Since her election, Yingluck Shinawatra has continued to court populist support from more receptive constituencies of her brother, the controversial exile Thaksin--folks in rural areas as opposed to the snooty Bangkok city slickers who have long been the most vicious Shinawatra haters. Given the need to enlist their support, what better way is there than to guarantee that the government would purchase agricultural produce at well above market prices? Thinking that they were smarter than your average global rice producer, Yingluck's advisers came up with a grand strategy whose logic went like this:
- Thailand is the world's largest rice exporter, therefore its price-setting power is unmatched;
- To court rural votes, the government would subsidize above-market purchases of rice;
- Thailand would then hoard rice by not exporting it;
- By withholding Thai rice from world markets, global prices commanded would increase significantly;
- When a certain price level was reached, the Thai government would then be able to recoup earlier losses from buying farmers' rice at above-market prices (and even make a tidy profit).
The plan was simple: Thailand’s government would buy rice from local farmers at a generous price, some 50 percent above the market rates. It would hold the rice in warehouses, cutting off exports to the rest of the world. The sudden shortage from the world’s heavyweight champion of rice exports would cause a spike in global prices. Then, payday for the government as it swung open the warehouse doors and sold its stockpile to the world at a premium. Farmers win, the government wins, foreign consumers lose, but then they don’t vote in Thai elections, so what do they matter? The plan was a political no-brainer, except for one problem: Thailand’s government underestimated how quickly the market can kick back at any would-be puppeteers...
And it was Thailand’s great misfortune that exactly one week after it slashed exports, India lifted its export ban, flooding the market with 10 millions tons of rice. Rather than orchestrate a price hike, Thailand helplessly stood by as global prices sank.