Background and Motivation

The trial of former Thai Prime Minister, Yingluck Shinawatra, caught the attention of news outlets around the world. Following her dramatic flee from the country during a court trial over her role in a suspect subsidy scheme, I became interested in what had gone so wrong with the policy. Ms Shinawatra’s rice subsidy scheme had not only cost the country an estimated $8-$20bn, but also played a huge part in bringing down the government. Initially, the plan was to buy up rice from the whole country at a price almost double its market rate. Having dominated about 30% of the market, the government expected to push up the world market price by holding their huge bulk of supply before reselling at a higher price. As OPEC has learned over time, manipulating supply to interfere with the market price is tricky. Even though the Thai government owned over 60% of the market share, it failed miserably, as many speculated it would. Other rice, predominantly from Vietnam and India, simply filled the market vacuum, while corruption in Thailand prevailed and mountains of rice was left to rot, unsold.

Research Question

Even though many Thais saw this as a story of maladministration, the question of whether government intervention in agriculture is ever appropriate is still open to debate. My research will attempt to answer the question: Should the next Thai government implement an improved, interventionist, agricultural policy plan (using Yingluck’s scheme as the main case study) or should they shift back to promoting manufacturing industries?

Arguments

Rather than promoting economic development, protectionist agricultural policies might yield the opposite result, by artificially holding too many workers in the agricultural sector. This could stop the labour market from self-adjusting. An IMF Working Paper suggests that, despite the traditional view of Thai farmers as the backbone of the nation, the agricultural sector has a much lower level of labour productivity compared to other sectors. From a neoliberal viewpoint, it may seem in a country’s best interest to specialise, for instance, if workers and other factors of production gradually shift towards where they are needed. But, in Thailand, employment in agriculture is the highest of any sector, at around 40% of the labour force, way above the levels seen in other countries of similar GDP per capita.

This suggests that there are barriers preventing structural transformation, such as high food prices, lack of relevant skills, or, in this case, the government’s rice-pledging scheme.

Nonetheless, there are of course arguments in favour of such policies. Nalitra Thaiprasert suggests that, even though the relative productivity of agriculture has fallen, it induces more production and generates a more equal income distribution, compared with other sectors such as manufacturing or services. The rice scheme, therefore, could be an effective way to alleviate poverty and reduce regional inequality.

However, this research will also explore the possibility that regional inequality may be better alleviated through remittances from former agriculturalists, who move to work in the cities to support the lives of those back home. Internal migration at a large enough scale might be a faster, and longer lasting, way of lowering regional inequality than the government’s short-term scheme. An increasing proportion of the income of farm households is coming from wages and salary, outlined in Figures 3 and 4 below, which could indicate the possibility of increased internal migration. Nevertheless, past research on this topic has shown conflicting results.

 

In this study, I will attempt to construct a simple model comparing the correlation between internal migration in each region and the change in their corresponding standards of living over time. If the migration of agricultural workers and their remittances could help alleviate regional inequality, then the government might be able to abandon protectionist agricultural policies, and support other industries, without worrying about its consequences on inequality.

Conclusion

The central aim of the research will be to provide a policy recommendation based on economic, rather than political, arguments – which route would be better for the country’s development in the long run? I will try to reach a holistic solution, which focuses on the effect of internal migrants’ remittances on regional inequality.

Nicharee Mekavuthikul

Should the next Thai government implement an interventionist agricultural policy?