Looking back on the roller coaster ride that was 2018

As the year of the dog comes to a close, Bangkok Post's Business Section has selected the 10 most noteworthy business events of 2018.

This has been one of the most eventful years of the decade for Thailand, from a duty-free tycoon's untimely death, the Sino-US tit-for-tat trade feud slowing global economic growth, the Phuket boat tragedy cutting into Chinese tourist numbers, enforcement of the digital asset law to the digital banking transaction fee waiver and the blockage of PTT subsidiary Global Power Synergy's acquisition attempt for Glow Energy. The year not only reshaped companies and industries in Thailand, but saw shifts in global economic landscape itself.

Here is a look at the notable events of 2018.

1. LUCRATIVE CONCESSION

The death of King Power founder Vichai Srivaddhanaprabha has cast a shadow over the upcoming duty-free concession auction for Suvarnabhumi airport as observers are sceptical of the political and business connections cultivated by Vichai's successor.

Vichai, 60, was Thailand's fifth-richest man when he died in a helicopter crash after watching his beloved Leicester City play on Oct 27. He leaves behind a wife and four children -- two sons and two daughters -- with all five sitting on the executive board of King Power.

Aiyawatt Srivaddhanaprabha is Vichai's youngest son, and is tipped to be his father's successor.

King Power's master concession model to operate duty-free retail shops at Thailand's major airports has been lucrative. The company has been the sole duty-free operator at Suvarnabhumi since the airport's opening in 2006, but the concession will expire in September 2020.

While concerns have been raised about the transparency of the concession process, business competition and the drafting process for the terms of reference (ToR), many are questioning how the conglomerate will be able to maintain dominance over Thailand's duty-free sector.

Airports of Thailand Plc said a new auction would be held this year after the ToR is finalised for bidding in October, but no progress has been announced so far.

Suvarnabhumi received about 57 million passengers last year. When the third-phase expansion is completed in 2021, it will be able to handle as many as 90 million passenger annually.

While the auction's ToR details remain up in the air, the general public and academics have voiced concerns over the transparency of the bidding process and chewed over alternative models.

For observers, given the expansions done on Suvarnabhumi airport over the past decade, and with another major expansion on the way, granting the concession to only one operator to manage all the duty-free zones doesn't seem to be the best option.

Academics have pointed out that allowing one company to control the duty-free business could be in breach of the Trade Competition Act of 2017.

The concession expiration offers the government a chance to ensure greater duty-free competition, said Deunden Nikomborirak, research director for good regulatory policy at Thailand Development Research Institute.

The government should also licence multiple duty-free stores in Bangkok and major provinces such as Chiang Mai, said Ms Deunden.

This would require a central pickup counter at major airports so that tourists can collect duty-free goods purchased from downtown stores as they depart Thailand, she said.

2. TRADE WAR

The escalating trade war and the resulting contagion are major concerns for overall international trade.

While US President Donald Trump and his Chinese counterpart Xi Jinping agreed early this month to halt new trade tariffs for 90 days to allow for talks, most analysts warn that it will not be easy for the two sides to bridge differences on key issues.

While progress in intellectual property protection may be possible during the three-month grace period, expectations for major Chinese concessions in other areas, particularly the reform of state-owned enterprises, are all but certain to be disappointed.

The dispute dates back to January when the US slapped tariffs on imported washing machines and solar panels, in what was Mr Trump's most significant trade move since his decision to pull the US out of The Trans-Pacific Partnership (TPP) and renegotiate the North American Free Trade Agreement (Nafta).

The US has imposed three rounds of tariffs on Chinese products this year, totalling US$250 billion (8.14 trillion baht) worth of goods.

The first two rounds placed 25% tariffs on $50 billion worth of imports from China, and Beijing retaliated in kind.

Washington fanned the flame in September with another set of tariffs, this time on Chinese goods worth $200 billion.

The taxes took effect from Sept 24, starting at 10% and increasing to 25% from the start of next year.

China is not the only market targeted by the US. Earlier this year, the US started charging levies on the imports of steel and aluminium from the European Union, Mexico and Canada.

US businesses have to pay a 25% tax when they import steel from those places and a 10% levy to buy aluminium from them.

In return, the EU imposed tariffs on €2.8 billion (1.04 trillion baht) worth of US goods in June on products such as bourbon, whiskey, motorcycles and orange juice.

In June, Mexico announced new tariffs on US products, including whiskey, cheese, steel, bourbon, and pork.

Canada imposed retaliatory tariffs on C$16.6 billion (384 trillion baht) worth of US products on July 1.

The IMF said an escalation of the tit-for-tat tariffs could shave 0.5% off global growth by 2020.

Thai products that are part of the US's and China's supply chains could be affected once the US tariffs are in place, according to Siam Commercial Bank's Economic Intelligence Unit (EIC). Most vulnerable of all are products exported from Thailand to China as parts, to be assembled further in China and exported to the US as final goods.

Products at risk of heftier tariffs include electronics, such as industrial circuits, cameras, LCDs, computer parts and CPUs (23% of Thai exports to China), as well as primary plastics (10% of Thai exports to China) that could be used in toys and plastic products that China exports to the US, the EIC said.

The latest study by the University of the Thai Chamber of Commerce's enter for International Trade Studies also estimates Thailand's exports to drop by as much as $4.42 billion next year if the ongoing trade war between the US and China intensifies.

Aat Pisanwanich, director of the UTCC's Center for International Trade Studies, said the trade war that began Jan 22 this year is estimated to lower Thai export value by $351 million $597 million or a 0.1-0.2% contraction, with the loss expected to rise to $1.18 billion-$4.42 billion in 2019, a 0.5-1.9% contraction.

The centre forecasts the value of exports to stay in $255.45-255.80 billion this year, up 7.9-8% from 2017.

Next year's export value is forecast be $271.40-274.98 billion, or a rise of 6.1-7.5% from 2018.

The centre based its forecast of the trade war's impact on three scenarios -- a 10% increase in import tariffs, a 25% increase in import tariffs and a 25% increase in import tariffs with additional items becoming subject to higher tariffs.

Shipments are expected to drop by $1.34 billion if tariffs are raised by 10% by the two giant economies, with those to drop by $2.97 billion if the rates are raised by 25%.

The value of Thai exports is forecast to fall by as much as $5.62 billion if the last scenario comes to pass.

Mr Aat said goods from China and the US such as electric appliances, steel, cars, plastics and chemical products are also expected to flood into Thailand.

Thailand, meanwhile, will be given the opportunity to export more products to China and the US. Promising segments include electric appliances, rubber, wood, plastics, processed food, and automotive and parts.

3. PHUKET BOAT ACCIDENT

The Phuket boat tragedy was the second disaster to affect Chinese tourists following the missing Malaysian Airlines flight.

China made up about one-third of the 35 million international visitors travelling to Thailand in 2017, and is expected to tally 10.5 million arrivals here in 2018.

The Chinese comedy Lost in Thailand precluded the influx of Chinese tourists to Thailand since 2013. Later drama series and proactive packages have continued to bring in the Chinese.

Visitors from this market increased from 862,600 in 2008 to 1.2 million in 2010 but jumped sharply to 4.6 million in 2014. The number of Chinese arrivals rose to 9.7 million in 2017.

In an unfortunate turn of events, 47 Chinese tourists died after a boat collapsed in the Andaman Sea near Phuket on July 5, 2018.

Chinese authorities have expressed a serious concern over safety and security in Thailand. Beijing also demanded the Thai government punish operators who don't follow the rules and improve safety standards to prevent further damage.

A few weeks after the crisis, the number of Chinese tourists who visited Thailand plunged dramatically. Some tourism experts said the decline can be attributed to coinciding factors -- the economic downturn in the mainland, the weak Chinese yuan and trade war tensions between China and the US.

Tourism operators said Chinese arrivals to Thailand dropped 20% in the months after the boat accident. The Tourism Authority of Thailand predicted the China market should drop about 6% in the final quarter of 2018.

To reclaim tourists, a group of operators that deal with the China market have called for the government's help by extending the waiver on visa-on-arrival fees from Jan 13, 2019 to the end of April 2019.

The incident has seen the government pledge to overhaul safety and security for the entire tourism sector through regulations to protect tourists, the environment and resources along with granting a multimillion-baht budget to improve safety and security standards.

The number of visitors entering some national parks and marine parks will be limited while all tourists planning to visit the country must purchase insurance.

The measures are aimed at restoring confidence among visitors from all nations.

4. TIGHTER MORTGAGE REQUIREMENTS

The collapse of the property bubble that triggered the financial collapse in 1997 looms heavily for the Bank of Thailand. Recent deteriorating mortgage standards have prompted the central bank to come up with the preventive measures, aimed at curbing widespread search-for-yield behaviours in the residential market and improving credit standards when they are enforced.

The central bank has issued guidance for mortgage lending for years, but home loans with loan-to-value (LTV) ratios of more than 90% or a down payment of below 10% of unit price surged considerably to 49% of new housing loans in the second quarter this year, up from around 35% in the first quarter of 2014.

LTV is a lending risk assessment that indicates the ratio of a loan to the value of an asset purchased. Typically, a loan with a lower LTV ratio bears lower risk for both lender and borrower, as less capital is being borrowed.

Mortgages exceeding five times a borrower's income accounted for 30% of the total in the second quarter this year, up from just above 10% in the first quarter of 2014.

According to the guidance, homebuyers should make a down payment of at least 5% for low-rise units and at least 10% for condominiums.

Housing loans soared 6.4% year-on-year during the July-to-September quarter from the preceding quarter's 6.2% and 5.5% in 2017, while non-performing and special mention mortgages -- loans overdue by 30-90 days -- fell to 3.37% and 1.73%, respectively, albeit at a slow pace.

With the deteriorating LTV and loan-to-income (LTI) ratio, the central bank announced in early November a more stringent required minimum down payment for third and subsequent mortgages at 30%, regardless of home prices.

The central bank will require those who purchase a home priced below 10 million baht and seek a second home loan to make at least a 10% down payment in the event that they have made payments on the first mortgage for three years or longer.

The minimum down payment requirement will be raised to 20% if borrowers have serviced the first mortgage for less than three years.

For those who seek a second mortgage to fund the purchase of a home priced at 10 million baht or higher, a minimum 20% down payment is required.

An LTV ratio of 90-100% is applied to those who apply for a first mortgage to buy a home priced below 10 million baht, but the ratio will be lowered to 80% where a borrower buys a residence valued at 10 million baht or higher.

The new requirement, enforced from April 1, 2019, will not be applied to those with signed land sale contracts or those who made down payments before Oct 15 this year, to refinancing of sole mortgages, or to housing loans for building homes on owned land that is free of debt.

5. DIGITAL TRANSACTION FEE

Giant technology platforms, fintech startups and other service providers with large customer bases of hundreds of millions of users, such as Google, Line and Facebook, are moving into the payment realm and aim to venture into other financial products.

Ant Financial Services Group, founded by Chinese billionaire Jack Ma, is a notable examples. The firm's online payment systems have disrupted card issuers while managing the world's largest money-market fund with assets worth 1.68 trillion yuan (7.94 trillion baht) and its lending business has stolen million of customers from traditional banks.

With a large customer base, these digital platform companies provide consumer loans with near-instant decision-making by analysing massive amounts of accumulated customer behavioural data.

Even though some regulations and consumer trust in banks still shields some businesses from fintech firms, local banks are aware that they need to move as fast as possible to grab customers to keep consumer data out of the hands of disruptive enemies, which will allow them to build long-term engagement with customers and cross-sell services more effectively, guarding against entrants to the local banking turf.

Kasikornbank (KBank) in late March announced a one-year digital banking transaction fee waiver and Siam Commercial Bank (SCB) was quick to follow with a permanently removal of fees for interbank and cross-clearing zone fund transfers, bill payment and top-up transactions over online channels.

SCB's disruption in the what was a cash cow segment killed two birds with one stone by levelling the local mobile banking business and forestalling technology giants from clobbering them on the payment and fund transfer business turf.

SCB is the country's second largest mobile banking service provider, ranking under KBank.

The digital banking transaction fee dealt a blow to banks. Fee-based income growth shrunk 4% for the three months through September from a year earlier and money transfer fee income contracted 8.7% over the same period.

Yet lifting digital banking transaction fees has paid off, with the number of money transfer transactions via mobile and internet banking swelling exponentially to 314 million transactions during the September quarter from 225 million in the previous three months and 52 million in the first quarter of 2017.

Money transfer via traditional channels (ATMs and branches) fell sharply to 22 million and 1.6 million in the third quarter of 2018 from 33 million and 2.2 million in the first three months of 2017, according to Bank of Thailand data.

Eliminating the digital banking transaction fee has boosted customer engagement through online channels, the provision of which is far cheaper than brick-and-mortar branches.

As banks are migrate to digital, traditional transactions, particularly bill payments and money transfers, are sinking and branches are being closed.

The number of commercial bank branches continued falling to 6,753 at the end of October from 6,784 the end of 2017 and 7,016 at the end of 2016.

KBank shuttered 106 branches as of the end of October from 1,110 at the end of 2016, and Krungthai Bank (KTB) closed 93 branches for a total of 1,120 over the same period, according to central bank data.

SCB's traditional branch network shrunk by 61 to 1,109 at the end of October from 1,170 at the end of 2016.

6. END OF MOBILE CONCESSION

The telecom industry saw a turning point in 2018, as the 1800 and 850-megahertz ranges, the final concession for telecom spectrum under CAT Telecom ended in September.

The concession for the 1800- and 850MHz ranges are held by Total Access Communication (DTAC).

The National Broadcasting and Telecommunications Commission (NBTC) had tried to auction the 1800-MHz licences in June by dividing 45MHz of bandwidth into three licences, each containing 15MHz of bandwidth at a reserve price of 37.4 billion. The reserve price was based on the winning price of the 1800MHz licence auction in 2015.

The first round auction had to be aborted.

The regulator redesigned for the second-round auction of the 1800-MHz licences, dividing the bandwidth into nine slots, each containing 5MHz, or 5x2 MHz for upload and download. The reserve price for each slot was 12.48 billion (still based on the winning price in the 2015 auction).

The second-round auction of the 1800MHz licence was held on Aug 19.

Only two out of total nine blocks were sold, yielding 25 billion baht to the state coffers.

The auction took a total of 75 minutes for the four bid rounds.

Each block was sold at a winning price of 12.5 billion baht.

Advanced Info Service (AIS) through its subsidiary Advanced Wireless Network won one block on the 1800-MHz licence containing 5x2MHz of bandwidth for upload and download, worth 12.51 billion baht.

DTAC subsidiary TriNet won the second block at the same price.

The NBTC plans to revise the existing conditions of the 1800MHz auction in order to move up the auction for the remaining 35MHz of bandwidth on the 1800MHz spectrum in 2019.

For 5MHz of bandwidth on the 850MHz spectrum range, the NBTC plans to auction the 900MHz licence in August by upgrading the 850MHz that is under concession to 900MHz. The reserve price was set at 38 billion based on the winning price of the 900MHz licences auction in 2015.

The auction conditions allow winners to operate the 850MHz for another 24 months while switching transition from the 850MHz to the 900MHz network from the hardware upgrade nationwide.

The first round of the 900MHz licence auction was aborted. DTAC TriNet said it did not participate because the reserve price was too high and the block itself would be a technical burden to the winner.

The technical burden includes the filters and providing service close to other operators' bandwidth as well as railway radio equipment. The installation of filters at other operators' base stations needed to be carried out by the winning bidder.

Furthermore, there was no clarity on how many stations of the upcoming railway project would use the adjacent 900MHz slot, making predictions for equipment installation difficult to gauge.

The NBTC later removed condition for filter installation to accommodate DTAC TriNet.

DTAC TriNet was the sole prospective bidder at the second-round auction for the 900MHz licence, nabbing it easily for 38.06 billion baht.

The telecom regulator plans to hold the auction for the remaining 35MHz on the 1800-MHz range and other ranges in 2019 to pave the way for 5G adoption by 2020.

The other spectrum include the 2600MHz range being used by state-owned broadcaster MCOT, as well as 45MHz of bandwidth on the 700MHz band (used by operated by digital and analogue TV channels).

The NBTC will transfer the broadcasters to the 470-510MHz range. The analogue TV channels will be switched off in 2020.

7. REGULATING VIRTUAL ASSETS

Although viewed by many as an ad-hoc attempt, Thailand is among the first countries to initiate regulations to supervise digital asset trades and transactions, aiming to protect investors against fraud and scams, bringing the virtual asset class under government oversight.

In effect since May 14, 2018, the royal decree on digital assets is intended to provide a licensed framework to regulate digital token issuers and digital asset business operators in order to minimise risks from fraud.

The Securities and Exchange Commission (SEC) has the authority to approve operating licences for digital asset exchanges, traders and dealers, as well as initial coin offerings (ICOs) through assessment by ICO portals.

A key regulation is all trades will be recorded by digital asset exchanges, so in cases of fraud the market regulator can examine transactions and transfer addresses.

People being encouraged to invest in digital tokens and ICOs should be aware no ICO issuers or portals have been licensed.

The SEC clarified that ICOs can only raise funds in baht, stipulating that cryptocurrencies must have sufficient liquidity and not be associated with money laundering.

Projects running ICOs, whose applications must be completed in 60 days, will also need to adhere to Know Your Customer and anti-money laundering standards.

ICO portals operating in Thailand cannot list any international ICOs, and the SEC is not involved with the ICOs of stablecoins, which are directed to the central bank for regulation.

Investors who make digital asset-related trades will be liable for 7% value-added tax (VAT) payment, on top of the 15% withholding tax on capital gains and returns from such investments.

Retail investors will be exempt from paying VAT if they trade digital assets through exchanges. Those who have no capital gains will only pay VAT.

SEC secretary-general Rapee Sucharitakul said a certified ICO portal was likely to emerge in November, with the first authorised ICO possibly occurring in December.

There are six businesses seeking licences to operate as digital asset exchanges, with two businesses pursuing licences as digital asset dealers.

Some ICO issuers have decided to raise funds from overseas markets because of lower advisory fees and sluggishness in the domestic fund-raising process for ICOs, said Karndee Leopairote, chief executive of Icora Consultant.

In addition to the lengthy ICO fundraising process in Thailand, the high cost of financial adviser fees and swift changes in market conditions and new technologies are other reasons that some companies have decided to raise funds from ICOs abroad, said Ms Karndee.

8. LONG-AWAITED GAS BIDDING

Thailand's largest natural gas fields -- Erawan and Bongkot in the Gulf of Thailand -- represent 75% of the country's gas supply.

The first exploration and production (E&P) in the two gas fields started in 1971. Since then, they have provided the majority of gas resources to power the country's utilities.

The Erawan field is operated by US-based Chevron Thailand Exploration and Production. The Bongkot field is run by SET-listed PTT Exploration and Production Plc (PTTEP).

Before the concessions of the two fields expire in 2022 and 2023, energy policymakers tried to hold a bidding round several times, but they faced many objections from local advocates.

Once the new edition of the Petroleum Act was enacted in June 2017, it facilitated policymakers hosting the auction round.

From April to December, the Mineral Fuels Department hosted the two bids, with a final decision coming on Dec 13, with PTTEP winning both blocks, each a 10-year contract.

The result weakens Chevron's foothold in the region, after operating the Erawan gas block since 1981 as the country's first petroleum explorer.

PTTEP is set to become the largest gas supplier from 2022.

Energy Minister Siri Jirapongphan said PTTEP offered the cheapest gas sales price to the state among bidders, at 116 baht per million British thermal units.

Phongsthorn Thavisin, PTTEP's chief executive, said although the proposed gas sales price is quite low compared with the current price of 165 baht from the Erawan (G1/61) block and 214 baht from the Bongkot (G2/61) block, PTTEP estimated it can make a good return on the investment.

Moreover, the company will have better cost efficiency because it will have ownership in the Erawan block and continuation of operations in Bongkot, he said.

"After combining logistics costs and infrastructure spending for the two gas fields, PTTEP aims to trim down production cost by another 20-25%," said Mr Phongsthorn.

The company will design and plan capital expenditure for the two fields, tentatively estimated at US$600-650 million for the Erawan block and $400-450 million for Bongkot over the next five years.

The Mineral Fuels Department said the screening committee weighted the gas sales price to the state as 65% of the decision, while the remaining 35% was state benefits because the department wants to maintain the power tariff.

Two 10-year contracts are scheduled to be signed in February 2019.

Daily gas production from 2022 will be trimmed to 1,500 million standard cubic feet per day from 2,150 now.

The department estimates the two gas blocks will require combined capital expenditure and working capital of 1.2 trillion baht over the next 20 years, bringing in 800 billion baht in revenue to the state.

9. TAKEOVER DEAL

PTT's power business arm, Global Power Synergy Plc (GPSC), took the sector by surprise when it announced a bid to acquire Glow Energy Plc for 139 billion baht.

As constituted, the deal would have been the largest in terms of value in 2018. But the two SET-listed companies couldn't complete the transaction because the takeover was blocked by judgements in October and December by the Energy Regulatory Commission (ERC), Thailand's power business watchdog.

The ERC ruled that such a deal would breach the 2007 Energy Industry Act, which encouraged the regulator to liberalise the power business.

The commission said a takeover would let GPSC control the largest market share of private power purchase agreements (PPPAs) at Map Ta Phut Industrial Estate.

The ERC cited the act's Section 60, which forbids monopolies that reduce or limit competition in energy service.

In the first takeover deal, revealed in June, GPSC agreed to purchase 69.11% of Glow from French-based Engie, with the remaining 30.89% to be bought through a tender offer.

Under the plan, GPSC was to own 80% of PPPAs in the Map Ta Phut area.

Before the takeover was set in motion, GPSC controlled 20% and Glow had 60%, with the remaining 20% owned by the Provincial Electricity Authority.

ERC secretary-general Narupat Amornkosit said there would be two power producers in that industrial estate in Rayong, leaving only one operator to control the market share, so it would reduce competition with significant implications.

"As such, the rejection of this deal is in accordance with the law," Ms Narupat said.

But GPSC didn't go quietly. On Dec 19 it submitted a Plan B in which it would buy a 69.11% majority stake in Glow from Engie, rather than pursue a full takeover.

The value of the 69.11% stake is 95.9 billion baht. The remaining 30.89% would continue to be publicly traded.

The ERC yesterday gave the nod to a revised plan, saying it didn't violate monopoly regulations in Map Ta Phut.

The seven commissioners were unanimous in approving the deal, with the proviso that Glow must sell some power assets at Map Ta Phut to prevent a monopoly.

10. MISSION COMPLETE

Disposal of as much as 17-18 million tonnes of state rice stocks accumulated from state-sponsored pledging schemes, albeit at a hefty loss, is one of the achievements touted by the Prayut Chan-o-cha government.

After four years of unloading state rice stocks, the Commerce Ministry's Foreign Trade Department announced in September that it had completed its mission to clear 16.91 million tonnes of burdensome rice stocks, fetching 146.17 billion baht.

Of the total, 12.2 million tonnes was edible-grade rice for human consumption, with the remainder inedible or low-quality grains.

Apart from successful rice sales, the government succeeded in saving 93.6 billion baht in expenses for warehouse and management costs.

Over the last few years, the government spent 1.8 billion baht a month, or about 60 million baht a day, in warehouse costs to store state rice stocks.

The department held the final auction for a combined 267,300 tonnes of rice for animal feed and energy use in late August and sold the entirety.

Since the current government took control, the Foreign Trade Department has organised 32 rice auctions and sold 25,000 tonnes of rice stocks under government-to-government contracts to Indonesia's State Logistics Agency. In total, the department sold 16.91 million tonnes worth 146.17 billion baht.

The government is estimated to incur a loss of at least 500 billion baht from the costly populist programme.

Charoen Laothammatas, president of the Thai Rice Exporters Association, hailed the successful disposal, saying it would eradicate distortions in the rice market mechanism and relieve pressure on rice prices.

But Nipon Poapongsakorn, a distinguished fellow at the Thailand Development Research Institute, said the rice policy and management by the incumbent government wasn't unblemished. He said the government's spending of up to 200 billion baht during 2014-18 for subsidy programmes and loan schemes for farmers who agreed to delay selling their stocks under the pledging programme would weaken farmers' capability in the long term.

The subsidy programmes will lead farmers to stay complacent and unwilling to improve their productivity, Mr Nipon said.

The previous government under Yingluck Shinawatra had modified the traditional pledging programme to purchase rice directly from farmers, offering prices 50% higher than the market price, with no limits on the amount pledged -- buying every single grain.

The direct purchase was applied to both the main and second crops. This led to a fiasco as farmers opted to sell to the state instead of the rice market. The new rice supply did not enter the normal market to be sold off, resulting in overall market disruption as rice traders couldn't afford rice to supply and deliver to foreign buyers.

Pledged rice, meanwhile, was left in state warehouses instead of immediately being released into the market, and the grains deteriorated as time went on.

Perhaps the worst part of the scheme was that rice farmers were encouraged to grow short-lived rice varieties, with some growing rice three times a year in anticipation of pledging as much as possible in the programme. This resulted in higher production costs, as farmers needed to use more fertiliser, insecticide and rice varieties, while the farmland rental fee was doubled accordingly, from 500 baht per rai per year to 1,000 baht, and water use was prodigious.

With production costs considered, some farmers were barely profitable. The programme is considered a classic case of immense distortion.

The rice mills were hit hard, as only 700-800 millers out of 1,400 in total were qualified to participate in the programme. The scheme also eviscerated rice brokers, as the majority of rice output was held by the government, while exporters could not afford rice, the price of which was relatively high under the programme.

Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association, said the scheme distorted the market mechanism and contravened free-trade principles.

The government meddled in the rice trading cycle, functioning as a giant rice trader that purchased rice at a relatively high price with no restrictions on the purchase amount, he said. These actions critically altered the rice market, triggering tighter supply, as rice traders were not able to buy rice on their own terms.

Traders who bought rice during that period were forced to pay higher prices, weakening Thai competitiveness in the global market, as indicated by a sharp fall in Thai rice exports during 2012-13, Mr Chookiat said.