Agricultural production in Thailand is the bedrock of both economic and rural development strategies. The ascension of Maha Vajiralongkorn as Phra Rama X will not alter the deep current of agroindustrial development nurtured by Rama IX. But what are the economic and political risks of this deeply interventionist policy
The price of rice remains core to Thailand’s rural development policy. As such, market determined prices took a back seat to state regulation with the permanent closure of the Agricultural Futures Exchange of Thailand in Bangkok on 2 September 2016—in accordance with the Repeal Act of the Agricultural Futures Trading Act of 1999.
However state-to-state mercantile trade continues to dominate agricultural exports through bilateral export agreements. China has purchased its first tranche of 100,000 tonnes of rice as part of a wider deal for the rice giant to import 1 million tonnes. Thailand and Iran have resumed bilateral trade, with Thailand aiming to export 700,000 tonnes of rice to Iran per year. And a September deal will see Thailand export 100,000 tonnes of rice to the Philippines. However, these relatively small lots do not come close to the 9.5 million tonne export target.
Despite El Niño affecting most of Southeast Asia for the past two years, Thailand was expected to harvest 23.55 million tonnes of rice during 2016’s main harvest, to add to existing stockpiles of 8.4 million tonnes. Charoen Laothammatas, president of the Thai Rice Exporters Association, has said that Thailand’s rice exports would not increase in 2017—remaining stable amid fluctuating global prices, drought affected production, and continued domestic government support.
However, global rice prices are facing pressure as capital controls in Nigeria—the world’s second largest importer—have seen demand shrink, while bumper crops in India provide supply-side pressures.
The Thai Ministry of Commerce suspended sales from the national stockpiles due to price pressures just as the October-November main harvest period ushered in a new round of state purchasing. A new stockpiling plan was revealed in October 2016, which is expected to take 10 million tonnes of rice out of the market.
Rice mills will receive a cut in interest rates between three and four percentage points for withholding rice from the market for between 60 and 180 days. For farmers, preferential loans will be offered to withhold releasing harvests to the market. The Bank of Agriculture and Agricultural Cooperatives’ (BAAC) role, as usual, is to underscore support for the policy.
BAAC is also deploying a policy offering primary producers loans of up to US$145,000 at effectively zero interest aimed at reforming rice production by upscaling farms into rice mega-farms. A memorandum of understanding between the Ministry of Commerce, Ministry of Agriculture and Cooperatives, and Ministry of the Interior called for land consolidations to result in 426 mega-farms in 2016 and up to 1,000 in 2017.
In October, the Thai Council of Ministers approved a sugar industry restructuring plan while the Ministry of Commerce increased the minimum purchase price for tapioca starch to push up cassava prices. The sugar reform was implemented to ensure floating sugar prices, aimed at keeping Brazilian objections at bay in the World Trade Organization. Kobsak Phutrakul, assistant minister to the prime minister’s office, said that a cane and sugar development plan for 2016-2021 has been developed and plans are in place to reform the Cane and Sugar Act of 1984. The current sugar act guarantees a 70-30 profit-split between sugar mills and cane producers.
While cassava and sugar are slated for structural upgrading as inputs to the biofuel industry, a range of industries are being targeted under ‘One Province One Agro-industrial Product’—a policy recommission of ‘One Tambon, One Product’, and ultimately a Japanese policy transmission. The Electronic Transaction Development Agency under the Ministry of Digital Economy and Society hopes to have an e-commerce customs system running by end of 2016 to promote cross-border e-commerce.
A September 2016 restructure of the board of investment was a shakeup to encourage more inward and foreign direct investment technology transfers from other East Asian economies—particularly the Republic of Korea. The agro-industrial policy arm of Pracha Rath aims to introduce elements of innovation and technological upgrades in rural areas to promote the growth of fundamental agro-industrial clusters, which can then integrate with the wider Thailand 4.0 industrial policy. The Minister of Industry, Atchaka Sibunruang is encouraging SMEs to invest in Thailand’s western central region in order to create an industrial cluster springboard for economic integration with Myanmar.
The primary producers of Thailand are the principal beneficiaries of government policy to ensure the international rice trade. However, an adherence to price controls and a reliance on state purchasing hinders Thailand’s macro development strategy. Futures markets are excellent price-setting institutions and state stockpiling, as evidenced by the efforts of the European Union and People’s Republic of China, does not result in either food security nor fulfil rural social policy functions.
As Vietnam now holds Thailand’s former crown of world’s largest rice exporter it is time to face facts. The state cannot guarantee the international price of grain. China is removing its state grain procurement system in favour of price-setting mechanisms fostered through futures exchanges. Agricultural policy banking, land agglomeration, competitive exchange rates, agroindustrial upgrading and widespread support for the peasant primary producing class are all areas which should welcome government support. Price supports and state procurement should be abandoned as Thailand upgrades its agroindustrial strategy for a more competitive common market under the ASEAN Economic Community.
Tristan Kenderdine is research director at Future Risk and a lecturer of Public Administration at Dalian Maritime University, China.
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