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Thai rice subsidy scheme to push up world prices


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BANGKOK (AP) — Thailand's plan to pay its rice growers far above market rates is expected to push up prices for the staple that feeds almost half the world's people as rice importing nations look to other countries for tightened supplies.

A new government in Thailand, the world's biggest rice exporter, has promised growers higher prices for rice in a scheme that will take effect Oct. 7. It's putting no limit on the amount of rice it will buy.

What's good for Thai farmers, who have long complained of being shortchanged by middlemen, is proving less popular elsewhere in Asia. The effects of the rice policy are rippling through the region, where many countries are already struggling with fast rising food prices.

Thailand's rice exporters say they will ship less overseas because they will be unable to compete with the price the government pays. That in turn will tighten the global rice market, forcing up the staple's price in other countries.

The U.S. Department of Agriculture forecasts that Thailand's rice exports will drop 20 percent to 8 million metric tons in 2012 because of the rice buying scheme. That could see Vietnam overtake Thailand as the No. 1 exporter.

"The rice prices in the global market will definitely escalate, since the supply from Thailand, the biggest exporter, is seeing a downturn," said Witchuda Chummee, an analyst at Siam Commercial Bank's Economic Intelligence Center in Bangkok.

"Using the Thai prices as a benchmark, other countries, like Vietnam, will likely increase their prices also."

The Pheu Thai Party that swept to power in July 3 elections has said the government will pay farmers baht 15,000 ($500) per ton for unmilled paddy rice and baht 20,000 ($665) for unmilled jasmine rice. Before the election, unmilled paddy rice sold for baht 8,150 ($271) a ton and milled paddy rice sold for baht 13,000 ($432) a ton.

What's causing particular angst for exporters is that the government intends to buy as much rice directly from growers as they want to sell.

"We will take as much as we can," Commerce Minister Kittirat Na-Ranong told The Associated Press.

Chookiat Ophaswongse, the honorary president of the Thai Rice Exporters Association, said the international price for "white rice 5 percent" — long grain white rice with a 5 percent broken rice component — could reach $830 per ton "as soon as the scheme is fully implemented," compared with the current market price of $613 per ton.

"The government's price is too high and will definitely undermine the nation's competitiveness in rice exporting," said Chookiat. "If exporters cannot compete with the subsidized price, they may have to switch to trade rice of other origins."

Elsewhere in Southeast Asia, Thailand's move has underlined the importance of boosting local production and having a broad range of possible sources.

"This just shows how correct we are in pushing for self-sufficiency," said Proceso Alcala, Agriculture Secretary for the Philippines, which is the world's top rice importer.

The country's National Food Authority is assessing likely demand for rice from other Southeast Asian countries for 2012 and subsequent years to get a clearer picture of whether Thailand can maintain high prices or if "natural market forces will also get them to reconsider the plan," said its administrator Lito Banayo.

Banayo said if local rice growing targets are met, the Philippines would need to import only a million tons or less for 2012 — about the same amount bought for this year's stocks.

Sutarto Alimoeso, chief of Indonesia's state logistics agency, said the Thai scheme is a challenge to Indonesian farmers to improve their productivity.

The agency known as Bulog is currently importing 300,000 tons from Thailand and 500,000 tons from Vietnam for stockpiles, Alimoeso said.

In anticipating higher rice prices, Alimoeso said Indonesia is arranging possible imports from India and Pakistan. Imports from Myanmar and Cambodia are also an option.

Thailand first introduced a rice subsidy scheme in 2004 during the government of Thaksin Shinawatra, who was ousted in a coup two years later following prolonged protests in the capital Bangkok against his alleged corruption and CEO-style rule. The scheme was criticized for graft and its high cost.

Kittirat, the Thai Commerce Minister, told lawmakers last month that the rice scheme is expected to cost less than baht 100 billion ($3.32 billion) a year and will result in losses for the government of less than baht 10 billion ($332 million) a year.

A 2010 study by Thailand Develop Research Institute, a nonprofit think tank in Bangkok, found that the earlier rice buying program caused losses of baht 19.1 billion ($628 million) for the government in 2005. It said the program was "plagued with corruption at all stages" and that most of the benefits did not go to the farmers.

The latest plan, however, enjoys strong support from farmers, whose votes helped Pheu Thai, led by Thaksin's younger sister Yingluck Shinawatra, win government with a strong parliamentary majority in July elections.

"This program directly benefits Thai farmers. We will no longer be taken advantage of by middlemen," said Wichien Puanglumjiak, a representative of the farmers' network in central Thailand.

Associated Press writers Teresa Cerojano in Manila, Philippines and Ali Kotarumalos in Jakarta, Indonesia contributed.

Copyright © 2011 The Associated Press. All rights reserved.

http://www.google.com/hostednews/ap/article/ALeqM5idiOE0aYmMcMWf6ulViZ_AmW728g?docId=32689c37168c47fa8dd8c68ff286648f

Interesting to see this story covered in the international press because most of the local press (Bangkok Post, The Nation) have portrayed the rice subsidies as being a huge benefit to the farmers (which they are) and have not really addressed the fact that raising the world price encourages other nations to produce more rice in an effort to bring the price back down.

The Philippines, which was mentioned in the article, has done a lot to increase their rice production after the shortage a few years back. Expect a lot more countries to use Thailand's price increase to invest even more into becoming more self-sufficient.

Of course, if you took Economics 101, you see this for what it is. Thailand, an export economy, is mucking with their number one export and creating conditions which make it more profitable for other nations to compete with them. Hmmmm . . . . again, if you took Econ 101, you know this rarely ends well.

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Who'd have thought it?

It's like the country is being run by an amateur with no experience...

Oh yeah.

So what about the 40% of the EU budget that European farmers get (mainly small plot dirty French farmers) = 57 billion EURO!

This is chicken feed in comparison, yes Thailand truly are amateurs when it comes to corruption.

After once speaking to a farmer about subsidies in hospital of all places he told me its more a case of using the subsidies correctly, which rarely happens.

Edited by StuckinBKK
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So what about the 40% of the EU budget that European farmers get (mainly small plot dirty French farmers) = 57 billion EURO!

This is chicken feed in comparison, yes Thailand truly are amateurs when it comes to corruption.

After once speaking to a farmer about subsidies in hospital of all places he told me its more a case of using the subsidies correctly, which rarely happens.

You love plucking figures and spouting them with no real rationale. Again, I am no fan of the EU or many of their subsidies but your point is intrinsically wrong. Of the total 57 billion spent on agriculture AND fisheries development, 39 billion was in direct subsidies to farmers. (still about 30 billion too much). And overall, the % of the EU budget spent on agriculture has dropped, despite all the new member states (most of whom are heavily agricultural).

The EU, like the UN, is a great idea on paper, but one that has become mired in bureaucracy and corruption.

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So what about the 40% of the EU budget that European farmers get (mainly small plot dirty French farmers) = 57 billion EURO!

This is chicken feed in comparison, yes Thailand truly are amateurs when it comes to corruption.

After once speaking to a farmer about subsidies in hospital of all places he told me its more a case of using the subsidies correctly, which rarely happens.

funnily enough i was actually talking about this with my Thai boss on Saturday ... i'm old enough to remember the EEC wine lakes and butter mountains .... and farmers claiming subsidies for cattle/sheep they didn't actually have !!!

but i guess we'd discuss that on EUFriends rather than Thailandfriends !!!

but the point u make is true .... politicians the world over will throw money at where they think it will win them votes !!

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It was merely pointing out that this policy isnt unique to Thailand, and is far more excessive in the EU. (whilst having a dig at the French who pocket a disproportionate amount of this)

The policy isn't unique to Thailand but Thailand is the world's largest rice exporter. Also, they don't compete in a market like the EU where price controls can help smooth out price inequalities. If Vietnam decides to double their rice production due to higher rice prices there is nothing to stop them. That drives the world price down which is exactly the opposite of what the government is trying to do.

Yes, many countries have price subsidies but the difference is that in Thailand even a first year university student can see the flaws in the plan.

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The policy isn't unique to Thailand but Thailand is the world's largest rice exporter. Also, they don't compete in a market like the EU where price controls can help smooth out price inequalities. If Vietnam decides to double their rice production due to higher rice prices there is nothing to stop them. That drives the world price down which is exactly the opposite of what the government is trying to do.

Yes, many countries have price subsidies but the difference is that in Thailand even a first year university student can see the flaws in the plan.

1st things first i think govt should keep out of everything apart from defence, basic education (science/maths/engineering/3rs), basic healthcare and infrastructure, so i am playing devils advocate.

How is Vietnam going to double its rice production (short-mid term)? Impossible id guess even in the long term. Maybe Russia will double its corn/wheat production next year as its so easy.

Theyre all subsidies be they Thai food subsidies, European food subsidies American or wherever else you wish to mention, so long as they can sell the product for the price paid and it doesn't create a EU butter/beef mountain.

In theory from the workers point of view cutting out the middle man is a good idea, if it works, though not for the middleman of course.

Anyway neither you or I know the indepth ins and outs of this, but it has to be said Thailand is far better at balancing its budget thus economics then pretty much all Western nations and their socialist model. with the w4nkers who run the economic side of things our side of the planet with a PPE from Oxford but not a days work experience (google Gideon Osbourne), we are hardly in the position to knock Thai economics!

Besides economics is simple dont spend more then you earn and save whilst youre making money, dont lend unless youre as sure as can be youll get it back! Edited by FarangFarang
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1st things first i think govt should keep out of everything apart from defence, basic education (science/maths/engineering/3rs), basic healthcare and infrastructure, so i am playing devils advocate.

How is Vietnam going to double its rice production (short-mid term)? Impossible id guess even in the long term. Maybe Russia will double its corn/wheat production next year as its so easy.

Theyre all subsidies be they Thai food subsidies, European food subsidies American or wherever else you wish to mention, so long as they can sell the product for the price paid and it doesn't create a EU butter/beef mountain.

In theory from the workers point of view cutting out the middle man is a good idea, if it works, though not for the middleman of course.

Anyway neither you or I know the indepth ins and outs of this, but it has to be said Thailand is far better at balancing its budget thus economics then pretty much all Western nations and their socialist model. with the w4nkers who run the economic side of things our side of the planet with a PPE from Oxford but not a days work experience (google Gideon Osbourne), we are hardly in the position to knock Thai economics!

Besides economics is simple dont spend more then you earn and save whilst youre making money, dont lend unless youre as sure as can be youll get it back!

I'm sorry . . . just because you don't understand the ins and outs, why do you assume nobody else does either?

Vietnam could double their rice production in a relatively short period of time given a high enough price for the product to compensate them for investment. The price never stays high enough because high prices lure people into planting more rice.

A lot of this stems from the rice shortage a few years back. Many countries got completely caught off guard. And Thailand refused to sell to other countries and chose to keep most of the rice for themselves at cheap prices. Many other countries in the region saw this and realized that they need to revive their rice industry so they don't get caught relying on Thailand again.

Meanwhile the Thai government was crowing over how they were going to be like the Middle East of rice. They talked about fantastic plans selling rice for high prices and nobody would ever challenge their position as largest rice exporter.

So Vietnam invested heavily, the Philippines, S. Korea, India, they all started growing more and more rice. The price of rice took a huge beating with so much rice available on the market the next year and Thailand learned the hard way that you can't corner the market on a product that anybody can reproduce.

This is a very similar situation. Thailand has decided that the laws of economics don't apply to them so they're going to attempt to artificially pump up the price of rice they sell while keeping the price of rice low in Thailand. Obviously this is never going to work for more than 1 or 2 seasons at a time because people tend to act in their own self-interests while the Thai government always seems to assume that everyone will always act in Thailand's best interests.

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Thailand May Give Up Role of Biggest Rice-Exporter to Boost Rural Incomes

By Supunnabul Suwannakij and Daniel Ten Kate - Sep 12, 2011 5:16 PM PT

Thailand is willing to relinquish its role as the world’s biggest rice exporter as the government prepares to buy grain directly from farmers to boost prices and rural incomes, Deputy Prime Minister Kittiratt Na-Ranong said

“We will not back off,” Kittiratt said in an interview yesterday. “If we cannot help our farmers, what is the point of being the government in this country? I’m not proud of being the largest exporter. I’m proud that Thai farmers can grow and sell their products at reasonable prices and they can smile.”

Prime Minister Yingluck Shinawatra aims to insulate the country of 66 million people from a global slowdown by lifting incomes of poorer Thais who propelled her party to victory in a July election. The plan to guarantee rice prices may boost export rates by almost 20 percent and erode the nation’s share of the global market, said Sarunyu Jeamsinkul, deputy managing director at Asia Golden Rice Ltd., Thailand’s largest shipper.

“That will be trouble for exporters,” Sarunyu said by phone from Bangkok. “It would be difficult to get deals done at that price.” The export price may climb to $750 a metric ton, Sarunyu said. It was at $629 as of Sept. 7, the highest level since December 2009, according to the Thai Rice Exporters Association.

Shipments from Thailand, which accounts for about 31 percent of world rice exports, are expected to fall to 8 million metric tons next year from an estimated 10 million tons this year, according to the U.S. Department of Agriculture. Exports jumped 55 percent to 8.3 million tons this year through Sept. 5, according to the Thai Rice Exporters Association.

“I believe that if we have to suffer with smaller export amounts, the total value of exports will be more,” Kittiratt said in Bangkok.

Prices Are ‘Reasonable’

The government plans to pay 15,000 baht per ton ($497) for unmilled white rice and 20,000 baht for Hom Mali fragrant rice, as much as 47 percent above current market rates, according to Bloomberg News calculations based on data from the Thai Rice Mills Association. Purchases are due to start on Oct. 7.

Thailand’s effort to raise farm incomes may fuel price gains across a region that the USDA estimates accounts for 87 percent of global rice consumption.

“We’re not talking about pushing up the price three, four, or fivefold so that people will switch to consume bread or other grains,” Kittiratt said. “I’m confident the price we’re offering is reasonable. I’ll not be happy if the price surges higher than what we suggest.”

The price of 100 percent grade-B Thai rice, the benchmark for Asia, has gained 21 percent since the election on expectation that Yingluck would resurrect a policy first introduced by her brother, Thaksin Shinawatra.

In 2008, when Thaksin’s allies were last in power and the government had a similar policy, it bought a total of 10.5 million tons of rice from almost one million farmers, according to the Bank for Agriculture & Agricultural Cooperatives. Losses from selling rice below purchasing costs were estimated at 43 billion, data from the bank showed.

Local prices rose to a record 17,000 baht per ton in April that year and export rates hit an all-time high of $1,038 per ton the following month after India, China and Vietnam curbed shipments, spurring unrest from Haiti to Egypt.

“Everyone in the business can look at the price of rice five years ago and the price of wheat five years ago and look at the percentage increase,” Kittiratt said. “What we’re suggesting isn’t even trying to outpace other comparable choices. What we’re trying to do is to beg for the understanding of buyers and consumers.”

To contact the reporter on this story: Supunnabul Suwannakij in Bangkok at [email protected]; Daniel Ten Kate in Bangkok at [email protected]

http://www.bloomberg.com/news/2011-09-13/thailand-may-give-up-role-of-biggest-rice-exporter-to-boost-rural-incomes.html

Interesting story which discusses what happened the last time Thailand tried this.

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  • 2 weeks later...

The bad part is that Thailand's scheme may force changes in the marketplace that Thailand will be powerless to reverse in the short-term. In the first article below, Thailand's coming price hike is making China look at its own rice production. That's not good news considering the size of China and the amount they can invest in higher yielding farming methods.

China relies on science to fight Thailand’s rice war

No commodity price in Asian markets carries quite the emotion of rice, a staple in about half the world’s diet.

A decision by a new Thai government to guarantee its farmers a higher price for their rice crops -- winning the hearts of the working-class in the aftermath of that country’s political turmoil -- is having some rocky consequences.

Thailand is the region’s main exporter of rice, providing an estimated 10 million tonnes annually. Earlier this month, new Thai prime minister Yingluck Shinawatra -- sister to ousted favourite of the working class Thaksin -- pledged to begin paying farmers nearly 15,000 baht, or just over $480 (U.S.) a tonne, up from the present 10,000, starting in October. That, in turn, has pushed the price of 100 per cent B-grade Thai white rice up to around $619 a tonne this week.

There are moderating influences; India, normally a careful hoarder of its rice stores, has just released two million tonnes for unrestricted export. Neighbouring Vietnam is also expected to help compensate with its own growing production.

And China -- by far the largest consumer, but also the world’s seventh-largest exporter of rice -- has its own stable supply. Analysts say the country has overall stock levels “comfortably” higher than they have been in years.

Still, even Chinese officials must have some concerns -- which may be why state-controlled newspaper headlines here this week crowed about the accomplishments of scientist Yuan Longping, who has achieved a world-record yield --13.9 tonnes per hectare, or more than double the average -- with one of his hybrid rice strains. Improving the yield of limited farmland is a high priority in a country with 1.3 billion people to feed, particularly when rising food prices are driving the country’s inflation.

“If the international price of rice rises, this can put upward pressure on rice in China as well: locals will have greater incentives to export,” wrote Frederic Neumann, co-head of Asian economics for HSBC, in an e-mail interview. “That said, rice is not the main driver of food costs currently in China, where the biggest jump over the past year has been in pork and vegetable prices, as well as wheat due to a drought in the North … Increases in the international price of food should have an only marginal impact on China's domestic food prices.”

However, Mr. Neumann warned in a separate report that the rising cost of rice may well impact inflation in the rest of the region. “If sustained, the rise in the cost of rice could stem any downdraft in headline inflation across the region, “ he wrote.

http://www.theglobeandmail.com/report-on-business/international-news/global-exchange/globe-correspondents/china-relies-on-science-to-fight-thailands-rice-war/article2180249/

And this is an old story but even the US is looking to boost rice production and import less rice from Thailand. This has been going on for a while and the US is investing in R&D while Thailand is investing in price schemes to keep the farmer's happy.

The U.S. rice industry is making way for Jazzman.

It's a new variety of aromatic rice developed at Louisiana State University and being sold under several folksy-sounding labels -- and it could become a viable competitor to the Thai jasmine rice that accounts for $350 million in U.S. business each year.

Production at Jazzmen Rice LLC is expected to increase from 500 tons this year to 63,000 tons by 2011, said Andrew Wong, one of the New Orleans company's partners.

That would equal 18 percent of U.S. imports from Thailand last year.

The number of farmers under contract is expected to grow tenfold, to 100, by next year, Wong said.

An obvious motivating factor is price. Louisiana's rice industry has struggled to regain a footing after devastating hurricane seasons in 2005 and 2008. Traditional rice is more expensive to produce and while the price farmers are paid for it has strengthened -- particularly over the last year -- the more exotic jasmine strain can fetch a premium.

The new variety yields up to three times as much grain per acre as the fragrant, nutty Thai strain, which grows too tall and flowers too late for U.S. farms.

There's good news for consumers, too: Because it is grown domestically, Jazzman rice is expected to cost less than imported varieties at the grocery.

Chef Susan Spicer said she has tried the rice produced by Jazzmen and that it compares "really favorably with the Asian varieties ... in terms of freshness, cooking, fragrance." She said she plans to buy more to use in her New Orleans restaurant, Bayona.

Concerned about the growing competition, the Thai government has claimed the rice developed by Louisiana State University was genetically engineered -- a charge that Steven Linscombe, director of the LSU AgCenter's rice research station, refutes. Jazzman was developed after 12 years of crossbreeding strains from China and Arkansas, Linscombe said.

The Thai government also trumpeted that tests this fall found the LSU rice less fragrant than its Thai counterpart -- fragrance being one of three important qualities in jasmine rice. The USA Rice Federation made the same observation in an informal taste test at a Hong Kong trade show in May, and Louisiana State University is working toward a more fragrant second generation.

William Farmer, the federation's director for promotions in Canada and Asia, said testers nevertheless gave the rice positive reviews for taste and the way it feels in the mouth.

Louisiana grows about 14 percent of the nation's rice -- the third-biggest crop behind Arkansas, where about half the nation's rice is grown, and California, which grows 20 percent.

During the last decade, rice imports have increased while U.S.-grown rice sales have remained essentially flat, said Tim Johnson, president of the California Rice Commission. He said "every U.S. rice farmer" is interested in varieties that would replace such imported aromatic rices as jasmine and basmati, from India.

USDA figures show that last year's U.S. production of 10.1 million tons was less than 8 percent above the figure a decade earlier. But imports more than doubled in the nine years ending 2007-08, to more than 724,000 tons, and imports from Thailand nearly doubled, to more than 500,000 tons.

A second new strain, JES, for Jasmine Early Short, was made available earlier this year for seed growers after 10 years of development by Christopher Deren of the University of Arkansas.

"Clearly those rices are having an impact on our sales," Johnson said of the imports. "And they just taste great."

http://www.nola.com/business/index.ssf/2009/12/ricexx.html

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This is hilarious. To actually realize that the farmers think this will be different than when Thaksin was in office when he last did the rice mortgage scheme (yes he is the real PM again), shows how short the farmers memories are, and how gullible they are to believe it will be any different this time...eieieieieieiei.

The farmers will not see any of this money directly as they are, and always have been, forced to sell to the millers/warehousemen in their area. As before this is designed to stabilize the prices the few large millers/warehousemen are payed selling on the open market. Without the scheme they are forced to sell at world prices, on the open market with the true fluctuations inherent in supply, and demand economics. Under this scheme/sham, just like before, they will receive a guarenteed above market price from the government buying their rice, and not have to worry at all by any fluctuation in price, making huge profits, just like before. They don't even have to wait until buyers are ready to buy as they would on the open market. The government will buy from them immediately, and there is no limit on how much the government will buy from them. How could a miller/warehouseman ask for anything better?

The government on the other hand is now the one that will bear the brunt of market fluctuations, just like before. There is absolutely no concern that the government will take big losses doing this, just like before, when they are forced sell the rice as it gets older, and quality starts to drop, then with a new crop coming in with a need for the limited warehousing space. This is only designed to help the few large miller/warehousemen get large sums of money from the government, just like before. There is absolutely no interest in raising the world price for rice in the long run, just like before.

The one thing that will again happen, and is totally illegal, is the buying of cheaper rice from neighboring countries, and selling it to the government under this scheme/sham by the large millers/warehousemen, making even more large sums of money, and again just like before. When Thaksin first ran this rice mortgage scheme there was more rice bought by the government than was produced in the country, and no one did anything when it was discovered....hahahahahaha. We'll see this time how much rice is bought, and how much was actually grown in Thailand during the same time periods.

Millers/warehousemen have been hoarding supplies, and probably already buying rice from neighboring countries since the announcement, until Oct 7th when the government will start buying all they have in storage at double the current price of what they would have been selling the rice for on the open market. They have already driven the local price up by doing this.

Prices will go up marginally for a very short time period until the supply again reaches the point of market saturation, as it will, and the price goes back down to where it should be, with the Thai government loosing even more money, and nobody caring at all.

The government isn't going to take this supply of rice they buy off the market for very long. They have to sell it to free up warehousing space for the next crop, and so it doesn't get older loosing quality. It is a perishable product with a shelf life.

This whole re-introduction of rice scheme reminds me of the joke about 2 old farmers at the movies, and on the screen just as the 4 lovely young women get totally undress to go skinny dipping in the lake, the train comes by blocking the view of them getting undressed. After watching the movie for 9 times the theater manager finally asks them what they find so interesting in such a lousy movie. The one farmer turn to the other one, and smiles, then they both break out laughing. The manager asks them what is so funny, and they both say to him "One of these times that train is going to be late".

Edited by koolbreez
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  • 1 month later...
I smell a ban coming up... If ban lasts for more than four hours, seek medical attention.

The rice subsidy scheme was so stupid and expensive, a cynic might wonder if the government intentionally allowed the floods to ruin 7 million tonnes of rice so they wouldn't have to pay for it!

Those crazy cynics. Where would they get ideas like that?

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