Economist before the new one comes out. And for ages, I’ve been trying to force myself to read through the stories in the Asia/Oceania section.
It’s the names, you see. There are too many that are too foreign, and it’s all too complex to keep my attention. So I usually just skim through the piece on Paul Rudd’s election prospects in Australia, and then gloss over into the Business and Finance & Economics sections.
But over the weekend, I was sitting on my own, having a beer, and reading through a week-old issue that I had in the car. And at that crucial moment, the fates aligned, I’d read everything else, and there was enough Pale Ale in the bloodstream to make me sound out the Chinese names in a bad Zhōnguó accent*.
*Still not sure why this seems like an okay-ish idea after a pint.
And I discovered one of the best and most ridiculous economic stories. I mean – I live for these.
And They Declared: “Let There Be Rice”
Meet Yingluck* Shinawatra, the prime minister of Thailand. Her brother (Thaksin Shinawatra) is a former prime minister, and he’s in exile after being overthrown in a military coup in 2006. He’s been convicted of all manner of things in his absence, and there is a charge list that has his name all over it for when he gets back. Oh – and some jail sentences.
Nevertheless, in the manner of all overthrown premiers with a political axe to grind, Thaksin continues to mastermind Yingluck’s policies from afar. And during her electioneering in 2011, she/he came out with a new campaign promise to try and attract the votes of Thailand’s farming community (which comprises around 40% of the total population). The promise: Yingluck’s government, if elected, would commit to buying unmilled rice from farmers at almost DOUBLE the market rate.
Now obviously, I think that’s crazy for many reasons, not least of which is the flagrant vote-purchasing implicit in that promise. But I’ll come back to that, because this policy did not come without justification. Oh no. No no no.
- Yes, the price of rice is $250 per tonne.
- But let’s pay the farmers $500 per tonne.
- It’ll put money into the hands of poor farmers.
- Which will stimulate domestic demand, so the economy will grow faster
- And the Thai government will be able to build a stockpile of rice, withdrawing it from the world market.
- And because Thailand is the world’s largest rice exporter, withdrawing those volumes of rice from the market will force up the global price of rice.
- And eventually, the Thai government will be able to sell the rice at a profit.
Let me try and put this as an analogy: it’s the economic equivalent of believing in the tooth fairy, and then deciding that the road to riches involves systematic tooth extraction.
Here’s another: it’s like giving your 17 year old son a Porsche 911, a bottomless credit card and an emancipation order, and then expecting him to behave like an adult because of all the responsibility that you’re vesting in him.
Here’s what eventually happened:
- Instead of the price of rice going up, the other rice-exporting countries undercut Thailand’s price, and expanded their rice production to meet the gap left by the missing Thai production.
- The Thai government created an artificial discrepancy where a political border was the only distinguishing feature between selling rice for $250 and selling rice for $500. So the entrepreneurial started importing rice from Cambodia and Myanmar and increasing their “produce” in order to score more of the profit. And the unscrupulous engaged in a little profit-splitting with Thai government officials, and did that importing in bulk.
- With the sudden influx of product (Thai or otherwise), the Thai government has had to start building warehouses to store the rice, alongside all the logistical and administrative costs of keeping the rice clean and not-bug-infested.
- The rice is getting a bit bug-infested.
- Meaning that Thailand’s annual spend on rice is currently around 4% of GDP.
- Oh – and Thailand has indeed accumulated a stockpile of rice of 18 million tonnes – equal to about half the annual amount traded globally.
- The rest of the market is waiting for the glut of rice to hit the market, so they’re not buying any of it now.
- And Yingluck has been unable to drop the price being paid by the government, as every time she has tried, the farmers have been up at arms.