Effects of Paddy Price Intervention on the Rice Mill Business: A Case Study of the Paddy Pledging Programme in Thailand

Abstract

This article explores the effects that Thailand’s controversial paddy pledging programme had on Thailand’s rice mill business and offers some managerial suggestions to deal with the programme. The programme was introduced during 2011–2014 to offer farmers a premium-guaranteed price for their crops. However, there was little discussion about the programme’s effects on the rice mill business, and how the mills had adapted their business model to meet the abrupt changes in demand and supply conditions. A case study of two rice mills in the Phu Sang district, Pha Yao Province, Thailand, was chosen as subjects for this study. One mill participated in the government’s paddy pledging programme, and the other did not. In-depth interviews were conducted with the rice mills management teams to explore the effects of the paddy pledging programme; to understand the mills’ motivations to participate or not participate the paddy pledging programme; to see how the mills adapted their business strategies to the drastic changes that occurred in the rice business environment and to draw key managerial and policy implications.

Keywords

Government intervention paddy paddy pledging programme rice mill Thailand

Introduction

Rice is one of the most important agricultural products in many developing countries; and government price intervention policies are commonly implemented to help farmers. There are many studies and researches on the effects of price intervention policies on rice farmers, yet there is lack of empirical research on other stakeholders who are engaged and play an important role in the rice supply chain, especially on mills.

Mills traditionally buy paddy from farmers, mill the paddy to transform it to rice and sell the rice to the market. With the paddy pledging programme, the roles of mills were transformed into that of being a government agent buying paddy at the guaranteed price set by the government and providing warehouse and milling services for the government. Despite these dramatic changes to the mill business model, little discussion took place on how the mills adapted their businesses models to the ensuing abrupt changes in demand, supply and competition conditions in both the paddy and the rice markets. This article, therefore, aims to fill the gap of the current research, with the objective of answering four key questions. First, what were the motivations for rice mills to participate (or not participate) in the programme? Second, what were the effects of the programme on the rice mill businesses? Third, how did the rice mills cope with such changes? Fourth, what are the key managerial implications?

Literature Review

As mentioned earlier, rice is one of the most important agricultural products in many developing countries. Approximately 90 per cent of the world’s rice is grown and consumed in Asia (International Rice Research Institute [IRRI], 2013), with China, India, Indonesia, Bangladesh, Vietnam and Thailand being listed as the top rice-producing countries (Food and Agriculture Organization [FAO], 2014). Government price intervention policies are commonly implemented with the main reasons to promote food security, making the country more self-sufficient and to promote rice export to generate more income to the country (Thakur, 2005). Moreover, despite the fact that several past WTO agreements on agricultural products substantially reduced trade barriers and subsidies in developed countries, empirical evidence shows that the market for agriculture trades is still imperfect (Thakur, 2005). Excessive speculations on commodities and extreme volatile prices for agricultural products during the last decade rising political pressure on governments in developing countries to assist farmers were observable (Bodhanwala, Purohit, & Choudhary, 2018).

In Thailand, rice farming has been a major economic activity for Thai population. 3.7 million families—about 15 million of the nation’s 68 million people—are dependent on rice farming. Out of a total 149.25 million hectares used for agriculture in Thailand, 70 million hectares are used for rice production; the majority of this rice production is grown in the North and Northeast (National Statistics Office, 2012). Farms in Thailand are typically small farms, with an average size of only 3.5 ha (Pongsrihadulchai, 2009). For about 30 years, Thailand led the world in global rice exports (Baker & Phongpaichit, 2009; The Economist, 2013).

Past and present Thai governments have launched various rice intervention policies (Isvilanonda & Bunyasiri, 2009; Mahathanaseth & Pensupar, 2014). Rice policies are highly political sensitive as rice is the staple food in Thailand, and majority of Thai population are engaged in rice farming. Several government agencies like the Marketing Organization for Farmers (MOF) that acts as a marketing agent to sell rice to the market, the Public Warehouse Organization (PWO) that manages the government’s rice stocks and the Bank for Agriculture and Agricultural Cooperatives (BAAC) that serves as a financial provider for farmers and agricultural cooperatives have been established to be arms of the government (Isvilanonda & Bunyasiri, 2009; Isvilanonda & Poapongsakorn, 1995; Jitsuchon, 2006; Ramos, 2005).

In the early years of the paddy pledging programme, it was operated more like a loan package for farmers, using the paddy as a collateral for the loan. Initially, the amount of the loan given was between 80 and 90 per cent of the estimated market value of the paddy (Poapongsakorn & Pantakua, 2014). Farmers would then receive the money from the BAAC and must redeem their paddy within an agreed period. If not, the paddy was confiscated by the BAAC and sold to the market in order to repay the debt of that farmer.

Between October 2011 and May 2014, under the leadership of the Prime Minister Yingluck Shinawatra, the government implemented a paddy pledging programme which had three primary objectives: to raise farm income levels, improve the standards of living for farmers and to increase the price of Thai rice in international rice markets. In comparison to the previous pledging programmes, there were significant changes in the pledging concept, as it was evolved towards ‘a guaranteed minimum price’ (Sukkumnoed, 2017).

What brought a major concern to this particular pledging programme was the guaranteed price offered by the government was much higher than the market price. In principle, the rice pledging scheme was supposed to reduce rice supply during the harvest season. The government generally proposes to buy a certain amount of the new harvest under the pledging programme and store the pledged amount in state stocks. The pledging price is normally based on market price. Farmers are expected to redeem their pledged rice when the market price is higher. The programme has been implemented by several governments in the past but has never offered pledging prices that were this much higher than market prices.

With a high pledging price, it induced farmers to produce more paddy, pledged and did not redeem their paddy back. Extensive research, scholars, and Thai and international medias criticized the worthiness of this historic large public spending. Much of critiques were bonded with political perspectives on populist policy to evaluate the effects of the programme on the economic performance and the worthiness of using public spending to fund the programme. The pledging prices ranged from USD 469 to 625 per ton depending on the type of rice, which was USD 181–250 per ton above market prices, in excess by 29–40 per cent. As a result, the government carried the heavy cost of storing huge amounts of paddy (Einhorn, 2013; Poapongsakorn, 2013; Poapongsakorn & Pantakua, 2014). Dealing with the stockpiled paddy rapidly became a problem for the Thai government (Poapongsakorn & Jarupong, 2010; Poapongsakorn & Pantakua, 2014; Warr, 2014). It was reported that the Thai government had stockpiled 18 million tons of rice, much of which was poor quality and decaying due to bad storage conditions (Permani & Vanzetti, 2015; Pratruangkrai, 2013; The Economist, 2013). The official public spending in this 2011–2014 rice pledging programme was totalled USD 30.78 billion, generated a net loss of USD 16 billion (The Finance Ministry’s Post-Audit Committee on the Rice Pledging Scheme, 2014).

The Transformation of Rice Mill Business

It was estimated that there were 1,729 medium and large rice mills operating in Thailand, with a total production capacity of up to 90 million tons a year (Titapiwatanakun & Titapiwatanakun, 2012). However, on average, rice production in Thailand is generally around 35 million tons a year. Thus, the milling industry faces a very high amount of pressure due to the intense competition (Titapiwatanakun & Titapiwatanakun, 2012). Approximately 400–600 mills registered with the paddy pledging programme (Poapongsakorn, 2010).

Traditionally, mills generate income from selling milled rice and its by-products which are broken rice, rice bran and the husks. Under the rice pledging programme, mills acted as a go-between for both the farmers and the government agents. The programme allowed farmers to make pledges with rice mills that registered with the government and to receive funds directly from the BAAC. This market intervention approach led to the increased importance of rice mills because of their role in administering the programme (Poapongsakorn & Pantakua, 2014). The rice mills that participated in the programme had to provide warehouse services for the government, and the warehouse and the rice mill had to be located in the same area. The rice mills were not allowed to store paddy exceeding 50 times of their production capacity. The rice mills had to update their stock every day through an online programme, and the milling process had to be completed 7 days after the government had notified the mill. Therefore, not all mills were qualified to participate in the programme, and it was an option of mills to choose to participate or not participate in the government’s paddy pledging programme.

Objectives

Despite the mills’ significant roles in the rice pledging programme and in rice market, no qualitative research has been made to explore the effects of the spending on rice mills. This research aims to fill the gap of the current research to explore untouched study on rice mills on four key aspects. First, what were the motivations for rice mills to participate (or not participate) in the paddy pledging programme? Second, what were the effects of the programme on the rice mill businesses? Third, how did the rice mills cope with the abrupt changes in demands and supplies of paddy during the intervention period? Fourth, what are the key managerial implications?

Methodology

This research adopted a case study method as it enables researchers to closely examine the data within a specific context, and this approach of study is particularly useful to employ when there is a need to obtain an in-depth appreciation of phenomenon of interest through detailed contextual analysis (Crowe et al., 2011; Yin, 1984).

Due to the programme’s political sensitivity as it was widely known that there was a corruption involved in the rice intervention scheme, the possibility to conduct research in that area and the willingness of mills to participate in the research were taken into account as a first priority. The criteria for mills selection were: (a) mills must be in the rice business for more than 10 years to ensure that they have enough knowledge and experience of the rice business and are aware of the government price support policy and (b) mills must have a milling capacity of more than 20 tons per day to ensure that are eligible to join the government paddy pledging programme.

Two rice mills in Phu Sang district, Phayao Province, Northern Thailand, were selected as case studies for research due to the following reasons:

Phu Sang district has about 31,407 residents in five sub-districts, covering about 293.5 km². Rice farming plays a significant role to the local economy. A majority of its population are rice farmers, and over half of its arable land is taken up with rice farming (Phayao Province Agricultural Promotion Office, 2010).

There are only two mills in Phu Sang district. One participated in the government pledging programme and the other did not. The participating mill is one of the largest mills in the district, with a milling capacity of 50 tons per day. It had been operating for about 25 years at the time of the study. It has also participated in paddy pledging programmes with every government before the current programme. The non-participating mill is a new mill, which started up only 4 years before the study. It is the largest mill in Phu Sang district, with a milling capacity of about 100 tons per day.

Such unique characteristics of a small district that majority of its population and its economy rely on rice farming; there are only two mills existing, directly competing with each other, which would give researchers a number of interesting observations on the mills’ business strategies and their adaptations.

Data collection was conducted in two rounds. First set of interviews were conducted in January 2014, in between the intervention programme. Second set of interviews were conducted in 2019 after the intervention programme was abandoned to get more insights of business situations.¹

Authors are grateful to the reviewers’ suggestions advising us to add a longitudinal aspect to the study to evaluate the effectiveness of the programme that led us to the second round data collection during the process of paper revision. Data collected on the second round had deepened our findings, conclusion and policy implications.

Interviews were conducted in the northern dialect to ensure that the meanings of the questions were clear to interviewees; the interviews were recorded for later transcription.

Analysis and Discussion

Motivation to Participate (or not Participate) in the Paddy Pledging Programme

Participating Mill

The owner of the participating mill stated that ‘he had no other choice, but to participate in the government programme’. He explained that by not participating in the programme, it would negatively affect his business. Since most of the large farmers participated in the programme, non-participating rice mills had to work harder in order to find supplies of paddy and had to pay higher prices to compete with the government price (which was more than the market price). Also, there was no guarantee that the mill could sell the rice above its costs. The owner of the participating mill explained that he always joined government price intervention schemes, no matter which government to ensure the paddy supplies. He stated, ‘It is good for us that we do not need to find paddy for milling. Farmers will come to us’.

Non-participating Mill

On the other hand, the owner of the non-participating mill decided not to participate in the government paddy pledging programme because there was a problem of corruption among participating mills. The owner did not feel comfortable to get involved in such activities as they might lead to more problems in the future, for example, making a false report on the quality and quantity of the paddy stock. Mills also could take advantage at farmers by telling them that the level of moisture of their paddy exceeded the minimum standard of 15 per cent and easily cut the price down.

Impacts of the Paddy Pledging Programme on the Rice Mill Business Models

Participating Mill

The participating mill mainly obtained paddy from large-scale farmers and middlemen. It then processed paddy to pure white rice upon the government’s order. Only the final product was delivered to public warehouse organization. By-products such as white broken rice, fine/rough rice bran and husks were sold by the mill in the market, for the mill’s own revenue.

The participating mill reported that at the beginning of the scheme, their rice mill had to close early due to full storage space, since many farmers wanted to pledge their paddy. The problem being that the mill had to wait for a government order to transform the paddy into rice and then deliver the rice to the government’s public warehouse organization. Then the mill could take more pledged paddy in. The owner of the participating mill also mentioned that by participating in the paddy pledging programme, he lost the opportunity to sell his rice to his regular customers in Laos which were around 60 tons per year. However, he believed that benefit of joining the programme outweighed his cost.

Non-participating Mill

In contrast, the non-participating mill owner stated that his business had undergone radical changes; rice market environment forced his mill to be more competitive. The owner said,

Many mills have shut down. It is very hard to compete in this market. First of all, it was difficult to find a supply of paddy due to the fierce competition with the government’s intervention price. The mill could not operate at full capacity. At the same time, I could not sell processed rice at high prices; the mill had a hard time generating a profit.

The paddy pledging programme also affected the source of the paddy supplies to the mill. Previously, this mill was able to purchase paddy directly from large-scale farmers, which were cost and time saving for the mill. Under the paddy pledging programme, the mill could no longer buy from these suppliers because they preferred to sell their paddies to the government under the pledging programme. Hence, the mill had to rely on paddy supplied by small middlemen and small-scale rice farmers and had to buy paddy from wider sources outside the district.

For their survival, the owner decided to undertake a number of strategies to improve its efficiency. For example:

Operating hours: As the mill paid farmers in cash, it gained more and more popularity among farmers who did not want to wait for the payment from the government. The staff’s working hours during the harvest season was extended to serve the demands of farmers who wanted to sell paddy and to procure more paddy for the mill.

The stock control and book keeping process: The owner modernized the mill’s stock control and bookkeeping processes to improve operational efficiency; CCTV monitoring of the storage area was installed and the record keeping system was transformed from a paper-based system to a computer-based system.

Teamwork: In the past, the mill owner made most of the decisions. He stated that this had to change, and everyone needed to be able to work as a team; all decisions had to be made effectively and quickly. He explained,

To survive under the rice pledging scheme, we needed fast and precise decisions. Every minute was a competition. We had to count on our employees as part of our family. Everyone was part of the team. We had a meeting in the morning to plan our work together.

Market insights for speedy decision-making: The price of paddy and rice was closely monitored. The owner stated:

In the past, after I woke up, I first made a call to rice traders who were close to me to check the price, and to see who was purchasing which rice, what amount, and at what price. That changed, I had to call in the morning, lunch time, evening, and even when the market was already closed. If I had enough good quality paddy ready, I would send my team with rice samples to that rice trader. We needed to be fast.

Efficient production plans and improvements on the products variety: Since speed had become much more important, in order to gain the best price, the mill had to carefully plan their milling schedules. Also the mill had to be responsive to customer needs like offering packaging in different sizes such as in 5, 15, 25 and 50 kg bags, besides selling in bulk.

Shorter credit terms were possible: The mill had to reduce their customers’ credit period from 30 days to 14 days to improve their cash flow because the mill had to pay cash to farmers. The owner said, ‘We explain our situation to customers, about the shortage of paddy, difficulty of finding paddy supplies, and the instability of the price in order to make them understand; so as to avoid any hard feelings’.

Improvements in logistic management: as speed of delivery became critical, the owner decided to buy his own truck, rather than outsourcing it to local service providers.

The owner of the non-participating mill concluded that

Many things have changed during the time of the paddy pledging scheme. It was a tough change, but good in the end. It was not just employees that needed to adapt, I needed to adapt the way I work to be more cautious, careful, responsive, and speedy. A rice mill has to manage its paddy stocks, mill schedules, machines, inbound and outbound logistics, finance, marketing, and the people who work for it well.

Mills’ Sources of Revenues, Expenses and Profit

Participating Mill

Regarding sources of revenues, expenses and profit of mills, the participating mill’s income sources came from two main sources: (a) selling by-products of milled paddy (namely broken rice, bran and husks) and (b) revenues from the government for the milling service, warehouse rental, bags and transportation. The participating mill utilized full capacity of its warehouse storage, which was 2,000 tons. Overall, the total revenue of the participating mill was estimated to be 16,244,000 Baht. On the expenses side, the participating mill had much lower expenses, as it did not have to bear the major cost of the paddy. Key expenses were utilities cost, maintenance cost and labour cost. Overall, the total expense of the participating mill was estimated to be 3,690,000 Baht which would make the estimated profit of the participating mill to be 12,554,000 Baht (approximately 77.28% of its total revenue).

Non-participating Mill

In contrast, the non-participating mill’s income sources came from selling rice and its by-products which are rice, broken rice, bran and husks to the market. There was no additional income from government sources. Total revenue from selling its rice and by-products was approximately 109,800,000 Baht per year. The major expense of the non-participating mill was on paddy. The mill has to buy paddy as a key input for processing, which was around 5,000 tons per year. The cost was approximately 14,625 Baht per ton, making the paddy cost per year 73,125,000 Baht. Other key expenses were utility and maintenance costs, followed by labour cost. Total expenses of the non-participating mill were estimated to be around 83,021,755 Baht per year, which would make the profit of the non-participating mill to be around 26,778,245 Baht per year or approximately 24.39 per cent of their total revenues. A comparison of revenues, expenses and profits of the mill that participated and the one that did not participate in the paddy pledging programme is illustrated in Table 1.

Table 1.

Comparison of Revenues, Expenses and Profits of Participating and Non-participating Mills, 2013-2014 Crop Year

		Participating Mill			Non-participating Mill
	Items	Unit (kg)	Price (Baht)	Total (Baht)	Unit (kg)	Price (Baht)	Total (Baht)
Revenues	White rice 5%	-	-	-	2,400,000	32	76,800,000
	White broken rice A1 Super and A1	460,000	25	11,500,000	1,150,000	25	28,750,000
	Rice bran	140,000	9	1,260,000	350,000	9	3,150,000
	Husks	440,000	1	440,000	1,100,000	1	1,100,000
	Milling fee			2,000,000	-		-
	Warehouse rental fee			720,000	-		-
	Bags			300,000	-		-
	Transportation			24,000	-		-
	Total revenue per year			16,244,000			109,800,000
Expenses	Paddy			-			73,125,000
	Bags and packing			330,000			488,755
	Labour cost			1,440,000			1,440,000
	Utility costs (electricity, water, fuel, gas) and maintenance costs			1,920,000			7,968,000
	Total expenses per year			3,690,000			83,021,755
Profit	Baht per year			12,554,000			26,778,245
	Percentage			77.28			24.39

Source: The authors.

It can be seen that the financial benefit of the mill that participated in the paddy pledging programme was much higher than the mill that did not participate in the programme. The participating mill’s profit margin in 2012/2013 was around 77.82 per cent of its total revenue compared with the non-participating mill’s profit margin of around 24.39 per cent of their total revenue. In terms of competition, the mill that participated in the paddy pledging programme had the advantage of not having to compete for its paddy supplies; the mill did not have to use its capital to buy paddy, and the mill did not have to mill the paddy until it received an order from the government; hence it had lower utility costs; the mill also gained rental and milling fees. The mill that did not participate in the paddy pledging programme did not have such advantages. Moreover, it faced difficulties in finding paddy supplies, which was a major expense of the mill (approximately of 88% of the total expenses). The utility and maintenance costs of the mill that did not participate in the programme were far higher than the one that participated in the programme. This was because the non-participating mill processed paddy to rice far more often than the mill that participated in the programme.

After the Paddy Pledging Programme Ended

Due to strong public criticisms and suspicions on corruption, policy instability and unsound management, the controversial rice intervention programme was forced to an end in June 2014 which again caused abrupt changes in demand and supply in Thai rice industry.

Unfortunately, it was found that both mills were not doing well after the price interventional was over. Both mills stated that there was a long stagnation on the rice market. There were a number of uncertainties that mills had to deal with.

For participating mill, it faced with the problem of the delay in the government’s milling and delivering order. Moreover, due to the change of government and government’s policy, there was a long delay in the payment that participating mill supposed to receive from the government. It also faced the problem of unclear direction of what to do with the stock of government paddy in their warehouse. Also, there were a series of investigation of corruption of this programme, especially on participating mills and local government officers. Stock of paddies had to be suspended until the investigation was completed.

The non-participating mill, although did not have to go through the complications of investigations, faced a huge crisis on another abrupt change of market conditions. Due to high competition and shortage of paddy supply during the price intervention programme, the non-participating mill bought as much as paddies as they could to insure enough supply to the customers. The mill paid farmers high enough price in cash to attract farmers to sell paddies to them rather than to the government. Once the price intervention programme was abruptly over, the non-participating mill managed to handle their normal business operation for a year. After the pleading programme was forced to end, the government had to urgently manage the paddies and rice stocks that were held the warehouses of participating mills as well as in the Government public warehouses. Especially rice from the Government fluxed in to the market at a cheap price. Because the rice was kept in the government warehouses over years, quality of rice was deteriorated, hence the price was cheaper than current market price. The government stock resulted in lower prices in the market. Rice traders then buy cheap rice from the Government not from the farmers, nor mills, and work out on rice quality improvement. This caused a major problem with the non-participating mill’s paddies stock that carried high cost. The mill faced with stagnation of sales, followed by cash flow problem. The mill had to manage the stock of paddies from the old days, making sure that they will be sold before the quality of paddies turn bad. Sales had to be done even if they had to sell at loss.

For both mills, milling, paddies and rice trading business have turned to be a supplement business as the demand and supply of rice are not consistent and the difficulties to predict a price and to manage the stocks. Both mills nowadays do not mill paddies on a regular basis again. They had to diversify their businesses to generate a more secure source of income. Participating mill is engaged in rubber farm and trading. Non-participating mill offers drying service (e.g., bean) to utilize unused milling machine.

Conclusion

The two case studies have shed some lights and provided insights into a better understanding of motivations of rice mills to participate (or not participate) in the paddy pledging programme; the effects of the programme on the rice mill businesses and how did the rice mills cope with the abrupt changes in demand and supply of paddy during and after the end of the intervention programme.

The government’s paddy pledging programme clearly transformed the roles of the participating mill from buying paddy, milling paddy and selling rice to the market to becoming agents of the government for procuring, processing and storing rice. Sources of revenues, expenses and profits were drastically changed as a result. Although there were reports of slow payment, and the loss of opportunities to trade paddy and rice, the business conditions of the participating mill were far easier than the non-participating mill. The mill that participated in the paddy pledging programme did not have to fight to get paddy, and due to the price attraction, a majority of farmers chose to pledge their paddy with the mill. As a service provider, the participating mill also received money from the government for warehouse rental, milling, transportation and bags for paddy packing.

During the stage of price intervention, the business conditions of the non-participating mill were more difficult and required several adaptations to ensure its survival. It had a hard time to find supplies of quality paddy from farmers since the pledging programme offered a high pledging price. The mill operators had to put a lot of effort into finding good quality paddy. Many cost controls and efficiency enhancement strategies were also implemented in order to help the business get through the difficulties.

After the price interventional was forced to end, both mills faced with different crises. Participating mill faced with the problem of the delay in the government’s milling and delivering order, a big delay in payment and had to deal with a number of investigations regarding corruption in the programme. The non-participating mill also faced a huge crisis of the overflown cheap rice from the Government warehouses. The mill faced with stagnation of sales, cash flow problem and every transaction was at loss due to high cost of paddies that the mill had been carried in the past. Both mills did not mill paddies on a regular basis due to uncertainty of demand and supply, and it is difficult to predict the price and to manage the stock. As a result, both mills diversified their business to generate a more secure source of incomes.

Managerial Implications

For Thailand, rice price intervention is one of the most political sensitive policies. It relates to everybody from rice farmers, mills, rice traders, rice exporters and all Thais as rice consumers. Because of its political sensitive nature, government intervention and assistance to farmers remain essential.

The government paddy pledging programme during 2011–2014—that transformed the government to function as a rice trader—had critically altered the rice market conditions and caused tighter supply. Paddies, rice traders and mills that bought rice during that period were forced to pay higher prices to compete with the government. Furthermore, it has weakened Thai rice competitiveness in the global market.

During the implementation of the rice pledging scheme, farmers expanded rice production and grew short-cycle rice in order to sell more paddies to the government. Mills expanded their milling capacity and built new warehouses to rent to the government. Those rent-seeking benefits came with the price of a huge public spending, export losses during the period of the intervention programme and losses of milling businesses as the majority of rice output was held by the government.

This research shows that from a short-term perspective, the mill that participating in the paddy pledging programme was able to generate a large amount of easy and secured profit, almost three times higher than the non-participating mill in the programme. However, by doing so, the mill relied heavily on the income from government sources and enjoyed rent-seeking behaviour, which led to heavy social cost and inefficiency in the management of the mill itself. It also raised the issue of business sustainability when the government pledging programme ended. It might be too difficult for such a mill to compete again in a real competitive environment.

Moreover, the government also failed to manage the rice stock. The processes were inefficient, not transparent, as well as corruption prone. When the government stock was released into the market, it caused the conditions of over-supply, which had driven the price down. Paddies and rice traders who carried old expensive stocks could not sell their rice above their cost which led to severe cash flow problem, debt and business shut down.

Key lessons can be drawn for future intervention policies. First, intervention programme should minimally distort market prices. Pledging price should not be above prevailing market levels. Second, the programme must target the neediest farmers, and the amount of pledging shall be limited to minimize rent-seeking behaviour of farmers and mills. Third, although high pledging price of paddies is in favour for farmers, focus of the intervention shall be shifted towards increasing farm productivity and production cost reduction.

Thailand is a rice exporting country. Inefficient rice production will deteriorate its competitiveness in the global market. Moreover, with high pledging price, farmers did intensive farming with high usage of fertilizer, hired labour, and land rent. Under these conditions, it is doubtable if farmers gain more profit. Policies that lower down production cost and enhance farm productivity will be more sustainable and an intervention programme that can balance the sustainable livelihood of farmers neither put high burden on consumers of food prices nor lower competitiveness of Thai rice in the international market.

Limitations

Despite the richness of in-depth information obtained from the two case studies, the researchers are well aware of potential weaknesses of a case study research method, especially on its robustness and lack of rigour. The results may not be generalized to the wider population since the study was only focusing on two case mills and was limited to a specific policy period and location. For the future research, it would be interesting to enlarge the size of case studies and to conduct in-depth longitudinal examination to observe changes in rice milling business models and evolving their business strategies.

Footnotes

Acknowledgements

The authors are grateful to the anonymous referees of the journal for their extremely useful suggestions to improve the quality of the article. Usual disclaimers apply.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The authors received no financial support for the research, authorship, and/or publication of this article.

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