This morning, the top news story on the BBC app is “Yingluck fails to show for verdict“. Apparently, the former Thai prime minister had a bad headache and vertigo. I’m not sure how many people are familiar with this story – but I have been following the case since 2013. It’s a glorious Shakespearean parable of puppet leaders, vote-mongering, an economic gamble and a giant stockpile of rice.
Meet Yingluck Shinawatra, the prime minister of Thailand. Her brother (Thaksin Shinawatra) is also a former prime minister, and he’s still in exile after being overthrown in a military coup in 2006. He’s been convicted of all manner of things in his absence: so if he ever returns to Thailand, he’ll be spending some time in a Thai prison.
But Thaksin had an apparent solution. That is: he got his sister, Yingluck Shinawatra, to run for prime minister. And the theory is that he masterminded her policies from afar. To get her elected in 2011, the siblings came out with a new campaign promise to 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.
Why you would buy rice for double the price.
Now surprisingly, this policy did not come without economic justification. Oh no. No no no.
- Agreed, the price of rice is $250 per tonne.
- But there are good reasons why the Thai government should buy the rice from Thai farmers at $500 per tonne.
- Firstly, it’ll start by putting money into the hands of poor farmers.
- This will stimulate domestic demand, so the economy will grow faster.
- And secondly, the Thai government will be able to build a stockpile of rice, withdrawing it from the world market.
- Now this is the important part: 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.
- This means that, eventually, the Thai government will be able to sell the rice at a profit!
- Thailand will be great again!
I have some analogies for this kind of logic:
“We believe in the tooth fairy! If we implement a policy of national tooth extraction, economic prosperity is ours for the taking.”
“I have a chicken farm! If I slaughter half the hens, then the other hens will be incentivized to lay faster, and there’ll be more eggs for me to sell.”
or, the far too obvious
“Let’s build a wall to keep my neighbour from climbing over it! My neighbour will pay for it.”
The not so happily-ever-after ending
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.
- Because the Thai government was not in control of where the rice came from, the only distinguishing feature between selling rice for $250 and selling rice for $500 was an artificially-drawn line on a map. So the more entrepreneurial farmers started importing rice from Cambodia and Myanmar, and increasing their “production” 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 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.
- Meaning that Thailand’s annual spend on rice was somewhere around 4% of GDP.
- And Yingluck was unable to drop the price being paid by the government, as every time she tried, the farmers protested.
- The rice subsidy scheme was officially ended in 2014 (after the Thai government ran out of money to pay for further rice).
- Then in January 2015, Yingluck was officially impeached, and immediately charged for her involvement.
- Subequently, the new government has attempted to sell off its stock piles. And it’s been rotting.
And today, India is now the world’s largest exporter of rice.
To be honest, I’m not surprised that she has a severe headache and vertigo.
Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha. Also, check out the RA podcast on iTunes: The Story of Money.