As announced last week, China canceled a deal to buy 1.2 million tons of rice from Thailand, putting the Thailand government rice farmer subsidy program into even more debt. The cry from critics of the ruling Thailand caretaker government is that the rice subsidy is going to bankrupt the country based on the volume of rice in storage and corruption within the government.

Reportedly the Chinese said they backed out of the rice purchase because it could run into problems due to an investigation by Thailand’s National Anti-Corruption Commission. The commission has pushed charges against ex-cabinet ministers, some other government officials and Prime Minister Yingluck Shinawatra.

The reference to caretaker government is because elections have been attempted to see if the ruling administration and party should stay in power. The prime minister has been under siege for more than the rice scheme farmer subsidy disaster.

The rice scheme, a subsidy of the government paying farmers around 40 percent higher prices than the international trading prices for rice, is a big reason that millions of rice farmers across the country voted for the prime minister in the last election. Because the rice is purchased at a premium from farmers, the government has not been able to sell it into the international market without huge monetary losses. The most recent estimate was losses of at least $4.46 billion. And banks have not been willing to lend much money to the government commission to pay off debt to farmers.   

The rice scheme has had thousands of farmers, who have not gotten paid for their rice, protesting in the streets. They have blocked main highways in and out of major cities. 

Millions of bushels of rice have ended up in storage where it is thought to be deteriorating at a rapid rate so that Thailand is having a hard time keeping a reputation of selling premium rice. Thailand was the number one rice exporter in the world until the rice scheme came into effect. India and Vietnam surpassed Thailand as the world’s top rice exporters in 2012. It appears 2013 turned out the same.

Thailand government officials have claimed rice stockpiles will be sold to earn money to pay farmers, but selling the rice at a loss only has the government digging a deeper hole. Just to get out of the current hole requires $3.9 billion, according to one report. Dumping rice onto the international market also could spell disaster to the world’s rice trade and would result in World Trade Organization litigation against Thailand.

As a side note, I wrote an article a few months ago in which I suggested that the rice scheme had the potential to bankrupt Thailand, and from the recent reports, it appears the country is definitely a lot less stable financially and politically than before the election that put Prime Minister Yingluck Shinawatra into power with promises of big income increases for rice farmers.

There now are several voices suggesting continuing the rice scheme could bankrupt the country.