World Bank prefers direct income subsidy

"If the government targets |too high a price for farm products under the insurance scheme, the World Bank fears it will distort the market and could be costly for taxpayers," said Luck Wajananawat, senior vice president of the Bank for Agriculture and Agricultural Cooperatives (BAAC).

The World Bank's comments came as the government plans to experiment with a rice-price guarantee (insurance) scheme, paving the way for replacing the rice-pledging scheme for shoring up the prices of farm products.

Experts from the World Bank held a two-day workshop on |Koh Samui with Finance Minister Korn Chatikavanij and senior officials from the Finance Ministry and a number of organisations, discussing farm and other issues.

The government will launch the rice price-insurance pilot project by the end of the month, with 200,000 tonnes produced in eight northeastern provinces.

It has been trying to convince farmers that the new scheme would benefit them more than rice pledging, which has resulted in a high burden for taxpayers. The cost of the rice-pledging programme is estimated to be about Bt20 billion annually, but with little benefit for poor farmers.

However, specialists from the World Bank are concerned about the effectiveness of an insurance scheme. If the government were to set a price too much higher than the market price, it would result in an acute strain on its budget and not be sustainable, Luck quoted the bank's experts as saying.

Instead, the government should introduce a direct income subsidy |to help poor farmers, the experts said.

They said the government should register all farmers in order to identify which of them are poor. Then, if those groups cannot earn adequate revenue by the end of a harvest season, it should hand out cash to support their living standards.

Most Thai farmers remain poor, even though the Kingdom is the world's largest rice-exporter and a leading exporter of several other crops and processed farm products.

Direct income subsidies for farmers have been practised in Mexico, Greece and other countries in Europe.

The government plans to phase out farm-product pledging schemes in the next two to three years and fully implement crop-price insurance schemes to replace them.

Such price guarantees have been implemented in several countries in several forms - private-sector insurance, public-sector insurance and private insurance with government support.

The BAAC and the World Bank have collaborated on a pilot pro-|ject for weather insurance, which covers maize farmers against drought. But after three years of implementation, the scheme has not proved popular, with only 755 out of about 100,000 farmers participating, said Luck.

High premiums and a low level of compensation were the main obstacles.

As the same time, direct compensation from the government for crop damage caused by natural disasters has discouraged farmers from joining the weather-insurance scheme, Luck added.