Bangkok - The government's high benchmark prices under the rice mortgage scheme have resulted in widespread corruption by participating mills, potentially devastating Thailand's reputation as a quality rice exporter, industry executives say.
Colluding rice mills are reportedly taking the cheaper Pathum Thani and Phitsanulok varieties and mixing them with more expensive Hom Mali rice stored on behalf of the government, then passing off the rice as 100% Hom Mali.
This is due to the fact that the rice mortgage scheme, which offers up to 20,000 baht per tonne of Hom Mali paddy rice, has been intentionally structured to pay above-market rates under a government policy aimed at boosting farm income.
"The mortgage programme has resulted in massive corruption," one rice industry executive said privately.
"The fact that the mortgage price is significantly higher than market prices has created a gap that unscrupulous people in the trade can easily exploit."
Rice mills can accept paddy pledged under the rice scheme and "turn" the same rice to receive additional payments under new pledges.
Such corruption is possible because the government depends on private rice mills to store rice on its behalf. Collusion also involves officials of the Public Warehouse Organisation and surveyors responsible for monitoring rice pledged to government stocks.
Another form of corruption involves falsifying inventory records, whereby a rice mill sells off government rice to packers or exporters to take advantage of favourable market conditions. The mill later purchases rice from other sources to return to storage when the government recalls the shipment.
Mixing lower-grade rice is another way to cheat the system. A rice mill holding Hom Mali rice for the government may sell the rice off and later purchase lower-grade rice to return to storage, thus pocketing the difference.
"We're seeing shortages in Pathum Thani rice in the market for this very reason," the executive said. "Now some are even moving to use Phitsanulok rice for mixing, as it's a long-grain rice quite similar to Hom Mali, but only lacks the jasmine smell."
Monitoring government rice stocks and catching fraud is a difficult task, as rice mills can always present quality rice during inspection times but manipulate inventories as soon as official inspectors leave.
Industry executives suggest that state officials modernise their monitoring systems to include DNA testing to ensure the integrity and quality of government stockpiles. Officials currently rely on traditional methods of cooking rice samples to check each shipment.
"When Kittiratt Na-Ranong was commerce minister, he said DNA testing machines would be purchased for use in the inspection process. That's all gone quiet now," one executive said.
Commerce Minister Boonsong Teriyapirom categorically denied allegations of politically related corruption in the rice trade.
He said any parties found to have manipulated or falsified government stockpiles would be subject to criminal charges.
"The Commerce Ministry just last month asked a team of investigators from the Department of Special Investigation to help inspect the government rice stockpiles, and there was no report of any irregularities," Mr Boonsong said.
He called on any parties with knowledge of corruption or theft to give the information to the Commerce Ministry for further action, adding that the DNA inspection scheme was still in process.
Mr Kittiratt, now the finance minister, insisted that the rice mortgage scheme was beneficial for farmers.
He said government policy is to sell its rice holdings at cost, or if necessary, a slight loss, to achieve its overall goal of pushing prices higher.
Under the rice mortgage system, farmers may borrow funds from the Bank for Agriculture and Agricultural Cooperatives by pledging their rice harvest as collateral at the benchmark price. Repayment may be made in cash, or more commonly by essentially allowing the government to claim the rice to clear the debt.
The process, long used by Thailand as an indirect subsidy for farmers, was changed during the Abhisit Vejjajiva government, which offered price guarantees that compensated farmers if rice prices fell below set benchmarks.
Critics of the mortgage scheme argue that the programme wildly distorts market prices, involves massive use of taxpayer funds and is open to abuse by rice mills who act as intermediaries between farmers and the state.
The government got 6.8 million tonnes of paddy under the mortgage programme during the first rice crop starting last November, and a further 4.9 million tonnes under the second crop harvested from March to April.
Officials predict that total pledges under the second crop could reach 6 million tonnes, resulting in 13 million tonnes of paddy (about 8 million tonnes of finished rice) owned by the government this year.
The government, meanwhile, regularly sells off rice stocks to private exporters and packagers, a process that experts say lacks transparency and is open to abuse.
"No one knows when the government sells off its rice stocks or at what price the sale is done at. It's not right," one executive said.
Other officials are upset that Siam Indica, a subsidiary of President Agri Trading, reportedly told overseas buyers that it could procure as much Thai rice as needed but failed to fulfil the delivery.
President Agri has a chequered past in the rice trade, including backing out of a 1.7-million-tonne bid in 2004 and accusations of fraud and embezzlement over 30,000 tonnes of rice in 2007.
Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association, declined to comment directly about corruption allegations in the rice trade.
He said rice exports in the first quarter fell 33% year-on-year to 33 billion baht. In volume terms, rice exports in the first quarter totalled 1.48 million tonnes, down 48% from the same period last year.
According to the latest US Department of Agriculture estimates, Thailand is projected to export 6.5 million tonnes of rice this year, with Vietnam and India set to pass the country as the world's top rice exporters at about 7 million tonnes each.
Rice exports by Vietnam in the first quarter totalled 4.2 million tonnes, up 24% from a year earlier.
--Courtesy of Bangkok Post