Corruption and Agricultural Market
Intervention
Sirilaksana Khoman
Chair, Economic Sector Corruption Prevention
National Anti-Corruption Commission (NACC)
Presented at the course: MORS D68 Ethics and Executive
Leadership, Sasin Graduate Institute of Business Administration,
Chulalongkorn University, Wednesday 30 October 2013
Types of governance issues
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Straight-forward, petty corruption
Complex and sophisticated networks,
plundering the nation’s resources
• Example: Rice pledging scheme
Paddy Pledging Scheme: Policy evolution
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Original Paddy pledging scheme at warehouse – provided
credit to farms of 80-90% of market price to delay sale by
farmers (like pawning)
1993-4 started use of pledging ‘receipt’
2000-2001 Thaksin increased pledging price above market
price – increased budget – transforming scheme into price
support scheme
2001-2002 increased coverage to off-season rice crop
2006-2007 Surayudh government decreased price to close to
market price
2008 Samak government increased price to highest level at
14,000 Baht for off-season rice
In spite of rapid fall in price, Somchai and Abhisit
governments maintain pledging price above market price:
main crop 2008-09 at 12,000 Baht and off-season crop 2009
at 11,800 Baht
Comparison of pledging price and market price
of jasmine rice
Pledging price
higher than
market price for
the first time
01/02
Study period
2005/6

Loss for 2005/06 crop; 5.2 million tons
paddy
พันล้านบาท
44.8
50
32.6
40
30
20
10
-19.1
0
-10
-20
รายจ่ าย
รายรับ
ขาดทุน
Agencies involved and
quantities of paddy in
the process
90 per cent of pledges
not redeemed.
‘Rent-seeking activities’ and corruption
Consequence
Rent Seeking
Farmers
P differential
₋ inflation of registered production
₋ increase acreage for rice/reduction of other
crops
₋ substitution of rights of other farmers
₋ increased number of crops to 7-8 crops/2
years
₋ put pressure on governments to continue
program
₋ Capacity expansion/Silo to 90 million tons
Rice mill
paddy
Increased investment from 0.8 million
Milling profits Baht to 1.6 m per mill during 1987-2005
₋ Lobbying to be included/pledging across
Free rice to siphon district
₋ siphoning of rice for illicit sale
₋ substution of farmers’ rights/ using rice
from Cambodia, Myanmar and Laos
₋ higher cost
₋greater
pollution
₋competition
for water
resources
• Rice mills in
the program
no longer
know how to
compete
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‘Rent-seeking activities and corruption
“Surveyors”
Govt official
consequence
Warehouse
exporters
Inflated rent
Siphoning of rice
Bid price lower
₋ huge investments in
warehouse construction/ return
in 2 years
₋ illicit sale of rice
₋ exchanging low quality for high
₋ lobbying/kick-backs
than export price ₋ collusion
₋ excess
warehouse
capacity
₋ unfair advantage
of large exporters
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Corruption and benefit-sharing
(1) Collusion in bidding among exporters
(2) Contracts favouring those in the scheme:
5-6 months after bidding to pay
(3) Contract amendments between Govt Warehouse and
President Agri Trading, winner of the export contract
on 6 May 2004; standard clause: 5% deposit
changed to 1%
(4) At time of export, govt paid another $20 per ton to
‘prepare rice for export’
(5) Amendment of contract No. คชก.ขข.02/47
ลว. 18 May 2004 removing export requirement
(6) Policy change that favoured one export
company that became the largest exporter
Innovation in corruption policy
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In early 2004 President Agri Trading, a newcomer,
won the bid to buy 1.68 million tons of rice from the
govt at prices above market price, thereby
possessing the largest amount of rice of all the
exporters: 2.2 million tons
A few months later, the govt announced the pledging
price for the new season paddy at 10,000 Baht (higher
than market price)
Consequently market price shot up – other exporters
could not compete with PAT. Many had to buy rice
from PAT
Evidence of probable insider information
2005-2006 loss of 19 billion Baht:
Distribution of economic rent:
Recipients
Farmers
37.3%
Rice mills (323
mills)
18.1%
Warehouse +
surveyor
4.2%
17 exporters
23.4%
Government
budget
13.7%
Deadweight loss
2.7%
Consumers’
and
taxpayers’
loss of
19.13
Billion Baht
Source: Nipon (2010)
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Beneficiaries are mostly well-to-do farmers
in irrigated areas in the Central and lower
Northern regions
Richest 10% of farmers received 20 % of the
benefits
Poorest 10% received 1.7 %
Farmers with pledges above 200,000 Baht
received 59.7% in 2008-9 season
Farmers with pledges below 40,000 Baht
received 2.7% in 2008-9 season
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Top 2 largest exporters received
economic rent of
2.641 billion Baht
(for one crop)
• Collusion becomes easy
Remaining 20%
13%
# 3 and # 4
59%
Largest two exporters
59
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Rice production, export and estimated
domestic consumption in 2009
Possible profit of 25 billion Baht (conservative estimate)
Flows of Network Relationships in Thailand
Bureaucracy
Politicians
B
B1
B1.1
C or P
B2
B1.2
B1.3
C1
C3
C4
P1.1
N1.2.1
C2
P1.2
P3
P2.2
P2.1
N1.2.2
Notes: B = bureaucracy, C = capitalists, P = politicians, N = non-politicians
N2.2.1
N2.2.2
P2.3
Rivalry between Clans/ ‘Puak’ or Sub-Clans,
Choosing Clan Affiliation
Fighting each
other to control
the resources or
to be promoted
higher in the clan
Clan A
Providing
services and
political
support to
the patron in
the sub-clan
A1
A2
choose
Clan B
Providing
resources
to the client
in his own
sub-clan
B1
B2
choose
People choose clans according to the
perceived benefits which could depend on
member size and resources of the clan
The poor and the under-privileged
who are not accepted into any clan
are left without resources and
protection
People with
independent
source of
power
In a nutshell: the 6 C’s
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Constitution
Concentration of political power
Crisis of 1997
deCentralisation
Civil Service reform
Corruption
What can be done?
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Membership of the WTO’s GPA?
Ratification of the UNCAC; membership in
OECD Anti-Bribery Convention?
Integrity pacts with private sector,
encouraging integrity pacts among
professional and business associations, eg.
medical suppliers, construction, supply
chain, involving civil society.
Pro-active, pre-emptive anti-corruption
action – intercepting questionable projects
Targeting corruption-friendly policies,
measures, practices
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Intervention schemes in agricultural
markets
Targeting creation of artificial monopolies
Licensing requirements, registration
practices, permits,
encouraging use of technology to reduce
contact, promoting competition
Evidence-based transparency index
Vigilance on conflicts of interests
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Data base
Disclosure requirements
•
•
•
•
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More positions included
Use of technology
Streamlining forms
Business associates
Recommendations regarding
appointments of officials and prosecutors
to state enterprise boards
Strengthening legislation?
Amendment of anti-corruption law
• Clarification and penalties
• Provincial offices
• Whistle-blower protection
• Anti-money-laundering powers
• Plea bargaining
• Statute of limitations
• Public procurement
requirements/procurement legislation
NACC ACT 2011:
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Article 103(7),(8): procurement
Publication of reference prices and
method of calculation
Disclosure of accounting statements
for contracts designated by the NACC
Monitoring by the NACC
Direction
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Design of anti-corruption
measures taking into account the
structure of patron-client
networks/creation of monopoly
rent
Strengthening of conflict of
interest laws?
Incentives to make whistleblowing worthwhile?
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NACC Preventive investigation at the
policy formulation stage
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Mega projects
• ‘NGV’ buses
• 3G telecommunication
• 350 billion Baht flood prevention
project
• Suvarnabhumi airport, second phase
• Transport infrastructure 2 trillion Baht
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Agricultural intervention policy
• Rice, longan, cassava, natural rubber,
sugar cane and sugar, milk
More aggressive measures
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“unusually rich”
Asset disclosure
• MPs removed from office
Greater reliance on
technology
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Asset disclosure – database linkage
Encouraging use of technology in
government agencies – business
registration, licensing and permits, etc.
(greater convenience for business and
reduces opportunities for corruption)
Monitoring of monopoly elements
Role of regulator and operator
Initiatives regarding procurement
Measures for Good Government and Transparency
Checks and Balances:
Accountability of Political Leadership:
• Independent and effective judiciary
• Independent and effective specialized
anti-corruption agency/unit
• Decentralization with accountability?
Civil Society:
• Freedom of information
• Public hearings of draft laws
• Monitoring by media/NGO’s
• School Curriculum
• Disclosure of parliamentary votes
• Transparency in party financing
• Asset Declaration, Conflict of Interest Rules
Good and Clean
Government
Public Administration and Public Finance:
• Meritocratic civil service, codes of conduct
• Transparent, monetized, adequate remuneration
• Accountability in expenditures (Budget, Audit, Procurement)
• Perception index of good service by agency/service
Competition & Economic
Freedom:
• Competitive restructuring
of monopolies
• Regulatory simplification
Private Sector
Partnership:
. CSR, codes of conduct
. Anti-corruption pact
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