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Corruption and Agricultural Market Intervention Sirilaksana Khoman Chair, Economic Sector Corruption Prevention National Anti-Corruption Commission (NACC)

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Presentation on theme: "Corruption and Agricultural Market Intervention Sirilaksana Khoman Chair, Economic Sector Corruption Prevention National Anti-Corruption Commission (NACC)"— Presentation transcript:

1 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

2 Types of governance issues Straight-forward, petty corruption Straight-forward, petty corruption Complex and sophisticated networks, plundering the nation’s resources Complex and sophisticated networks, plundering the nation’s resources Example: Rice pledging schemeExample: Rice pledging scheme

3 Paddy Pledging Scheme: Policy evolution Original Paddy pledging scheme at warehouse – provided credit to farms of 80-90% of market price to delay sale by farmers (like pawning) Original Paddy pledging scheme at warehouse – provided credit to farms of 80-90% of market price to delay sale by farmers (like pawning) started use of pledging ‘receipt’ started use of pledging ‘receipt’ Thaksin increased pledging price above market price – increased budget – transforming scheme into price support scheme Thaksin increased pledging price above market price – increased budget – transforming scheme into price support scheme increased coverage to off-season rice crop increased coverage to off-season rice crop Surayudh government decreased price to close to market price 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 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 at 12,000 Baht and off-season crop 2009 at 11,800 Baht In spite of rapid fall in price, Somchai and Abhisit governments maintain pledging price above market price: main crop at 12,000 Baht and off-season crop 2009 at 11,800 Baht

4 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

5 Loss for 2005/06 crop; 5.2 million tons paddy Loss for 2005/06 crop; 5.2 million tons paddy พันล้านบาท

6 Agencies involved and quantities of paddy in the process 90 per cent of pledges not redeemed.

7 7 ‘Rent-seeking activities’ and corruption ₋ 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 P differential Rent Seeking Farmers ₋ higher cost ₋ greater pollution ₋ competition for water resources ₋ Capacity expansion/Silo to 90 million tons paddy Increased investment from 0.8 million Baht to 1.6 m per mill during ₋ Lobbying to be included/pledging across district ₋ siphoning of rice for illicit sale ₋ substution of farmers’ rights/ using rice from Cambodia, Myanmar and Laos Milling profits Free rice to siphon Rice mill Rice mills in the program no longer know how to compete Consequence

8 8 ‘Rent-seeking activities and corruption ₋ lobbying/kick-backs ₋ collusion Bid price lower than export price exporters ₋ unfair advantage of large exporters ₋ huge investments in warehouse construction/ return in 2 years ₋ illicit sale of rice ₋ exchanging low quality for high Siphoning of rice Inflated rent Warehouse ₋ excess warehouse capacity consequence “Surveyors” Govt official

9 Corruption and benefit- sharing (1) Collusion in bidding among exporters (2) Contracts favouring those in the scheme: 5-6 months after bidding to pay 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’

10 (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

11 Innovation in corruption policy 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 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) 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 Consequently market price shot up – other exporters could not compete with PAT. Many had to buy rice from PAT

12 Evidence of probable insider information

13 loss of 19 billion Baht: loss of 19 billion Baht: Distribution of economic rent: Distribution of economic rent: 13 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% Recipients Consumers’ and taxpayers’ loss of Billion Baht Source: Nipon (2010)

14 14 14 Beneficiaries are mostly well-to-do farmers in irrigated areas in the Central and lower Northern regions 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 Richest 10% of farmers received 20 % of the benefits Poorest 10% received 1.7 % Poorest 10% received 1.7 % Farmers with pledges above 200,000 Baht received 59.7% in season Farmers with pledges above 200,000 Baht received 59.7% in season Farmers with pledges below 40,000 Baht received 2.7% in season Farmers with pledges below 40,000 Baht received 2.7% in season

15 15 Top 2 largest exporters received economic rent of billion Baht Top 2 largest exporters received economic rent of billion Baht (for one crop) (for one crop) Collusion becomes easyCollusion becomes easy Remaining 13% 20% # 3 and # 4 59% Largest two exporters

16 Rice production, export and estimated domestic consumption in 2009 Possible profit of 25 billion Baht (conservative estimate)

17 Flows of Network Relationships in Thailand B B1 B2 B1.1 B1.2 B1.3 P1.1 P1.2 C3 C or P C4 C1 C2 P3 N1.2.1 N1.2.2 P2.1 P2.2 P2.3 N2.2.1 N2.2.2 BureaucracyPoliticians Notes: B = bureaucracy, C = capitalists, P = politicians, N = non-politicians

18 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 Providing resources to the client in his own sub-clan Clan A A1 A2 Clan B B1 B2 Providing services and political support to the patron in the sub-clan The poor and the under-privileged who are not accepted into any clan are left without resources and protection People choose clans according to the perceived benefits which could depend on member size and resources of the clan choose People with independent source of power

19 In a nutshell: the 6 C’s Constitution Constitution Concentration of political power Concentration of political power Crisis of 1997 Crisis of 1997 deCentralisation deCentralisation Civil Service reform Civil Service reform Corruption Corruption

20 What can be done? Membership of the WTO’s GPA? Membership of the WTO’s GPA? Ratification of the UNCAC; membership in OECD Anti-Bribery Convention? 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. 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 Pro-active, pre-emptive anti-corruption action – intercepting questionable projects

21 Targeting corruption-friendly policies, measures, practices Intervention schemes in agricultural markets Intervention schemes in agricultural markets Targeting creation of artificial monopolies Targeting creation of artificial monopolies Licensing requirements, registration practices, permits, Licensing requirements, registration practices, permits, encouraging use of technology to reduce contact, promoting competition encouraging use of technology to reduce contact, promoting competition Evidence-based transparency index Evidence-based transparency index

22 Vigilance on conflicts of interests Data base Data base Disclosure requirements Disclosure requirements More positions includedMore positions included Use of technologyUse of technology Streamlining formsStreamlining forms Business associatesBusiness associates Recommendations regarding appointments of officials and prosecutors to state enterprise boards Recommendations regarding appointments of officials and prosecutors to state enterprise boards Strengthening legislation? Strengthening legislation?

23 Amendment of anti-corruption law Clarification and penaltiesClarification and penalties Provincial officesProvincial offices Whistle-blower protectionWhistle-blower protection Anti-money-laundering powersAnti-money-laundering powers Plea bargainingPlea bargaining Statute of limitationsStatute of limitations Public procurement requirements/procurement legislationPublic procurement requirements/procurement legislation

24 NACC ACT 2011: Article 103(7),(8): procurement Article 103(7),(8): procurement Publication of reference prices and method of calculation Publication of reference prices and method of calculation Disclosure of accounting statements for contracts designated by the NACC Disclosure of accounting statements for contracts designated by the NACC Monitoring by the NACC Monitoring by the NACC

25 Design of anti-corruption measures taking into account the structure of patron-client networks/creation of monopoly rent Design of anti-corruption measures taking into account the structure of patron-client networks/creation of monopoly rent Strengthening of conflict of interest laws? Strengthening of conflict of interest laws? Incentives to make whistle- blowing worthwhile? Incentives to make whistle- blowing worthwhile? Direction 25

26 NACC Preventive investigation at the policy formulation stage Mega projects Mega projects ‘NGV’ buses‘NGV’ buses 3G telecommunication 3G telecommunication 350 billion Baht flood prevention project 350 billion Baht flood prevention project Suvarnabhumi airport, second phase Suvarnabhumi airport, second phase Transport infrastructure 2 trillion Baht Transport infrastructure 2 trillion Baht Agricultural intervention policy Agricultural intervention policy Rice, longan, cassava, natural rubber, sugar cane and sugar, milkRice, longan, cassava, natural rubber, sugar cane and sugar, milk

27 More aggressive measures “unusually rich” “unusually rich” Asset disclosure Asset disclosure MPs removed from officeMPs removed from office

28 Greater reliance on technology Asset disclosure – database linkage 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) 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 Monitoring of monopoly elements Role of regulator and operator Role of regulator and operator Initiatives regarding procurement Initiatives regarding procurement

29 Civil Society: Freedom of information Public hearings of draft laws Monitoring by media/NGO’s School Curriculum Good and Clean Government Competition & Economic Freedom: Competitive restructuring of monopolies Regulatory simplification 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 Measures for Good Government and Transparency Accountability of Political Leadership: Disclosure of parliamentary votes Transparency in party financing Asset Declaration, Conflict of Interest Rules Checks and Balances: Independent and effective judiciary Independent and effective specialized anti-corruption agency/unit Decentralization with accountability? Private Sector Partnership:. CSR, codes of conduct. Anti-corruption pact 29


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