The naturally fertile land centred around Thailand’s Chao Phraya river basin, combined with increasingly well-developed infrastructure, serves as a strong foundation for what is a robust agricultural base. These advantages have propelled both small-scale farmers and larger agriculture companies from Thailand into the forefront of global agri-business, with the country ranking among the world’s leaders in the exportation of rice, seafood, rubber and sugar, as well as serving as a home base for some of the region’s largest food production companies.
In 2014 the agricultural sector, excluding manufactured food, contributed BT665.8bn ($20bn) to GDP, up slightly from BT661.3bn ($19.9bn) recorded the previous year, according to the most recent annual report from the Bank of Thailand (BOT). In terms of value added, this was equivalent to 10.5% of the country’s GDP for the year, according to data published by the World Bank, consistent with the sector’s role in the economy, which ranged from 10.5% to 11.6% between 2010 and 2014. The bulk of this value is derived from the crops subsector, which accounted for some 68% of overall sector share in 2015, according to the Office of Agricultural Economics (OAE). Fisheries holds the next largest share at 17%, followed by livestock at 11%, agricultural services at 2% and forestry at 1%.
In spite of these strengths, the sector has been significantly affected over the past five years by a prolonged drought, which has hit the crop subsector particularly hard (see analysis). Consequently, agriculture’s growth rate has slowed significantly, from an expansion rate of 6.3% in 2011, compared to 0.8% growth of the economy overall, to just 0.3% in 2014. This was followed by a 4.2% contraction in 2015, according to the OAE. The crops segment suffered the most from the below-average rainfall, contracting by 5.8%, but is expected to make a recovery in 2016, with anticipated growth between 2.5% and 3.5%. Agricultural services and fisheries declined to a lesser extent, by 4% and 1.3%, respectively.
In addition to unfavourable weather conditions, a sluggish global economy – in particular, a slowdown in China, a major trade partner – and the ensuing soft commodity prices, also had a negative effect on agricultural export revenues. The livestock and forestry industries were less affected by the drought and fared significantly better, growing 2.2% and 2.8% on the year and helping mitigate losses elsewhere.
Obstacles To Growth
Although Thailand has so far been quite successful in leveraging its natural resources and industrial sector to create a powerful agriculture industry, the country still faces a number of obstacles to growth. Long-standing government control of the agricultural goods market, in the form of guaranteed farm gate prices and price caps on retail sales, continue to hinder the competitiveness of Thai production on international markets.
As was addressed in the government’s Agricultural and Rural Development Plan (2012-16), Thailand’s output could be significantly boosted, even without the addition of new acreage, if the relatively low yields produced currently could be increased. In a bid to raise Thailand’s competitiveness with its global and regional peers, the government and the private sector have been ramping up efforts to help boost domestic agricultural production by tackling such issues as inefficiencies within small-plot farming; a lack of modern technology and knowledge of modern farming techniques; and government policies which fail to stimulate competition.
As the world’s largest rubber exporter, Thailand has a long history in the cultivation and harvesting of this commodity and now boasts some of the largest plantations and processing facilities in the world. Domestic production has roughly doubled since the turn of the millennium, climbing steadily year-on-year from 2.35m tonnes in 2000 to 4.5m tonnes in 2015, according to data from the Thai Rubber Association (TRA). The substantial rise in output has been largely due to an increase in the area cultivated for rubber production, as the acreage utilised for tapping rubber has increased from 2.6m ha in 2013 to 3m ha in 2015. A large portion of the cultivated land is located in Thailand’s southern region, accounting for 68% of all tapped area, nationwide.
While the majority of output is sourced from small-scale farmers, Thailand is also home to the world’s largest fully-integrated natural rubber company, Sri Trang Agro-Industry (STA), which holds a market share of 10% of global consumption. In 2015 STA produced 1.1m tonnes of sales volume, out of a total potential volume of 1.5m tonnes, from its 8000 ha of rubber plantations in 19 Thai provinces, and its 26 processing facilities throughout Thailand and Indonesia.
Much of this growth in production over the past decade was fuelled by an expanding industry on the back of worldwide economic growth, which pushed up commodity prices and made the industry increasingly attractive for farmers. International prices eventually peaked in February 2011 when the price of No. 3 rubber smoked sheets hit an all-time high of $2.81 per pound on the Singapore Commodity Exchange. But as the international markets cooled in the ensuing years, the price of rubber has fallen rapidly to a fraction of this value, dipping below $1 per pound by early 2014 and sitting at $0.56 per pound as of February 2016. This has a had a significant effect on producers and exporters of rubber, who have seen revenues decline over the past five years despite increased levels of output. After shipping an impressive BT382.9bn ($11.5bn) worth of exports in 2011, the value of exports has declined in each year since, culminating in a total of BT170.4bn ($5.1bn) worth of rubber exports in 2015, according to the BOT. This decline in value came in spite of steady production and export volumes, which have remained strong since 2011. Exports increased from some 3m tonnes in 2011 and 2012 to 3.7m tonnes in 2015. Far and away the top market for Thai rubber in 2015 was China, which purchased as much as 2.1m tonnes that year. Malaysia came in a distant second with 431,615 tonnes, and was followed by Japan, in third, with 220,700 tonnes.
A Helping Hand
Seeking to halt the free-fall of commodity prices and ease the pressure on small rubber producers and large agri-businesses alike, at the end of 2015 the Thai government enacted a plan to prop up rubber prices. Along with Malaysia and Indonesia, which are also major rubber producing countries, Thailand has begun to cut global supply by limiting exports and tree felling. In January 2016 the Thai Cabinet moved to purchase at least 100,000 tonnes of rubber directly from rural farmers at a significant premium of up to BT60 ($1.81) per kg, which helped prop up international prices in the early part of 2016. This rebound could prove short-lived, however, if slower demand in China persists and a global surplus of rubber continues, leading to ongoing volatility in international markets for the commodity. Also in the same month, the government approved the issue of BT15bn ($451.5m) in soft loans over 10 years for rubber production and processing in a bid to boost rubber use and support farmers.
Downstream applications are also well developed, with the tyre makers Goodyear, Bridgestone and Michelin all running domestic operations, as well as other producers manufacturing a wide array of products, including rubber automotive parts, rubber gloves, condoms, balloons, cushions and hoses. With a steadily increasing supply of locally grown inputs, domestic consumption of rubber has surged along with production levels over the past decade and a half. Thai companies consumed a record 541,003 tonnes of the commodity in 2014, up from 520,628 tonnes the previous year and more than twice the 242,549 tonnes used in 2000.
A leader in the global rice export markets, Thailand consistently competes for the top exporting spot worldwide, while also relying on farmers to cultivate the grain for use as a primary food staple in the Thai diet (see analysis). The rice sector was hit hard by the recent droughts, however, with the second rice cultivating season in the Chao Phraya and Mae Klong river basins severely affected in 2014 and 2015. The beginning of the 2015 growing season, which generally kicks off in May, was also deferred until July or August across many regions of the country because of the prolonged dry spell.
Although still trailing far behind rice in terms of production and consumption in Thailand, interest in maize remains steady due, in large part, to its use as a primary component in feedstock for the domestic livestock industry. Similar to rice and other crops, corn production was significantly diminished as a result of inadequate rainfall, with the US Department of Agriculture (USDA) estimating total production for the 2015/16 season at 4.7m tonnes, down from 4.85m tonnes the previous year and 4.9m tonnes in the 2013/14 season. Around 272,000 ha of field crop, mostly corn, were negatively impacted by the drought, although farmers who were affected in major growing areas have reportedly been replanting since June 2015. As a result, exports of corn are likely to be significantly down due to growing demand for domestic feed and the tighter stocks, particularly for the production of poultry.
Political Hot Potato
In spite of Thailand’s strong presence in the international rice trade, the industry is not without its challenges and continues to operate below its potential for a number of reasons. The primary stumbling block is the politicisation of the industry, as politicians vie for support from the substantial domestic rice industry voting bloc, which often results in inefficient and costly policies.
Although various assistance programmes have been rolled out over the years, the most recent high-profile example of this is the failed rice price-support scheme which helped bring about the rise and, ultimately, the downfall of former Prime Minister Yingluck Shinawatra. In her 2011 campaign for prime minister, Yingluck announced a subsidisation scheme, previously promoted by her brother and former prime minister, Thaksin Shinawatra. The scheme involved paying farmers a generous price for unmilled rice, set at BT15,000 ($451.50) per tonne, well above market prices, which the government would then stockpile. At the time, the country was the world’s largest exporter of rice, with a 30% global market share, and the scheme relied upon this being big enough to stifle supply on the global market, pushing up international commodity prices and enabling Thailand to release rice on the market at a profit large enough to recover the initial outlay. It was a gamble that ultimately backfired after supply from Vietnam and India, which lifted restrictions on exports of its basmati rice, was able to partially fill the supply shortage. The Thai government was then faced with substantial losses, having already paid out an estimated BT500bn ($15bn) to BT885bn ($26.6bn) for approximately 13-18 tonnes of rice, which could not be sold. The failed scheme toppled Thailand from its position as top rice exporter, falling behind India and just ahead of Vietnam. Rice exports dropped by 35%, from 10.67m tonnes valued at BT193bn in 2011, to 6.95m tonnes valued at BT147bn in 2012.
To avoid any repetition of past events, the current administration has taken a more market-oriented approach to the sensitive issue of subsidies, as it seeks to restructure the agricultural sector and divest its substantial stockpile. “This government will definitely not interfere with product prices,” Chatchai Sarikulya, Minister of Agriculture and Cooperatives, told the press in October 2015. “We want prices to move in line with the market mechanism. We focus more on strengthening farmers.”
Lower, market-based prices, which are currently depressed due to large-scale holdover stocks, and annual production, which routinely exceeds local demand by around 50%, could help bring about a significant shift in Thailand’s agriculture sector. Current government efforts, in line with the Agricultural and Rural Development Plan (2012-16), are encouraging rice farmers to retool to grow higher-value cash crops, while reducing overproduction. In implementing these strategic shifts, the Ministry of Agriculture and Cooperatives has set up a voluntary crop-zoning policy to create profitable alternatives to rice production, by matching crops to soil conditions and water supply. In order to choose the optimal crops for their respective environments and reduce water usage, the government launched an initiative in 2014 to set up 882 help centres around the country to assist and educate farmers on zoning, farming techniques and marketing.
Significant expansion of sugarcane fields across Thailand over the past decade has led to the country becoming the second-largest sugar exporter in the world and third-largest producer as of 2015. In the Asia-Pacific region, Thailand is one of only two countries, along with Australia, to produce a consistent sugar surplus and annually exports more than Australia and India combined, its two closest regional competitors. Leveraging relatively inexpensive labour and ample land resources, the industry has been able to maintain price competitiveness, while increasing yields over the years to narrow the efficiency gap between it and other regional producers. Although overall output costs have been increasing marginally in recent years as a result of rising wages and land prices – in 2013 the government introduced a minimum wage policy across all industries of BT300 ($9) per day – Thailand continues to enjoy some of the lowest production costs in the world.
In the 2015/16 crop season, the USDA forecast that Thai farmers would produce 10.8m tonnes, on par with the 10.79m tonnes produced the previous season and accounting for 6.5% of global output. Production estimates were downgraded from early annual forecasts of 11.4m tonnes due to the ongoing drought the country is experiencing, as the losses in yield offset any potential gains that were made in increased sugarcane acreage. In spite of the flat growth, exports remained strong on continued high demand from fast-growing markets such as China and Sudan, as consumption, driven by growing demand from the processed food and beverage industries, continues to trend higher. Thai-sugar export estimates for the 2015/16 season were revised upwards in November 2015 to a record 8.8m tonnes, up from earlier projections of 8.3m tonnes and significantly more than the 8m tonnes exported the previous season.
Thai farmers are also benefitting from protection against volatility in international sugar markets through provisions in the Cane and Sugar Act, which includes a price stabilisation mechanism. This policy has become increasingly important in the current global commodities environment, due to the fact that, historically, low oil prices have induced other major producers, such as Brazil, to switch back to producing sugar rather than ethanol, and the Thai market must face the ripple effects of these shifts.
Under the programme, farmers receive direct price support payments from the state-run Cane and Sugar Fund, which is financed through loans from the Bank for Agriculture and Agricultural Cooperatives (BAAC), owned by the Ministry of Finance. In turn, the BAAC is repaid though a BT5 ($0.15) per kg fee imposed on domestic sugar sales, along with VAT revenues from retail sugar sales, the price of which has been set by the government’s sugar price control policy since May 2008. Although the government has voiced its intention to liberalise the sector and reduce is influence on the sugar markets, the current low global sugar prices will make it difficult to move forward with subsidy reductions until prices rebound.
Economic diversification and steady urban migration are driving transformational changes within the agriculture sector as it continues to redefine its place within the economy and society as a whole. The sector has always benefitted from a large labour pool. Now, however, as the agricultural workforce ages and the younger generation begins to migrate towards urban environments where industry is prevalent, agriculture in Thailand will fast approach a crossroads between the cultivation practices of the past and the new technology employed by the modern agri-business industry.
The percentage of agricultural labour has exhibited a pronounced decline between 1975 and 2015, falling from 73% to 32%, according to a labour force survey undertaken by the National Statistics Office. At the same time, labour employed in the non-agricultural sector rose from 27% in 1975 to 68.3% in 2015. Although Thailand currently boasts a robust agriculture sector and remains highly competitive in the global export markets, these demographic shifts will require more efficient and streamlined production methods going forward in order to keep Thai farmers and companies profitable. This will require a wide range of new practices and technology, such as cooperative community farming and machinery pooling. Education, along with financial assistance in the form of long-term loans for farmers to use in purchasing more expensive but efficient equipment, will also assist in developing mechanisation, a process that the government has already been investing in through the BAAC and other institutions.
Although recent hiccups, including drought and inefficient government policies, may have a negative effect on the sector in the short term, prospects are good for Thailand to maintain its position as a regional centre for agriculture. Furthermore, attractive export opportunities bolstered by strong government support to boost production levels bode well for future growth, while the weakening exchange rate and sustained soft global oil prices should help motivate exports of farm goods in the short term. Additionally, the government’s development plan for agriculture could potentially boost output significantly even without additional acreage, if the current relatively low yields can be increased.
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