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Global Donor Platform for Rural Development
About the Platform Knowledge Piece series
The Global Donor Platform for Rural Development commissioned three comprehensive studies to capture Platform members’ knowledge on key issues affecting the delivery and impact of aid in ARD: PKP 1 PKP 2 PKP 3 Policy coherence for agriculture and rural development Aid to agriculture, rural development and food security – Unpacking aid flows for enhanced effectiveness The strategic role of the private sector in agriculture and rural development
The PKPs are the products of extensive surveys of Platform member head office and field staff, visits to country offices, workshops dedicated to sharing findings and refining messages, and successive rounds of comments on drafts. On the basis of each PKP, separate policy briefs will be published. For more information on the PKPs visit donorplatform.org
This working paper is only available electronically and can be downloaded from the website of the Global Donor Platform for Rural Development at: www.donorplatform.org/resources/publications Secretariat of the Global Donor Platform for Rural Development, Dahlmannstrasse 4, 53113 Bonn, Germany Email: firstname.lastname@example.org The views expressed herein are those of the authors and do not necessarily represent those of individual Platform members. All rights reserved. Reproduction and dissemination of material in this information product for educational or other non-commercial purposes is authorised, without any prior written permission from the copyright holders, provided the source is fully acknowledged. Reproduction of material in this information product for resale or other commercial purposes is prohibited without written permission of the copyright holders. Applications for such permission should be addressed to: Coordinator, Secretariat of the Global Donor Platform for Rural Development, Dahlmannstrasse 4, 53113 Bonn, Germany, or via email to: email@example.com. © Global Donor Platform for Rural Development 2011
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development: Thailand working paper
Contents .......................................................................................................................................................................1 Figures ..........................................................................................................................................................................3 Tables............................................................................................................................................................................4 List of Acronyms ..........................................................................................................................................................5 Introduction ..................................................................................................................................................................8 Context 8 Research questions ...................................................................................................................................................8 Methods .....................................................................................................................................................................9 Value chains selected ................................................................................................................................................9 Sector overview.......................................................................................................................................................... 10 Development of Thailand‟s agricultural sector- progress and milestones since 1980 .............................................. 10 Transition to an industrial economy ......................................................................................................................... 11 Sector productivity ................................................................................................................................................... 11 Rural poverty reduction ............................................................................................................................................ 13 Exports 14 Achievements .......................................................................................................................................................... 14 Retreat of the State? .................................................................................................................................................. 16 National master plan ................................................................................................................................................ 16 Export taxation ......................................................................................................................................................... 17 Price controls ........................................................................................................................................................... 17 Agricultural credit policy ........................................................................................................................................... 18 Regulatory environment ........................................................................................................................................... 19 Overall ................................................................................................................................................................. 19 Seeds .................................................................................................................................................................. 19 Agrochemicals ..................................................................................................................................................... 19 Biotechnology...................................................................................................................................................... 20 Provision of public goods ......................................................................................................................................... 20 Infrastructure ....................................................................................................................................................... 20 Agricultural research and extension .................................................................................................................... 20 Food safety standards ......................................................................................................................................... 23 Rice pledging scheme ......................................................................................................................................... 24 Summary ................................................................................................................................................................. 25 Role and impact of the private sector ...................................................................................................................... 27 Introduction .............................................................................................................................................................. 27 Private sector investment in the rural sector ............................................................................................................ 27 The rise of modern trade.......................................................................................................................................... 30 Contract farming and outgrowing as a dominant modality ....................................................................................... 32 Standards, certification and traceability ................................................................................................................... 34 Organics .................................................................................................................................................................. 35 Impact of private sector activity ................................................................................................................................ 37 Food price inflation .............................................................................................................................................. 37 Higher production costs....................................................................................................................................... 38 Farmer livelihoods ............................................................................................................................................... 38 Opportunities for off-farm incomes ...................................................................................................................... 39 Food security....................................................................................................................................................... 39 Sector competitiveness ....................................................................................................................................... 40 Summary ................................................................................................................................................................. 40
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development: Thailand working paper
Case studies ............................................................................................................................................................... 42 Rice 42 Chicken 45 Horticulture .............................................................................................................................................................. 49 Cassava ................................................................................................................................................................... 53 Rubber 56 Sugarcane ............................................................................................................................................................... 59 Role of the donor community ................................................................................................................................... 64 Overview of donor support ....................................................................................................................................... 64 Non-government organizations ................................................................................................................................ 66 Conclusions................................................................................................................................................................ 68 Main outcomes ........................................................................................................................................................ 68 Major challenges ...................................................................................................................................................... 69 References .................................................................................................................................................................. 71 Annex: Organizations interviewed ........................................................................................................................... 80
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development: Thailand working paper
Figure 1: Agriculture share of GDP (percent) 12 Figure 2: Employment in agriculture (percent of total employment) 12 Figure 3: Labour productivity: GDP per worker in agriculture and industry 13 Figure 4: 11th NESDP Strategy 3: Supporting agriculture 16 Figure 5: General food inflation, low income inflation and rural inflation 18 Figure 6: Research and extension budget relative to crop GDP 21 Figure 7: Agencies funding and undertaking agricultural research in Thailand 22 Figure 8: Certified organic area in Thailand 1998-2009 (ha) 35 Figure 9: Thailand GINI Index 1981-2009 41 Figure 10: Rice yields in Southeast Asia (t/ha) 42 Figure 11: Rice value chain 43 Figure 12: Distribution of benefits of paddy pledging programme by farm income decile 2006-07 Figure 13: Distribution of poultry production in Thailand 46 Figure 14: A vertically integrated chicken supply chain 46 Figure 15: Vegetable production and area planted (1985 – 2005) 49 Figure 16: Supply chain for vegetables in Thailand 51 Figure 17: Thailand food quality infrastructure 52 Figure 18: Cassava- area planted in Thailand (ha) 1961-2009 53 Figure 19: Cassava - yields in Thailand (kh/ha) 1961-2009 53 Figure 20: Cassava root production in Thailand 2001 to 2011 54 Figure 21: Cassava value chains in Thailand 55 Figure 22: Rubber expands to the northeast (2006-2010) 56 Figure 23: Major rubber-based farming systems 57 Figure 24: Rubber- domestic value chain 58 Figure 25: Sugar production and exportable surplus 1980-2010 60 Figure 26: Utilization of sugarcane 61
Table 1: Growth of discount stores 1996-2010 30 Table 2: Thailand Organic Production and Value (2003-2009) 36 Table 3: Comparing rice policies- Abhisit vs. Yingluck 44 Table 4: Summary of Poultry Production and Marketing Systems in Thailand Table 5: Thailand and world broiler meat production and exports 48 Table 6: Rubber- planted area, harvested area, production, yields 57 47
List of Acronyms
AADCP AAN ACFS ADB AEGFS AFSN ARDA ASPL AVRDC BAAC BIOTEC BOI BOP CDP CIDA CGIAR CIAT CIMMYT CIRAD CPF DANIDA DEP DIT DTDP FAO ASEAN-Australia Development Cooperation Program Alternative Agriculture Network National Bureau for Agricultural Commodity and Food Standards Asian Development Bank ASEAN Expert Group on Food Safety ASEAN Food Safety Network Agricultural Research Development Agency Agricultural Sector Program Loan (Asian Development Bank) Asia Vegetable Research and Development Center Bank for Agriculture and Agricultural Cooperatives National Center for Genetic Engineering and Biotechnology Board of Investment Base of pyramid Country Development Partnership Program (World Bank) Canadian International Development Agency Consultative Group for International Agricultural Research International Center for Tropical Agriculture International Maize and Wheat Improvement Center Centre International de Recherche Agronomique pour le Développement Charoen Pokphand Foods Danish International Development Agency Department for Export Promotion Department of Internal Trade (Ministry of Commerce) Doi Tung Development Project Food and Agricultural Organization of the United Nations
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development: Thailand working paper FAO RAP FAOSTAT FTI GDP GEF GI GIZ GMS HPAI IRRI JBIC JICA LDC ME MOAC MOF MOST MRL NARS NESDB NESDP NIC NRP NRCT NSTDA NTFP NZAID OAE FAO Regional Office for Asia and the Pacific FAO online database of global agricultural statistics Federation of Thai Industries Gross Domestic Product Global Environmental Facility Geographical Indication Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH Greater Mekong Subregion Highly pathogenic avian influenza International Rice Research Institute Japan Bank for International Cooperation Japan International Cooperation Agency Least developed country Ministry of Education Ministry of Agriculture and Cooperatives Marketing Organization for Farmers Ministry of Science and Technology Maximum Residue Limit (for pesticide residues in agricultural commodities) National Agricultural Research System National Economic and Social Development Board National Economic and Social Development Plan Newly industrialized country Nominal rate of protection National Research Council of Thailand National Science and Technology Development Agency Non-timber forest products New Zealand Agency for International Development Office of Agricultural Economics (Department of Agriculture)
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development: Thailand working paper ORRAF OTOP PDA RASFF RDPB RNFE SCOST SIMS SME SPS TCC TDRI TICA TISTR TRF TTDI TTSA UNDP UNESCAP USAID Office of Rubber Replanting Aid Fund One Tambon, One Product Population and Community Development Association Rapid Alert System for Safety in Food and Feed (European Union) Royal Development Projects Board Rural on-farm employment [ASEAN] Subcommittee on Food Science and Technology Sugarcane Information and Management System Small and medium enterprises Sanitary and phytosanitary Thai Chamber of Commerce Thailand Development and Research Institute Thailand International Cooperation Agency Thailand Institute of Scientific and Technological Research Thailand Research Fund Thailand Tapioca Development Institute Thai Tapioca and Starch Association United Nations Development Programme UN Economic and Social Commission for Asia and the Pacific United States Agency for International Development
This Country Case Study for Thailand aims to contribute to a broader study (the Platform Knowledge Piece, or PKP) undertaken by the Overseas Development Institute (ODI) as part of the ongoing Global Donor Platform for Rural Development debate. The PKP aims to improve our understanding of the role of the private sector in agricultural and rural development and to propose practical measures for donors to engage with the private sector and support this role more effectively. This analysis therefore focuses upon how public, private and donor actions impact upon value chains for key agricultural commodities specified in the Terms of Reference.
The overall PKP (and the current case study) attempts to address three research questions, each comprising a number of sub-issues: Research question 1: How has the private sector responded to the „rolling back‟ of direct state involvement in rural areas? Has the state „rolled back‟ since 1980 and, if yes, in what ways (i.e. price liberalisation, phase-out of monopsony procurement, disposal of state assets, private actors replacing state actors)? Where in the value chain does state intervention – or the lack of it - really impact on private sector development (i.e. input markets, support institutions, infrastructure, etc.)? Does the state intervene more forcefully in food staples markets than traditional exports and cash crops for the domestic market? Has the state also retreated from „public goods‟ functions which have constrained private sector development (i.e. R&D, economic infrastructure, regulations, etc.)? Why did „rolling back‟ happen (or not)? Has the private sector flourished in areas of more limited state intervention? How has the private sector responded to changes in the regulatory and enabling environment and other opportunities? Research question 2: What is the impact of this private sector activity on low-income rural households and the dynamism and competitiveness of the agricultural sector? What have been the trends in private sector activity in the selected value chains? Investment (disaggregated by farmer, domestic private sector, domestic public sector, aid or FDI) in value chain; Production, trade, consumption outcomes; Productivity, dynamism and competitiveness of the agricultural sector.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development: Thailand working paper What are the linkages between the agricultural sector and the non-farm rural economy? What has been the effect of this private sector activity on low-income households (jobs, incomes, livelihoods – direct, indirect and dynamic on low-income households (and others); spill-over effects (positive and negative) on low-income households)? Research question 3: What has determined the success of donors, governments, NGOs and other initiatives to stimulate private sector development? How have donors and others tried to stimulate private sector development? To what extent have these efforts worked and what have been the reasons for success or failure?
This report is based upon face-to-face interviews in Thailand with 26 key players in government, academia, the donor community, NGOs and the private sector, conducted by Dr George Fuller (consultant to ODI) and additional interviews and research conducted by the current author. These organizations are listed in Appendix 2. In addition, a review of publicly available Thai and Englishlanguage academic and grey literature was conducted as part of the research, building upon Dr Fuller‟s study. Extensive use was made of data from FAOSTAT, World Bank Development Indicators, and the Thai Development and Research Institute, and the report has also made use of the findings reported in ODI‟s own recent report “Thailand‟s progress in agriculture: Transition and sustained productivity growth” by Henri Leturque and Steve Wiggins.
Value chains selected
The six commodities selected as case studies in the Terms of Reference for this study are rice, chicken, cassava, horticulture, rubber and sugarcane - all strategically important either as domestic staples or as exports. The report is organized as follows. Following this introduction (Chapter 1), Chapter 2 provides a brief overview of Thailand‟s agricultural sector, its overall policy context, performance and achievements. Chapters 3 to 5 then analyze the respective roles and contributions of the State, private sector and donor / NGO community, from the perspective of the three research questions. Chapter 6 then reviews the influence of public policy and private sector intervention for the six specified agricultural value chains (rice, chicken, horticulture, cassava, rubber and sugarcane). The final chapter draws together evidence from the literature to address the research questions and comes to some overall conclusions based on these findings.
Development of Thailand’s agricultural sector- progress and milestones since 1980
Thailand‟s status as a major net exporter of food and agricultural commodities has dominated the policy agenda in recent decades (Isvilanonda, 2011). Agricultural exports include strategically important commodities such as rice, cassava, sugar, rubber and poultry products. The country‟s export orientation brings with it two overarching policy goals - domestic food security, and export earnings. Today both goals are threatened by declining competitiveness within the sector, and (most recently) by the erosion of purchasing power, particularly among the rural poor. Recent increases in oil and food prices as well as sharply rising farm production and input costs have contributed to increasing food insecurity in Thailand. The gravity of the implications for political stability has not been lost on Thailand‟s newly-elected government, which is making major efforts to implement a new rice pledging scheme (discussed later in this report). High food prices threaten the urban poor while low prices put producers in jeopardy. The government needs the support of both to remain in power. Current national objectives for agriculture are stated as follows: maintaining stable growth of the agricultural sector; restructuring production through agricultural diversification; increasing free trade in agriculture and removing agricultural protection measures; improving efficiency in use and conservation of agricultural natural resources and the environment; and improving the standard of living and quality of life in rural areas.
In terms of competitiveness, Thailand‟s economy has always been highly vulnerable to the impacts of trade liberalization. Realizing the dangers ahead, Thailand used the Uruguay Round negotiations on agriculture to call for stronger international trade rules to limit the dominance of more powerful nations in influencing the terms of trade against weaker, developing countries such as herself (Poapongsakorn and Ungphakorn, 1995). Thailand also sought restraints on export subsidization, especially by the US and EU, since these had the effect of reducing the competiveness of Thailand‟s producers in domestic as well as export markets. As the multilateral processes stalled, successive governments turned to bilateral FTAs; Thailand has negotiated, or is negotiating, a dozen bilateral Free Trade Agreements (Leturque and Wiggins, 2010). The country has benefited from its FTAs with Australia, China and Japan through improved access to foreign markets not only for traditional exports but also for a wide range of agricultural products. However, these FTAs were negotiated with industry rather than agriculture foremost in mind, and resulted in the realization of the very scenario the country had feared a decade earlier. For example, Thailand‟s FTA with China removed tariffs from a range of fruits and vegetables traded between the two countries. The ensuing flooded of cheaper imports brought with it adverse impacts on the livelihoods of many small Thai producers (Chantasasawat, 2006). In the case of the FTA with Australia, Thailand‟s nascent dairy industry could not hope to compete with Australia‟s in a liberalized market.
Transition to an industrial economy
Until the 1980s, agricultural exports were viewed as a source of revenue for the government. The lack of organization of primary producers and low supply elasticities for most agricultural commodities meant that imposition of export taxes entailed little political risk because such taxes would not significantly dampen output. Given the vulnerable position of small farmers and their lack of organization, taxing agriculture, and especially rice, was lucrative and politically irresistible. Until 1986, rice exports were subject to a fixed export tax, ad valorem duty, volume limits and a requirement that exporters sell a share of rice at rates below market price. Exporters were further penalised by over-valuation of the baht. Rice exports were indeed taxed until 1986 (Siamwalla et al., 1993; Leturque and Wiggins, 2010), when farmers began to voice vehement opposition to the export levy. Farmers pointed to the inequity of a tax which effectively transferred wealth from the rural poor to comparatively wealthy urban consumers. Nonetheless, the eventual phase-out of these levies during the 1980s owed more to a political imperative to satisfy the rural electorate than to any interest in relieving the hardships of the farm population. Despite the export levy, Thailand‟s agricultural sector had grown rapidly, and continued to expand following its phase-out, driven mainly by massive public sector investment in rural infrastructure, especially roads and irrigation systems. The introduction of Green Revolution technologies (notably the introduction of IR-8 rice into the national rice breeding programme) provided further stimulus, and contributed to improved livelihoods and increased overall food security. Growth was facilitated by state laws obliging banks to provide cheap credit to the agricultural sector; the government itself provided its own credit through the Bank for Agriculture and Agricultural Cooperatives (BAAC). The state further invested in education, irrigation, rural electrification and rural roads, and the agricultural sector continued to grow at an annual average rate of 2.2 percent between 1983 and 2007. Technical progress, as measured by total factor productivity, accounted for 25 percent of agricultural growth from 1980 to 1995 (Chandrachai, 2004). Growth was spurred by the relatively large size of Thai farm holdings, and by the ease with which forest land could be converted to agricultural use. The rapid pace of industrialization and urbanization in the last 20 years led to rising wages, increasing costs in field crop production. Government policy began to shift toward meeting increasing urban demand for livestock products and horticultural crops, as well as to an increased emphasis on rice production. More recently there has been major policy support for biofuels, leading to a substantial expansion in oil palm acreage, and also a major drive to expand rubber production to new regions, particularly the Northeast.
The government‟s drive for farm mechanization (National Farm Mechanization Plan, 2005) along with rapid expansion of the emerging industrial sector began to impact upon the agricultural sector. The hitherto seasonal departure of agricultural wage-earners from the land to the cities became increasingly permanent, accelerating the long-term decline in agriculture‟s share of total GDP, which subsequently fell from 20 percent in 1980 to just 12 percent in 2009 (Figure 1).
Figure 1: Agriculture share of GDP (percent)
Source: World Bank national accounts data, and OECD National Accounts data files (reported in www.indexmundi.com)
As recently as 1980 agriculture represented 70 percent of employment (Leturque and Wiggins, 2010); by 2009 the percentage had fallen to 41.7 percent (World Bank, 2011). Yet, agriculture remains a major source of employment (Figure 2).
Figure 2: Employment in agriculture (percent of total employment)
Source: World Bank, World Development Indicators, reported by www.indexmundi.com
The difference between the shares of agriculture in GDP and employment suggests a large labour productivity gap between agriculture and manufacturing (Figure 3).
Thailand‟s overall economic growth from 1960-1985 reduced the agriculture sector‟s relative profitability through declining relative agricultural prices, and the migration of production factors to sectors with higher relative productivity (Martin and Warr 1994; Siamwalla, 1996). Rising prices and increasing FDI in the industrial sector increased labour productivity relative to the farm sector. Meanwhile, rising labour rates and falling prices squeezed farm profits, further diverting investment flows to non-farm economic sectors, and depressing agricultural growth relative to the rest of the economy.
Figure 3: Labour productivity: GDP per worker in agriculture and industry
Over the last decade, increased productivity has increasingly replaced area expansion as the principal engine of growth. This was triggered by increasing scarcity of new land for expansion, rising labour costs, increasing competition for water in agriculture, and the need to stay competitive in international markets. How has this productivity increase been accomplished? A range of factors have contributed, including a shift to higher-value crops (especially fruits and vegetables) as well as livestock products and fisheries. ICTs, including new software platforms for logistics, production planning, and traceability technology have also played an increasing role in productivity enhancement, value creation and food safety. Nevertheless, while the sector as a whole has diversified, individual farmers on the other hand have tended toward greater specialization. This specialization has been driven by a significant increase in contract farming (Poapongsakorn 2006), greater efficiencies in marketing and logistics (including improved access to international markets) and substantial expansion in processing and agribusiness in general.
Rural poverty reduction
The productivity gap, attributed by Isvilanonda to the inability of the manufacturing and informal sectors to absorb rural labour (Isvilanonda, 2003), carries significant implications for rural poverty and rural/urban inequality. Although the country‟s economic growth helped Thailand succeed in its poverty alleviation efforts, rural poverty remains a serious problem. Ninety percent of Thailand‟s poor live in rural areas, and 67 percent of Thailand‟s poor live in the agriculture-dependent northeastern provinces. Until the mid1980s the decline in poverty was due principally to the growth in agriculture. But since then, poverty reduction has been largely accomplished through growth in the industrial sector.
Nevertheless, Thailand‟s resilience following the global financial crisis of 1997 is attributed at least partially to the agricultural sector, which was able to absorb and provide a safety net for large numbers of displaced industrial workers. Nevertheless, despite the impressive overall reduction in poverty, urbanrural income disparities have widened, and rural poverty is still a serious problem, especially across the northeastern provinces (as noted above) and in parts of the south.
Agriculture is as important for its export earnings as it is to household food security, accounting for over 15 percent of total exports (including invisibles). Thailand is the world‟s leading exporter of rice, canned and frozen seafood, processed chicken, processed shrimp and canned pineapple. Other key food/feed exports include cassava, sugar, maize, fruit and vegetables. Thailand‟s food exports were valued at US$24.38 billion in 2010, and are expected to rise to US$28.5 billion in 2011 according to the National Food Institute (NFI). Main export markets include the United States, Japan, Association of South East th Asian Nations (ASEAN) and the European Union (EU). As a result, Thailand is ranked the world‟s 13 top supplier of food. Export of ready-to-eat food has also increased rapidly as a result of major private sector investment in value-added products. Government incentives have also contributed to diversification into more value-add products. Thailand has become one of the world‟s largest producers and exporters of processed foods, with over 50 percent of total food production exported, much of it as processed food. Thailand has over 10,000 food and beverage processing companies, producing over 28 million tons of processed foods annually (Ministry of Industry, Thailand). More than 80 percent of the raw materials are locally sourced. However, Thailand is not competitive in protein-based crops and is rapidly losing competitiveness in quality beef and low-value products such as oil palm, soybean, and low-quality rice.
Thailand experienced 30 years of rapid economic growth from the 1960s to the 1980s, during which GDP grew at 7 to 8 percent annually and agricultural GDP at 4 to 5 percent. Then in the mid-1980s, convergence of a number of factors, both domestic and external, led to a decline in the agricultural sector‟s growth. There was no more new land available for expansion, and the global price depression, rising wages, and water shortages in many areas, all took their toll. Nevertheless, producers, the private sector and the public sector responded to ensure continued strength in exports and to meet a growing domestic demand. The government ended taxation of exports and switched to a policy of support and protection. Farmers mechanized to reduce labour costs and invested in water pumps and pond digging to address the growing scarcity of water. To meet changing consumer demands they switched to higher value commodities: horticulture, livestock and fisheries. Contract farming emerged as a new production and marketing modality, making use of new technologies and management practices. This „retooling‟ of the sector inevitably changed the nature of the linkages and dependencies among farmers, companies and government agencies. Leturque and Wiggins (2010) sum up the achievements of Thailand‟s agricultural sector as follows:
Agricultural development in Thailand since 1960 has facilitated the country‟s transformation into an urbanised economy based around manufacturing. There have been two phases: rapid agricultural growth based on utilisation of underused land and labour; and, as Thai farming began to shed land and labour, slower but continued growth through higher productivity. Rural poverty has fallen from more than 60 percent in the early 1960s to barely more than 10 percent in the new century. Food prices have halved, and hunger and child malnutrition have reduced greatly. Much has been achieved through private initiative, including a successful agribusiness sector. Despite political turbulences in Thailand, the state has played an essential role in setting the investment climate and investing in education, roads and research, as well as supporting agricultural credit to small farmers. Thailand leads the world in producing and exporting rice, rubber, canned pineapple, and black tiger prawns. It leads the Asian region in exporting chicken meat export and several other commodities, and feeds more the four times its own population. Thailand also seeks to expand its exports in livestock. But even as Thailand‟s agricultural sector has succeeded in maintaining its status as one of the world‟s top food exporters in the face of a volatile global market, significant challenges to its global competitiveness lie ahead as trade barriers continue to fall, and the government‟s options to protect its producers are diminished by liberalization of global markets, and especially by the forthcoming formation of the ASEAN Economic Community (AEC).
Retreat of the State?
National master plan
The country‟s 11 five-year National Economic and Social Development Plan is currently being drafted, to serve as a Master Plan for development of all economic sectors, including agriculture. Among its overall goals, the NESDP11 recognizes the agricultural sector as a foundation for society and food security, and aims to increase the share of the agricultural sectors in the economy, and strengthen the sector‟s competitiveness. Its strategy for accomplishing these goals is summarized in Figure 4 below:
Figure 4: 11th NESDP Strategy 3: Supporting agriculture
Source: Kumpa. (2011)
To enhance equity and food security for resource-poor farmers, the plan also aspires to improving land resource management and to a land redistribution programme. However, despite the NESDP‟s positioning as a Master Plan, questions remain over policy coherence, where responsibility for various aspects of agricultural policy (such as production, trade and food safety) are shared among several Ministries. Moreover, despite the laudable aims of the NESDP, Thailand does not possess a single integrated agricultural policy. Instead, policies are determined by commodity, according to the realpolitik of political influence exerted by well-connected commodity lobbies (Siamwalla and Setboonsarng, 1989 and 1991). With this perspective, it is easy to understand why Thailand protects producers of its key export commodities, despite its strong competitive position in global markets. Imports of many commodities are subject to tight controls through a range of instruments including import prohibitions, licensing arrangements, local content rules and requirements for special case-by-case approval of imports. Such restrictions apply to a wide range of crops, including major crops such as soybeans, palm oil, rubber, rice and sugar, but also onions, garlic, potatoes, pepper, tea, raw silk, maize, coconut products and coffee (Warr and Kohpaiboon, 2007).
Historically, the most dramatic shift in state policy was the elimination of direct taxation of agricultural exports, and the subsequent shift to a policy of protection. Export taxes were completely eliminated for rice during the 1980s, and for rubber in 1990. Cassava exports have continued to be taxed to a minor extent through the system of export quotas. Maize and chicken exports on the other hand, have never been subject to taxation. This shift from a „pro-consumer‟ to a „pro-producer‟ policy has resulted in more or less neutral nominal rates of protection for most exportable crops, except a few imported competing crops such as palm oil and soybean (Poapongsakorn, 2009; Warr and Archanun, 2007). Since then successive governments have increased subsidy levels through the agricultural price support programme with a stated aim of improving farmers' income. Most of this evolution in taxation and protection has involved the elimination of price distortions that once penalized agricultural export industries. For example, soybeans were an export crop before 1992 but have since become a net import item (subject to quota restrictions). This coincided with a switch from negative to positive nominal rates of protection (NRPs). Since the early 1990s, the domestic soybean industry has benefited from NRPs between 30 and 40 percent. Sugar is also an export commodity, but the domestic sugar industry is heavily protected by a system that taxes domestic consumers and transfers the revenue to producers. The NRPs have averaged over 60 percent. The government‟s various approaches to provide farm support have been generally unsuccessful in their stated objectives of raising farm incomes, although they have certainly benefited exporters. Though these programmes have so far not caused major distortions in the economy or significantly disrupted Thailand's comparative advantage in global markets, this may change at least in the case of rice (see Sections 3.6.1 and 5.1) where pledging prices in the domestic market now exceed world price.
Thailand‟s status as a major food producer and exporter has meant that for policymakers, food security has never been as important as commodity price control (although the Office of Agricultural Economics has been entrusted with drafting a food security policy). Currently the respective commodity policy committees control prices for strategic crops such as rice, sugar, rubber, palm oil and cassava. In addition to these commodity policy committees the Ministry of Commerce, through its Department of Internal Trade, has a broad mandate to regulate domestic consumer prices. Still, this has evidently not been enough to dent the rapid pace of food price inflation (Figure 5). It is significant that food inflation has been highest for rural people.
Figure 5: General food inflation, low income inflation and rural inflation
Source: Ministry of Commerce (2011) Note: RPI baseline year (2002) = 100
Agricultural credit policy
Lack of access to credit hampers agricultural investment and reduces productivity, especially for smallscale farmers (World Bank, 2007). Despite the success of many microfinance schemes targeting Base of Pyramid (BOP) actors, provision of rural credit remains a challenge in most developing countries (World Bank, 2007). In 1975, the Bank of Thailand mandated commercial banks to allocate 5 percent of all commercial loans for agriculture, at below-market rates. This broke the stranglehold of informal lenders, middlemen and millers over farm finance, and increased the supply of rural credit from US$ 80 million in 1975 to US$ 160 million by 1984. Poapongsakorn and Isvilanonda (2008) reported a 17-fold increase in loans through the Bank for Agriculture and Agricultural Cooperatives (BAAC) from 1985 to 2003, when loan disbursement reached almost US$ 7.5 billion, driven partly by an innovative group liability guarantee scheme that gave collateral-free access to short term credit. Under its regular lending programme BAAC makes various types of loans available to both individual client farmers and farmers‟ institutions via agricultural cooperatives and farmers' associations. In addition, provision of technical assistance and marketing support are forthcoming from relevant public and private sector agencies. BAAC also makes credit provisions to special integrated agricultural development projects and agribusiness schemes. In addition, BAAC provides loans for agricultural related activities and is now implementing a pilot project for providing loans for non-farm activities. Farmer borrowers are categorized by the BAAC according to their creditworthiness. Though this much-improved access to credit boosted technology adoption and encouraged crop diversification, the lower risk profile and lower delinquency rates of large commercial farmers mean that in practice, small-scale farmers still face serious difficulties in accessing credit. As a result they remain dependent on informal lenders and usurious interest rates. Through its intrinsic bias towards larger, lowrisk clients, agricultural credit may thus have worsened the competitive position of smallholders and
widened the equity gap. Strict borrowing and repayment criteria for farmers, requiring use of hard assets as loan collateral (typically the title deeds to the farmer‟s own land), have perpetuated debt cycles and led to forfeitures (The Nation, 2008a; Isvilanonda and Bunyasiri, 2009). During the Thaksin era (2001-06) the government instigated its “Village Fund” scheme – a populist measure providing Baht 1 million per village to finance small business loans. However, loans were reportedly used to finance consumption, rather than production or business (e.g. purchase of vehicles or mobile phones or other non-essential goods). Critics argue the programme has led to a culture of dependency, rather than a culture of entrepreneurship, among beneficiaries.
Regulatory environment Overall
Thailand‟s relatively lax regulatory environment has generally been favorable to private business. A low regulatory burden on private companies reduces business costs and encourages increased investment, including in research. However, at the same time, it imposes little incentive to develop technologies that conserve environmental resources or produce other nonmarket goods (Fuglie et al., 1996).
Regulations governing seed are stipulated in Thailand‟s Seed Act. This law describes seed labelling requirements and minimum allowable germination requirements for 20 species of seed. In addition to the Seed Act, the Plant Quarantine Act controls importation of plant pests and diseases in planting materials. A strong working relationship between the hybrid corn seed industry and government crop research and regulatory agencies resulted from a combination of personal ties and a well-organized seed association. Seed companies recruited scientific and management staff from universities and the public sector, helping to solidify this relationship. The hybrid corn then established the Seed Association of Thailand to promote their interests. In 1994, the Asia Pacific Seed Association (APSA) was formed with assistance from FAO to promote the seed industry and improve seed supply in the region.
Import tariffs on fertilizers were gradually reduced during the early 1990s, and finally eliminated in the early 2000s. Since then, there has been little government intervention in the agricultural input markets (Isvilanonda, 2008). This policy stands in contrast to some other Southeast Asian countries, where input subsidies form part of general subsidization programmes for agriculture. Nevertheless, both chemical fertilizers and pesticides were occasionally distributed free to farmers through the Department of Agricultural Extension (DOAE), particularly during emergencies. Aside from this, inputs are distributed to farmers by the Market Organization for Farmers (MOF) and cooperatives using loans financed by the Farmers' Aid Fund, with subsidized transportation cost. However, these efforts are regarded as having limited impact, and were often inaccessible to those who needed them most. The ready availability of old, toxic and persistent pesticides in Thailand has given much cause for concern, and led to increasing international scrutiny of pesticide residue levels in Thai food exports. One private sector response to this problem was the initiation of the Safe Use Project by the Thai Crop
Protection Association. The project provided training for farmers, retailers, and extension workers to build awareness and promote proper storage, handling and application of pesticides. Most recently, a pesticide re-registration process was implemented by the Department of Agriculture. The process is intended to rigorously re-evaluate all pesticides based on strict international standards. However, the programme stipulated that any products not reregistered by 22 August, 2011 would lose their current registration. Unfortunately only a few re-registrations were completed by the deadline, rendering sales of the vast majority of pesticides technically illegal in Thailand after this date. The unintended consequence has been that until the backlog of applications has been processed, newer, safer products cannot be made available, while the market is meanwhile flooded by smuggled and counterfeit products.
Although Thailand was the first Asian country to allow field trials of genetically modified crops (GMOs), it has since retreated from commercializing genetically modified crops, under strong pressure from activist groups, and also because of the importance of its non-GMO export markets- particularly EU and Japan. No progress is expected until a national biosafety framework has been established, which is unlikely to be prioritized in the foreseeable future given the strength of anti-GMO activism and popular antipathy.
Provision of public goods Infrastructure
Over the past three decades, Thailand has seen massive investment in basic infrastructure, particularly in the expansion of the national road network. Thailand became highly competitive in international markets with the development of its road infrastructure during the 1960s, and the subsequent opening up of the impoverished Northeastern region. A major rural electrification followed during the 1980s. The improved transport and communications infrastructure facilitated access to information as well as physical access to markets. Today, mobile phone penetration in Thailand is among the highest in the region, although an ongoing legal dispute over 3G concessions has left Thailand lagging well behind its neighbours in deploying technologies such as 3G and Wimax, despite a government pledge to invest in widening broadband internet access to rural areas. The major expansion in the national road network has not, however been matched by the national rail service, which has seen no substantive investment or upgrading over the past 30 years. Since the late 1980s, the major levels of public investment in irrigation infrastructure have been curtailed by fewer opportunities for low-cost irrigation schemes, as well as rising opposition to the social and environmental costs associated with large dams. The falling world price for rice during that period was also a factor in the decision to end new public investment in large-scale irrigation projects (Siamwalla et al., 1991).
Agricultural research and extension
Empirical evidence from much of the developing world demonstrates the impressive returns on investment to agricultural research – far above those of other public sector investments. Alejandro Nin
Pratt and Shenggen Fan of the International Food Policy Research Institute (IFPRI) estimate that on average, the rate of return to National Agricultural Research Institutes (NARS) in developing countries is 60 percent, which is higher than investments in education and roads (Nin Pratt and Fan, 2010). These authors add that RORs were highest in the Asia-Pacific region (78 percent). Setboonsarng et al. (1991) and the Thailand Development Research Institute (1994) found similar high rates of return in Thailand. TDRI‟s latest research showed that R&D by both the public and private sectors has played a very important role in agriculture, yielding returns ranging from 40 per cent to as much as 200 per cent in some cases (Poapongsakorn, 2011). The MOAC accounts for around 95 percent of total government spending on research and extension (Poapongsakorn 2006, p. 54), most of it on crop production. The early 1970s saw substantial growth in public sector capacity in plant breeding, which laid a strong foundation for the sector‟s subsequent expansion and growth in its global competitiveness, particularly for maize, cassava, sugarcane and irrigated rice. Much of this effort was supported by the international donor community and implemented through technical collaboration with CGIAR institutions such as IRRI, CIMMYT and CIAT. Thailand‟s maize breeding effort was supported variously by the Asian Development Bank, FAO, the Rockefeller Foundation and USAID. However, despite the early success of Thailand‟s crop breeding programme, since the mid-1990s public R&D spending on agricultural research has continuously declined relative to agricultural GDP (Poapongsakorn, 2006), even as production became more intensified and dependent on technology to sustain competitiveness. The intensity of crop research in relation to crop GDP is shown in Figure 6: Research and extension budget relative to crop GDP.
Figure 6: Research and extension budget relative to crop GDP
Source: Suphannachart and Warr (2009), cited in FAO (2011)
Modern varieties of rice, rubber cultivars and improved varieties of hybrid maize, soybean and cassava have achieved very high rates of adoption (Poapongsakorn, 2006; World Bank, 2009). This has been praised as a private sector achievement, with an attendant implication of public sector inefficiency. However, it is important to remember that in reality (and with the exception of rice) this later period of intensification was only made possible by the private sector‟s ability to build upon the strong foundation already established by the public sector. Likewise, hybrid cassava from CIAT was introduced in 1975 for breeding purposes, laying the foundation for Thailand‟s cassava varietal improvement programme (Isarangkura, 1986). Germplasm was introduced from many other countries, including India, Japan, USA and Australia, in many cases facilitated by FAO. However, the outcomes of the cassava breeding programme never matched the benchmark accomplishments set by the rice varieties developed by IRRI (Suphannachart and Warr, 2011). Although the private sector has been actively involved in some aspects of agricultural research in Thailand, no systematic record of its magnitude is readily available. Based on a survey of private investment in agricultural research in 1996, Fuglie (2001) estimated that the private sector was responsible for about 13 per cent of total agricultural research in Thailand, but was focussed heavily on livestock production, rather than cropping. For crops, private R&D is concentrated mainly upon developing hybrid seeds for field crops, especially maize used in animal feeds, and on improving productivity of sugar cane, oil palm and rubber. In November 2007, the government announced a reform of agricultural research, mandating the National Research Council of Thailand (NRCT) to plan, coordinate and evaluate national research policy in agriculture. This was indeed a challenging task, given an institutional context with parallel, overlapping or even contradictory mandates. Public sector agencies funding and undertaking agricultural research are shown in Figure 7 below.
Figure 7: Agencies funding and undertaking agricultural research in Thailand
Note: ARDA – Agricultural Research Development Agency; BIOTEC – National Center for Genetic Engineering and Biotechnology; ME – Ministry of Education; MOAC – Ministry of Agriculture and Cooperatives; MOST – Ministry of Science and Technology; NESDB – National Economic and Social Development Board; NIA – National Innovation Agency; NRC – National Research Council of Thailand; NSTDA – National Science and Technology
Development Agency; RDPB – Royal Development Projects Board; TDRI – Thailand Development Research Institute; TISTR – Thailand Institute of Scientific and Technological Research; TRF –Thailand Research Fund. Source: Adapted by the author from Johnson et al. (2008)
From an institutional perspective it is not surprising to find agencies under different Ministries driven by overlapping and sometimes competing agendas (Poapongsakorn, 2011). Illustrating both the internal schisms within the public sector, as well as an atmosphere of mutual distrust between the private and public sectors, a study by FAO: “The Dynamic Tension Between Public and Private Plant Breeding in Thailand (FAO, 2011) concludes: [Plant] breeding and associated changes in crop management have been central to maintaining competitiveness of Thai agriculture in international markets with varying strategies across crops reflected in government investment priorities. Redefining the public sector‟s role in plant breeding in the context of expanding private-sector capacity in maize, horticulture and, most recently, hybrid rice has faced difficulties in shifting longestablished research capacities that have been successful in the past. Thailand is investing significantly in agricultural biotechnology but is doing this through the Ministry of Science and Technology (MOST) and not through the Ministry of agriculture and Cooperatives (MoAC). This has resulted in a lack of effective linkages between conventional breeding capacity and molecular breeding efforts. With further trade liberalization within ASEAN, Thailand is well placed to develop as a regional seed hub. Investments in diagnostic and phytosanitary capacity are supporting this development. Difficulties in synchronization in capacity development between public and private-sector plant breeding and between conventional and molecular plant breeding is most obviously reflected in the increasing shortages of conventional plant breeders. These conclusions note both Thailand‟s strong potential for growth, and the institutional constraints and path dependencies that hamper its realization. Artachinda and Akratanakkul (2010) note the inefficiencies created by the lack of coordination of research programmes, and describe a formal approach to prioritysetting in agricultural research using the case of biotechnology. However, there appears to be little immediate prospect for policy reform in agricultural research. On a positive note, the National Research Council of Thailand (NRCT) is funding a project to help researchers gain access to the latest agricultural research. The Thailand Research Indexing Hub, uses the “Thai e-Government Interoperability Framework (TH e-GIF)” as a data exchange standard. An agricultural knowledge repository has been developed (http://anchan.lib.ku.ac.th/agnet/ ) in collaboration with 18 Thai agricultural research institutions and 44 university faculties participating. The work is coordinated by the Thai National AGRIS Centre, and ultimately aims to extend to create a National Agricultural Repository to serve Thailand‟s agricultural research community.
Food safety standards
Thailand‟s continuing status as a top global exporter hinges on the credibility of the guarantees it can provide for the safety and quality of food produce. The increasingly stringent requirements of importing countries and buyers for traceability and certification impose significant compliance burdens which compromise market access, especially for resource-poor small farmers. Excessive and poorly regulated use of pesticides, and the ready availability of toxic organophosphates and organochlorine products raises the risk of food safety alerts in destination markets. With a relatively weak and under-resourced regulatory and enforcement structure, Thailand faces the real and serious risk of long-term exclusion from
some of its key markets (e.g. Japan, USA, EU) as a result of inadequate responses to sanitary and phytosanitary (SPS) issues in food exports. With the failure of structural subsidies and other policy interventions, institutional supervision of food quality is emerging as the new priority of state intervention in agriculture. Indeed, major efforts are under way to ensure compliance with SPS requirements of destination markets, the National Bureau for Agricultural Commodity and Food Standards (ACFS) is a focal point for many of these efforts. ACFS also serves as a regional focal point and host for the ASEAN Food Safety Network. These measures include institutional reforms of the accreditation and government certification system including ACFS itself (to provide greater separation of functions in line with ISO65 requirements), traceability systems, upgraded minimum standards and increased surveillance and laboratory testing capacity. Responsibility for food safety is distributed among various agencies within the Ministries of Agriculture, Public Health and Industry. There has also been considerable engagement with the private sector in this process, with producer, processing and exporting organizations, private sector certification bodies and destination markets all participating. For the moment, these efforts have made progress in raising confidence levels, at least within the EU. The EU‟s 2009 threat to ban the import of five Thai vegetable groups, including basil, chilli, bitter gourds, eggplant and parsley was accompanied by an increase in the level of sampling at ports of entry. Subsequently, pesticide residue and micro-organism contamination issues escalated sharply in early 2010, with pest contamination emerging later in the year. The Thai government responded with a preemptive suspension of exports to the EU of the five affected groups from 1 February 2011, thereby avoiding an official EU ban that could have been extended to other markets. Subsequently, exports of 16 types of vegetables in the five affected categories were permitted on a case-by-case basis due to implementation of improved food safety standards and traceability systems. At the time of writing, this clearance had been granted to only 4-5 exporters. Thailand is also expected to resume exports of fresh chicken to the EU soon after the EU lifts its measures protecting against avian influenza, since the disease has not been reported in the Kingdom for three years. However, it remains to be seen whether such efforts to raise standards of food hygiene and surveillance will be sustained, and whether they will prove adequate to mitigate the threat of import bans in key destination markets such as the US, Japan or EU.
Rice pledging scheme
Rice policy is determined by the Rice Policy Committee, comprising the Ministry of Agriculture and Cooperatives and Ministry of Commerce. The Committee proposed six strategies for sustainable development to be implemented from 2007-1011, of which the most controversial aimed at rice price stabilization (BOT, 2007). Following abolition of export taxes in the 1980s the government withdrew from intervention in the domestic rice market, only to re-enter when the Thaksin government was elected in 2001. The government introduced a rice price guarantee policy which functioned as a mortgage programme. Farmers were offered low interest government loans “…against the pledge of rice, with the pledged rice cancelling the debt if rice prices do not meet a target.” (World Bank, 2007: p. 36). The programme, implemented by the Bank of Agriculture and Agricultural Cooperatives (BAAC) allowed farmers to sell their paddy to government agencies and also repurchase it within 90 days at a three percent interest rate. The programme was popular due to guaranteed prices set well above market prices,
resulting in large stockpiles of up to 5 million metric tons in 2005-2006. However, by 2008, stocks had fallen to 2.82 million metric tons. Critics claim the scheme undermined the market and failed to benefit farmers. According to Poapongsakorn (2009) the programme increased farm gate prices during the harvesting period, only to depress the market later in the season once rice stocks were released. Poapongsakorn also noted that the increased popularity of the scheme left a reduced supply of paddy, resulting in fewer local rice traders and central paddy markets operated by the private sector. These market inefficiencies could be expected to result in longer-term instability of food supply and food prices. The mortgage program was suspended for a time due to mounting costs, corruption and inefficiency, then relaunched in 2008 (The Nation, 2008b) at a time when world market prices were at their highest in 30 years. The motivation for such an economically questionable strategy may have been political rather than economic (Forssell, 2009). In September 2011 the government announced a controversial and populist paddy pledging programme, raising minimum guaranteed prices for farmers by more than 60 percent, to Bht 20,000 per tonne for jasmine paddy, and Bht 15,000 per tonne for white rice. The scheme has been widely criticized, with the high pledging prices predicted to result in losses to the State of up to Baht 250 billion (The Nation, 2011a). Concerns have also been raised that the scheme may breach WTO rules on subsidies, and may even fail in its declared goal of increasing farmer incomes.
This chapter has discussed the evolution of State intervention in agriculture and its shift from a policy of export taxation to protection for key strategic commodities. These policies are generally not regarded as having succeeded in improving the livelihoods of farmers, as they were implemented largely as a political response to satisfy powerful producer lobbies. Neither have price controls stemmed food inflation; indeed rural food price inflation is increasing faster than the overall CPI. Nevertheless, with populist policies in vogue, the newly elected government has introduced several new schemes purporting to help the poor and reduce imbalances between town and country, especially for marginalized areas in the south and northeast. These policies, particularly the new rive pledging scheme, appear to be aimed at strengthening social cohesion and political stability, even if this threatens Thailand‟s competitive position in world markets. The State‟s role in provision of public goods has included basic infrastructure, research and extension, access to credit, and pesticide regulation. The government‟s major rural infrastructure programmes (rural roads, large-scale irrigation and electrification from the 1960‟s to the 1980‟s) laid a foundation for subsequent private sector growth and expansion of the agricultural sector from the mid-1980s. Similarly, Thailand‟s research and extension (R&E) programmes--especially its crop breeding programmes-- grew substantially growth during the early 1970s, providing a strong foundation for the sector‟s subsequent expansion and growth in its global competitiveness, particularly for maize, cassava, sugarcane and irrigated rice. However, the public sector programme began to falter in the 1990s and private sector seed companies quickly built on the breeding programmes and genetic materials hitherto in the public domain, and integrated them into their own proprietal F1 hybrid breeding programmes.
The generally lax legislative environment has favoured private sector growth, particularly for seeds and pesticides. However, in the case of seeds, the lack of protection for new varieties discourages new investment in R&D, whilst the pesticide regulatory system appears to have become dysfunctional, with the recent re-registration programme overwhelmed with administrative and capacity constraints. Latterly, State policy has increasingly prioritized food safety, and major initiatives are currently under way on food standards, certification, and traceability. These are principally driven by pressure from destination markets, especially the EU. Private sector organizations such as producer and exporter associations, private certification bodies such as GLOBALG.A.P, and traceability solution providers are strongly engaged as partners in many of these programmes.
Role and impact of the private sector
The previous chapter has provided an overview of public policy in order to explain the evolution of Thailand‟s agricultural economy. This chapter turns to the role of the private sector in driving the sector‟s ongoing transformation. Following a brief introduction to the private sector‟s engagement in the sector, we focus on four major changes in the institutional arrangements within the agricultural sector, all predominantly private sector-driven. These are identified as follows: the rise of modern trade as a dominant force in retailing; the shift to contract farmers and outgrower production systems; the new emphasis on standards, certification and traceability to serve export markets, and increasing interest in the organic farming market.
Together these shifts help characterize the profound changes that have taken place in recent years - in production, supply chain management, markets, and quality management. We then examine some aspects of their aggregate economic outcomes and impacts on productivity and competitiveness. We also consider trends that disproportionately affect smallholder farm households, and linkages between the agricultural sector and the non-farm rural economy. It would be simplistic to attribute impacts or benefits to either public or public sector activities due to the complexity of the interrelationships and the many exogenous factors at play. For example, although agribusiness has taken the lead in driving adoption of contract farming, a conducive policy environment was a prerequisite to encourage domestic and foreign investment. Similarly, the success of tomato contracts in the Northeast was predicated upon earlier massive public investment on irrigation, roads and rural electrification. The chapter concludes with some evidence from the literature on the overall dynamism and competitiveness of the sector and its linkages to the non-farm rural economy, thus providing perspective for the more detailed commodity case studies in Chapter 5.
Private sector investment in the rural sector
The Thai Board of Investment (BOI) reported 599 investment applications by foreign capitalized firms (foreign capitalization 10% or more) in the period January to July, 2011 (up 34.9%, compared to the same period in the previous year), with a total investment worth of Baht 205.2 billion (up 89.4% compared to the same period in the previous year) (BOI, 2011). Small scale investment applications worth under Baht 100 million accounted for 56.8% of the total. Of these, 48 applications valued at Baht 10.5 billion were in the agriculture and processed agricultural goods sector. Though Thailand's Foreign Business Act (1999) forbids foreigners from owning businesses relating to farming and livestock, foreigners may still run farm businesses in Thailand in the form of joint-ventures in which Thai nationals must own at least 51 percent of the shares.
Increasingly, agility in harnessing appropriate technologies and best practices is essential to sustain export competitiveness products and retain market share. The private sector has invested heavily in agricultural R&D, and particularly in food and food processing. For example, agribusiness companies have developed new high-yielding hybrids of corn, vegetables, rubber and small animals. Meanwhile, agribusiness firms and supermarkets alike continue to invest in new production, processing and postharvest technologies, in new product development, and in transport logistics. Private sector companies are also actively diversifying their portfolios. Some examples of recent strategic private sector agribusiness investments are given below. Charoen Pokphand Foods (CPF) is Thailand‟s leading agro-industrial and food conglomerate. Its core businesses are livestock including chicken broilers and layers, duck and swine) and aquaculture (shrimp and fish). The company has also reportedly set aside some US$199 million for overseas investment in 2011. CP has also moved into downstream operations though its ownership of 7-11 convenience stores throughout the country. Saha Farms: In July 2011 the International Finance Corporation (IFC) (the private sector arm of the World Bank Group) signed an investment agreement in Bangkok to provide a US$70 million financing package to the Saha Farms group, one of Thailand's major integrated producers and exporters of poultry products. IFC's investment will contribute to the company‟s expansion, enabling it to improve productivity by constructing a new farm, relocating existing farms from suburban Bangkok to Lopburi Province, and extending its network of 2,000 contract farmers. The relocation will also improve income distribution and economic opportunities in the province and help stem population influx into Bangkok. IFC will also advise Saha Farms, currently a family-owned enterprise, on its plans to list the company on the Thai stock exchange. IFC's financing package consists of a US$35 million loan for its own account and an equity investment of up to US$10 million equivalent in the company's share capital. Danone: In January 2011 the French dairy giant Danone announced its aim to use Thailand as a production base for the ASEAN market following the implementation of the ASEAN Free Trade Area (AFTA). The company had already invested Baht 572 million to construct a processing plant in Ayutthaya that opened in early 2010. Nestlé: In August 2011 Nestlé pledged $120 million as part of a two-year growth strategy to increase manufacturing of its products, support expansion of existing factories and construct a new Nestlé quality assurance centre in Thailand. The company has extensive investments in coffee and milk production in Thailand. The company cited the increasing sophistication and focus on health and nutrition of Thai consumers, and Thailand‟s competitive advantage within the ASEAN region. Betagro: Originally an animal feed producer and distributor, the Betagro Group has diversified to become one of the leading players in Thailand‟s integrated agricultural business, with 31 companies under its umbrella. It is active in the feed, poultry, swine, and animal health businesses, and has recently turned its attention downstream, with a joint-venture Japanese restaurant chain, and establishing a foothold in the retail market with own-brand products. Betagro has also expanded into overseas markets. The application of technology, especially in the area of food safety and product traceability, has long been at the heart of the group‟s growth strategy, and is crucial to the company‟s success in exporting to the Japanese market. The company developed and installed its own e-traceability system in 2002 for chicken and pork- an industry first. The collaboration between Betagro and the National Science and Technology Development Agency (NSTDA) is a good example of a public-private partnership in technology development and adoption.
Mitr Phol: Mitr Phol, Asia's largest sugar producer, has also diversified its portfolio into renewable energy from ethanol and biomass, MDF fibreboard, and bioplastics. In March 2011 it announced an investment of US$ 123 million (3.7 billion baht) in new renewable energy projects, and will also expand the group's power business to neighbouring countries, starting with a biomass plant in China. The company has signed a 15-year contract to supply power to the Chinese government and is hoping to sell about 70,000 tonnes of carbon credits a year in addition to the 100,000 tonnes each from its biomass plants at Dan Chang and Phu Khieo. The group has also targeted development of other types of power plants including solar and co-generation, and has expressed interest in developing renewable projects in Laos, where Mitr Phol currently operates a sugar mill, but has put on hold plans for a similar operation in Cambodia, where it has a sugarcane plantation (Bangkok Post, 2011a). Mitr Phol conducts its own agronomy and breeding research programmes from its Sugarcane Research Centre at Phu Khieo. Mitr Phol is also planning to invest in bioplastics, which it anticipates will become a global trend. Thailand is ideal for cultivating energy crops such as sugarcane, maize and cassava as feedstocks. To prepare itself for the new business, the company is studying increasing the sugarcane yield to ensure adequate feedstock supplies. The company has allocated about US$ 333 million (Baht 10 billion) to improve irrigation to raise productivity in the plantations of its sugarcane farmers (The Nation, 2010). Other major agrifood conglomerates active in Thailand are Dole (U.S.), Cargill (U.S.), Nestle (Switzerland), Royal Friesland Foods (Netherlands), the Unilever Group (Anglo-Dutch), Siam Cement Group (Thailand), Grampiam (UK) and Ajinomoto (Japan). The above examples of strategic agro-industry investments underscore the private sector‟s influence in shaping the ongoing transformation of Thailand‟s agriculture. Companies and farms are switching to higher value products that can be further processed; there is an increasing level of specialization for production of high value products, as well as diversification to meet new demands of both domestic and export markets. The exacting requirements of importers in destination markets have driven a shift towards „professionalization‟ of farming to ensure traceability and consistent standards of product quality and safety. These processes have to a large extent been initiated by the private sector itself, without significant government intervention or support. As part of this process, substantial organizational and institutional changes were inevitable over the past decade, including the following: Growing concentration at all levels, particularly in the retail and processing sectors; Increasing farm size as firms seek economies of scale in production, food manufacturing, marketing and distribution; Private sector standards for food quality and safety are proliferating; Transactions of foods are increasingly arranged through the use of contracts; More large-scale retailers and manufacturers are relying on specialized procurement channels and dedicated wholesalers; and Food is increasingly being diverted into formal sector retail outlets, such as supermarkets, rather than being sold informally in local wet markets or via wholesale spot markets such as Talaad Thai or Sri Mommuang. These trends have been accompanied by, or reflect the intensification of technology adoption and / or a reconfiguration of institutional arrangements within the sector, driven overwhelmingly by the private sector agri-food industry and clients in destination markets. The following sections of this chapter examine four fundamental changes in institutional arrangements that help define the influence of the private sector on Thailand‟s agriculture:
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development: Thailand working paper
the rise of modern trade and vertical integration within the supply chain; the emergence of contract farming as a dominant modality of production; the growing importance of standards, certification and traceability to serve export markets; and the new interest in organics, driven by a burgeoning global demand.
The rise of modern trade
The „supermarket revolution‟ came quickly to Thailand. Since the 1980s there has been a rapid advance of modern retail food outlets, in response to newly-affluent urban middle classes, smaller families, and changes in lifestyle. The advent of the four types of „modern trade‟ retail food outlets (department stores, supermarkets, hypermarkets and convenience stores) has brought changes not only in consumption patterns, but has also influenced the entire upstream supply chain. The early appearance of giant periurban superstores became controversial when studies emerged of the wide radius of their impact on traditional „Mom and Pop‟ grocery stores in communities. In 2002, the Thailand Development Research Institute‟s report of its survey of traditional retail outlets (Thailand Development Research Institute, 2002) found a net closure rate of 15% of traditional retail outlets located within a one kilometre radius around a hypermarket. Traditional retail outlets were disappearing at a rate of 7.6% per year, while revenues at remaining outlets fell by 8% per year (Tokrisna, 2002). Despite policies to deter foreign ownership, by 2002 ten transnational food retailers were operating in Thailand; the highest in south-east Asia at the time (Reardon, 2007; Mutebi, 2007; Isaacs et al., 2011). According to Euromonitor International (2009d), hypermarket sales reached US$ 64 billion with a total of 163 outlets in 2008, a growth of 37 and 34 percent in terms of sales and number of outlets since 2005, respectively. By 2010, a total of 1,005 modern trade outlets (including hypermarkets, mini-marts and convenience stores) had been established around the country (Table 1). Thailand‟s four main hypermarket chains -- Tesco, Carrefour (now taken over by Big C), Makro and TOPS, together with nationwide convenience outlets such as 7-Eleven (the franchise in Thailand owned by the agribusiness giant CP Foods) have driven the development of higher quality food standards, offering a price premium for contracted producers (Boselie et al., 2003) and also created new domestic markets for organic, hydroponic and other products defined by production process rather than tangible quality attributes (discussed in the following section). Over the last three to four years these chains have diversified and expanded their markets through new retail formats such as minimarts (e.g. „Tesco Express‟) and latterly, „community malls‟ and the internet.
Table 1: Growth of discount stores 1996-2010 Discount stores 1 Tesco Big C Carrefour
1996 5 11 2 13 31
1998 14 20 6 16 56
2000 24 23 11 19 77
2004 60 40 20 23 143
2006 91 49 24 29 193
Siam Makro TOTAL
2008 106 66 31/7,16 0 41 244
2009 663 67 39 44 813
2010 782 106 69 48 1,005
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development: Thailand working paper
Sources: (1) Cited in Yodkamolsart, S and Suchinpram, V (2008) (2) Company Annual Reports, 2004-2010. Notes: 1/ Figures include convenience stores and mini-marts 2/ Carrefour withdrew from Thailand and sold its business to Big C in January 2011.
Tesco entered Thailand in 1998 in a joint venture with Charoen Pokphand Foods (Tesco Lotus); in 2003, Charoen Pokphand sold its shares to Tesco. When Tesco opened its doors, it stressed its intentions to source products locally. Whilst this sounds good, local sourcing does not mean local suppliers receive a fair deal. Modern trade retailers in Thailand have used their power to exert excessive pressure on producers, and have been accused by critics of adding to the culture of materialism and overconsumption, and of contributing to a „Westernisation‟ of Asian diets (Pingali, 2007). In 2002, all four major retailers were found guilty of unfair trading practices (Just-food.com, 2002). Supply chains have been both shortened and rationalized. Responsibilities and risks are increasingly transferred to producers, who must do more as wholesalers have been eliminated. For example, TOPS Thailand slashed its fresh produce suppliers from 250 to 60 while also eliminating many wholesalers. The remaining “preferred suppliers” deliver directly to a distribution centre outside Bangkok (Boselie et al., 2003). The consolidation continued: Ruben, Boselie and Lu (2007) reported that 60 percent of TOPS' fresh produce is sourced from only five preferred suppliers. Moreover, in modern trade supply chains the decoupling of procurement systems from local communities is intrinsic, along with the establishment of large distribution centres (displacing traditional wholesalers), and mandatory compliance with private standards under contract farming arrangements (Reardon et al., 2007). It was therefore hardly surprising that tensions resulting from these new institutional arrangements triggered a major backlash against transnationals among Thai organizations and activists concerned over the impact on small farmers and traditional community grocery stores. These movements also successfully co-opted anti-foreigner nationalist sentiment to advance their agendas. Increasingly, strategies aimed at including small producers in supermarket supply chains involve partnerships between public and private sector stakeholders. Contract farming is a typical and usually a required marketing arrangement for these farmers. Frequently, contract farming initiatives have been supported by donors and involve academic and/or other research institutions from developed countries, working in partnership with domestic institutions, centres of excellence and the private sector. Under such arrangements company field staff provide extension advice and conduct crop inspections in cooperation with the public sector extension service (DOAE). As early as 2003, TOPS and Thai Fresh United initiated a series of pilot projects involving Thai and Dutch stakeholders aiming to improve produce safety and quality, and facilitate certification of small producers according to Thai and international standards. This trend continues today, with the major retailers closely engaged in consultations relating to national safety and quality standards. Increasing intensity of competition caused by consolidation in Thailand‟s retail food market has triggered the introduction of small-scale mini-marts, such as Tesco Express, in addition to the proliferation of 7Eleven convenience stores, which themselves have boosted the market for ready-to-eat and frozen food products. Traditional grocery stores could never compete with these 24h outlets, and many have disappeared.
Contract farming and outgrowing as a dominant modality
Contract farming in its many forms has emerged as a powerful new paradigm for innovation in Thai agriculture, in many cases taking over the role of public sector extension systems as a primary source of technology, inputs and market access (Ellis et al., 2008). Moreover, evidence suggests that at least some forms of contract arrangements may contribute to alleviation of rural poverty (Setboonsarng, 2006). Contract farming systems have brought fundamental changes in the way farmers acquire technology, credit, and inputs, and also in their management of risks. Post-harvest processing, quality control, marketing, and systems of farmer organization may all be managed differently. Where land tenure remains a critical determinant for farmer investment in improving soil fertility, contract farming can offer new security and performance-based incentives for farmers to switch technologies and manage agricultural lands for the longer term. In the late 1970s the CP Group pioneered contract farming along the whole production chain, providing farmers with seeds to contract farmers, who produced raw materials for the animal feed that the company produced and supplied to its contract poultry farmers. Recent years have seen acceleration in the area under contract farming in Thailand, as a widespread response by private sector agribusiness companies both to market failures and the need to access R&D and technology more effectively. Contract farming offered companies an ideal channel to exploit new market opportunities more efficiently, whilst reducing market risk for smallholders. The expansion in contract farming in subsectors such as poultry and horticulture has been encouraged by successive National Economic and Social Development Plans, and supported by incentives from the Board of Investment. In 1995 the government approved policies to promote 12 agri-business industries in food processing and manufacture. CPF discloses (CPF Annual Report 2003) that it received the following BOI incentives to promote its contract farming efforts include the following: Exemption from import duties on machinery as approved by the Board. Exemption from income tax for certain operations for a period of 5 years and 8 years from the dates on which the income is first derived from such operations 50 percent reduction in normal income tax rate on net profits derived from certain operations for a period of 5 years commencing from the expiry dates in 2 above. A deduction of an amount equal to five percent of the increased income of certain promoted operations over previous year for ten years.
The government also facilitated private sector contract farming schemes by supporting interaction among smallholders and between them and private companies supplying inputs and purchasing products- the so-called “4-sector scheme” (Benziger, 1996). For a time, the Thaksin government promoted crossborder contract farming in Laos and Myanmar, but these efforts appear to have been abandoned due to security risks or logistic failures. As these industries developed, higher standards required for exports further encouraged the development of vertical integration and contract operations (Poapongsakorn, 2011). As a result, crops such as sugarcane, baby corn and asparagus have proven successful under contract farming arrangements. With baby corn, farmers sign contracts with village middlemen, who provide inputs, credit, and mechanization services. These contracts provide a guaranteed minimum price, but allow higher prices if the prevailing market price increases. Asparagus is treated slightly differently, with a main condition to guarantee a fixed price for the whole year, according to grade. Potato contract farming
in Chiang Mai follows the same model and is considered a successful example of private-public-farmer cooperation (Sriboonchitta and Wiboonpoongse, 2008). Over time, these developments have dramatically changed the institutional roles of different actors, with private companies taking on roles previously performed by government. The institutional innovations generated by companies are an implicit recognition (a) of the shortcomings of public sector structures and models; (b) of the benefits that can accrue from improving connectivity among actors; and (c) the need for agility in tailoring institutional capabilities to suit emerging circumstances. While contract farming in its many forms has long been employed in Thailand, its potential contribution to poverty reduction has only been investigated in recent years (Uathavikul, 2004; Zola, 2004a, 2004b; UNCTAD, 2005; Setboonsarng et al., 2006; Auansakul, 2006). For farmers, contract farming can provide credit, technology, chemical inputs, and access to markets from which they would otherwise be excluded. Moreover, contract farming can lead to improvements in income while reducing some of the risks farmers face from production and price fluctuations (Eaton & Shepherd, 2001; Winters et al., 2005; Zola, 2006). However, studies (e.g. Tiongco et al., 2008 for swine; Baumann, 2000 for tree crops; and Singh, 2005) also point to economic, social and environmental risks and implications associated with large-scale private sector expansion and vertical integration. In particular, in schemes managed for short-term gain rather than long-term sustainability, power inequalities may force vulnerable farmers into greater indebtedness and even landlessness, further compromising their livelihoods and food security. Critics such as Singh (2005) point to possible linkages between contract farming as operated by Thailand‟s largest agribusiness conglomerates and the consolidation of farm holdings seen in the shrimp subsector. Recent studies indicate that the benefits to growers of contract farming may be sector-specific. A recent review of successes and failures in implementation of contract farming in Thailand (Sriboonchitta and Wiboonpoongse, 2008) found that while the poorest farmers were not excluded from contract farming, special measures may be needed to facilitate participation. The study found that contract farming had succeeded in crops such as soybean, baby corn, sweet corn, potatoes, tomatoes and eggplant, as well as vegetable and corn seed. Vegetable processing and potato contracts were especially successful. Though these authors cited improved production and management skills and bargaining power as longerterm benefits to small farmers, they nevertheless conceded that farmers may be better off under noncontract production scenarios. Conversely, in the capital-intensive poultry industry, the loans required for participation are seen as a significant and long term drag on farmer income (Delforge, 2007). Whilst contract farming was conventionally implemented within a national context, Thailand has witnessed significant growth in cross-border contract farming. Thai agri-food companies, motivated by lower costs of land and wages and sometimes by land concessions in neighbouring countries, have turned to Laos, Myanmar, Cambodia and Vietnam to source raw materials for processing in Thailand. This initiative has been actively promoted by the Asian Development Bank as a follow-up to the establishment of the East-West and North-South Transportation and Economic Corridors within the Greater Mekong Subregion (GMS), and also by the Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy (ACMECS). With major infrastructure projects to connect the countries of the GMS under way, the coming years will likely see a strong growth in contract farming schemes within Thailand and the rest of the GMS to serve global as well as regional markets.
Standards, certification and traceability
Safety and private quality certification schemes incorporating farm-to-fork traceability serve as a proxy to replace the trust that used to exist when food was locally produced, and when consumers personally knew the producers of the food they ate. Today, affluent Thai and other Asian urban consumers are increasingly interested in the „story‟ behind the food they consume, and will often pay a premium, basing purchasing decisions on provenance or production system. Certification brings added benefits for producers and exporters in verifying the authenticity of high-value niche products such as organic or fair-trade produce- an increasingly important source of value-added in Thailand‟s agriculture. Authentication is therefore key to building and sustaining value addition through facilitating product differentiation. Thai agri-food companies have long recognized this, and major food exporters such as Betagro and Charoen Pokphand Group (CP Group) as well as the major supermarket chains have already implemented in-house traceability systems to provide key data to their customers, regulatory authorities and consumers. However, critics say this trend primarily serves the needs of rich urban consumers, brings no benefit to poor consumers and comes at the expense of resource-poor smallholders. Some emerging trends can be identified: The imposition of strict quality standards and increasing traceability requirements by the food industry are making such schemes a de facto price of market entry; New advances and combinations of enabling technologies (e.g. RFID) are removing traditional obstacles to, and improving efficiency of traceability systems, driving more transparent and faster information exchange among supply chain actors; The ability to authenticate origin and production systems holds promise to boost farmer income by encouraging shifts in production from low-cost commodities to niche markets for value-added premium produce with non-tangible attributes (e.g. „organic‟, „fair-trade‟ and „identity-preserved‟ produce). In an attempt to address international concerns over food safety in exported agricultural products, the private sector has spearheaded a drive to accelerate the local certification programme and raise standards. ThaiGAP (Good Agricultural Practice) is a voluntary private sector standard for safe and sustainable Thai farm products, which is certified as equivalent to the GLOBALG.A.P standard. The ThaiGAP standard assures food safety and quality at all stages along the supply chain, and claims to promote sustainable agriculture. ThaiGAP was developed by the Thai Chamber of Commerce (TCC), the National Food Institute, Kasetsart University (Kampaengsaen), the Thai Fruit and Vegetable Producer Association, the National Metrology Institute of Germany, and the German Technical Co-operation to help overcome barriers to certification under the GLOBALG.A.P scheme (e.g. language, costs and complexity of application). The TCC‟s food and agriculture committee believes that recognition of the standard will improve Thailand‟s export potential and improve access to the all-important EU market. The project prioritizes high-risk fruits and vegetables, followed by shrimp products (Bangkok Post, 2011b).
Thailand‟s first plantings of organic crops took place in 1991, pioneered by NGOs such as the Alternative Agriculture Network and Green Net who aimed to promote sustainable farming practices. Though by the mid 1990‟s a national organic crop standard had been drafted and ACT (the first private sector organic certification body) established, uptake was slow, with the area under cultivation for organic products in Thailand remaining below 1 percent of the country‟s total cultivable area (Willer and Kilcher, 2011). Nevertheless, in recent years a combination of factors has stimulated rapid growth of the domestic as well as the export market for niche products such as organic, fair-trade, ethical and „traditional‟ products, and the sector is now gaining momentum. Green Net reported that from 2008 to 2009 the organic land area almost doubled from 17,000 ha to almost 31,000 ha (Green Net, 2011). The number of certified organic farms also showed a rapid rebound in 2009 following the 2008 economic crisis, reaching a total of 5,358 farms on a total 30,725 hectares (Figure 8).
Figure 8: Certified organic area in Thailand 1998-2009 (ha)
Source: www.greennet.or.th (2011)
While consumers worldwide have become increasingly health-conscious and concerned over food safety, efficiencies and economies of scale created by the establishment of globally-connected modern trade supply chains have enabled small, remotely located producers in developing countries to access markets and help satisfy these demands (for example, Thai jasmine rice, and organic fruit and vegetables). Total production in 2009 was valued at US$44.7 million (Table 2 ), most of which was exported (Green Net, 2011). Thailand‟s 2010 organic exports (mostly rice) were valued at aboutUS$39.9 million (Thai Rice Exporters‟ Association, 2011).
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development: Thailand working paper Table 2: Thailand Organic Production and Value (2003-2009)
Source: Green Net (2011)
Gradually, mainstream agri-business have realized the opportunities, and initiated large-scale organic trade initiatives, often under contract farming arrangements. Opportunities in these markets are important factors driving the emergence of a new class of more specialized farmers geared to higher margins for their producerk. The establishment of the Thai Organic Trade Association and the Thai Organic Agriculture Foundation reflects the surge in commercial interest in organic farming in Thailand. Both domestic and export markets for organic food products are now in rapid expansion and price differentials between conventional and organically grown products, and also between conventional and food safetycertified products, range from 10-30 percent. Thailand‟s organic exports in 2009 were valued at US$110 million (Ministry of Commerce, 2010). Organic agriculture in Thailand covers rice, fruits and vegetables, wild products such as honey and herbs, and there is one certified organic shrimp producer (Sureerath Farm). Thailand has no organic livestock production. Several groups produce organic rice, mostly jasmine rice grown in Surin and Yasothon provinces, sold by two main traders - Capital Rice Co. Ltd. and GreenNet Cooperative. Most is exported (mainly to European markets) with only a small quantity sold locally (Panyakul, 2007). Thailand‟s state and private sector are joining forces in a bid to develop the country‟s nascent organic agriculture sector into a major export earner. However, finding the right incentives to convince farmers to make the switch from traditional methods is proving difficult. According to a quantitative study conducted by Panyakul (2007), total costs at the farmers‟ organization level for setting up organic certification exceeded the benefits for the initial and ongoing phases. However, the balance may by now be shifting, with the growing increase in demand for organic produce at home and among foreign visitors, and an even greater demand for such products in key export markets such as the US, Japan and EU. The Ministry of Commerce is actively engaged in promoting organic agriculture, providing training and access to funding to food chain actors – producers, processors, and exporters – to assist them take
advantage of the growing demand (MOC interview), and help reduce the annual cost of importing agricultural chemicals and pesticides (estimated at US$ 975 million). Although currently most organic products such as rice, fresh fruits and vegetables are sold as raw commodities there is a shift towards value-added processed products (e.g. sugar, cassava starch, palm oil and non-food products such as soaps and spa products). According to the International Federation for Organic Agriculture Movements (IFOAM), this subsector is in its infancy as Thailand cannot yet guarantee reliable year-round supplies of raw material to feed a large-scale processing industry (Gordy, 2010). However, this area has clear potential for expansion in an increasingly industrialized and capital-intensive production environment.
Impact of private sector activity
The changes in Thailand‟s agrifood systems carry significant implications for growth, poverty alleviation and food security. How have these market-driven changes affected small farmers‟ access to regional/global value chains? What has been the effect of this private sector activity on low-income households? The reconfiguration of supply chains, driven overwhelmingly by the private sector, has brought a rapid increase in value addition opportunities through agribusiness relative to primary production, with agroprocessing enterprises boosting demand and expanding markets. Private sector investment by agribusiness companies has raised farm productivity and produce quality, and stimulated market-led innovation throughout the respective value chains. However, the distributive effects of such changes tend to favour processors, exporters and buyers rather than farmers, who are price takers in the value chain, with relatively few options and no bargaining power. Thus, the observed modernization of agrifood systems poses particular risks for smallholder farmers. Because Thailand‟s national statistical surveys do not report the necessary data, quantitative evaluation of the direct impacts of agribusiness development on employment, value addition and rural incomes poses a significant challenge. However, trends in food prices, opportunities for off-farm employment and food security indicators offer important insights into the overall impact on livelihoods and welfare of smallholders. These are considered in brief below.
Food price inflation
Food price inflation (see Figure 5: General food inflation, low income inflation and rural inflation ) has led to an overall fall in net purchasing power for poor households, who spend a higher percentage of household income on food. Low-income households in rural areas are vulnerable to increases in non-rice food prices, whilst those in urban areas are vulnerable to increases in the price of rice) (Isvilanonda, 2011). But increasing rice prices should benefit farm households that are „net sellers‟. However, because the share of net buyer households is higher for households owning less than 0.8 ha, the value of net monetary surplus ends up disproportionately in the hands of large scale farmers. The impact of food price inflation thus falls disproportionately upon the poorest farmers, who tend to be net food buyers rather than producers.
Higher production costs
Farm input prices have risen sharply over the past five years, driven by spiralling oil prices. In his analysis of 2007 household survey data, Isvilanonda (2011) hypothesized that subsistence farmers/small-scale farmers have been hardest hit by the rise in farm input costs as their higher cash expenses are not fully compensated for by their often meagre market surplus of rice. His simulation results supported the hypothesis, finding that small-scale farmers have been severely impacted by rising operating costs; farmers with less than 0.8 ha being especially vulnerable.
Contract farming is reported to reduce overall risk and increase net incomes for participating farmers. Farmers participating in some corporate contract farming schemes are reported to earn more than nonparticipants (Setboonsarng, 2006), but these are mainly larger farmers, and we may anyway question the validity of ascribing a simple causal relationship on the basis that participants in such schemes tend to be more advanced, successful lead farmers. Contract farm participants may thus be self-selected, and would have earned more, irrespective of the institutional framework. This author has so far yet to find evidence of studies comparing incomes of participants and matching non-participant cohorts in Thailand. Mesolevel impacts on livelihoods will depend upon factors including the form of contract, the broader implications of large contract schemes on the community, the market, and on the environment. But clearly, access to markets for small farmers is not facilitated by new safety and quality compliance burdens imposed by transnational corporates in destination markets, or by the requirements of domestic modern trade buyers. There is increasing concern that the goals and credibility of certification systems may be subverted by certified players who purchase and consolidate the outputs of smaller uncertified farms in their locality (or indeed nationally), and sell/export them as part of their own output under their „legitimate‟ certification. Indeed, individual certification is often difficult to implement in practice due to the practicalities and transaction costs in dealing with large numbers of small scale farmers. In an attempt to increase smallholder participation in certification schemes, producer associations are working with GLOBALG.A.P and MOAC to explore models of group certification (known as „Option 2‟ under GLOBALG.A.P). In 2007, a private-public partnership project was initiated to develop ThaiGAP as a private voluntary standard. Supported by public and private sector funding from the Office of Small and Medium Enterprises Promotion, the Thai Chamber of Commerce and the Thai Fruit and Vegetable Producers‟ Association in cooperation with Kasetsart University, the National Bureau of Agricultural Commodity and Food Standards as well as the Ministry of Agriculture, the ThaiGAP standard was developed with a view to achieving international recognition through benchmarking with GLOBALG.A.P. Equivalence was officially recognized in 2010. In the aquaculture sector, FAO and Thailand‟s Department of Fisheries recently completed an initiative, working with farmer cooperatives in the provinces of Chonburi, Chantaburi, Petchaburi, Trang and Krabi, to establish functioning internal control systems within farmer groups in order to empower small scale producers and enhance their ability to reach compliance with mandatory as well as private standards (NACA, 2011).
Opportunities for off-farm incomes
During the last 30 years, rural Thailand has accomplished a high degree of diversification into off-farm employment. This is indicated by the strong labour outflows from agriculture into industry, and migration into the major cities. Since the country‟s recovery from the 1997 crisis, the share of rural non-farm employment (RNFE) in total rural employment again rose, fuelled, no doubt by the ubiquity of mobile phones and easy access to e-commerce throughout the country. Regional variations in the incidence of RNFE are also evident, as might be expected. At the macro level, agricultural growth and average size of landholding have emerged as the two most important determinants of the growth of RNFE in Thailand. This reflects the dearth of non-capital-intensive alternatives available to smallholders to set up their own business (Panda, 2008). The government‟s „One Tambon One Product‟ (OTOP) scheme aimed to tap into traditional indigenous arts and crafts to establish rural-based cottage industries to create new job opportunities and provide supplemental income. The programme was initially considered a success, but many SMEs subsequently complained of the lack of markets, and the programme since seems to have faltered due to this supplyside focus.
The country produces more than enough rice to support its population, yet many vulnerable rural households do not consume enough food to meet their basic energy and nutritional needs. According to Isvilanonda and Isriya Bunyasiri (2009), the household food poverty line in 2007 was at 779 baht (US$ 22.58) / person / month, or approximately 54 percent of the total poverty line. Using the official food poverty line, 416,410 people in Thailand (0.65 percent of the population) were affected by food poverty, with the problem concentrated largely in the rural North and Northeast. Food availability and accessibility have been challenged by both endogenous factors (the price/wage squeeze, poor terms of trade, and reduced competitiveness) and exogenous ones (global economic crisis, oil price, and globalization of food markets). In early 2008, food security suddenly entered the policy debate in the wake of the sharp rise in rice prices that itself followed in the wake of soaring oil prices. In 2002 a Strategic Plan Proposal on Food Security was drafted as part of the Establishment of Food Safety Master Plan for Domestic Consumer in Thailand under the Public Health Act (1992), and supported by the Health Department and the World Health Organization, Bangkok. In 2004, a study by the Office of the National Economic and Social Development Board (NESDB) conducted in 12 provinces found that 79 percent of farmers surveyed felt that they had low or moderate food sufficiency while practicing conventional chemical-based agriculture. Only 9 percent reported a high level of food sufficiency (Prachason, 2009). The review of Prachason confirms the impacts indicated by rising food price inflation, higher input costs, and barriers to market entry from small farm households. The four key components of food security (availability, access, utilization and stability) are all adversely affected by these trends. Finally, the rush by large agribusiness groups to plant rubber and energy crops, particularly oil palm, has also affected food crop production and could further accelerate land use appropriation and trigger further rises in the price of staples.
The long-term decline in agriculture‟s share in aggregate national output has already been noted, with the continuing contraction attributed in part to declining terms of trade for Thailand‟s exports. While for the moment Thailand‟s exports continue to ride high, it is important to take note that agriculture sector competitiveness over the past two decades has been predominantly supply-driven, grounded substantially in Thailand‟s excellence in producing its traditional crops, more or less using traditional methods. However, the sector‟s competitive position is being steadily eroded (MOC, 2009; Poapongsakorn, 2011). With realignment towards a market-led trading environment, growers and exporters today face unprecedented challenges, driven by a convergence of several exogenous factors: consolidation of global value chains; imposition of increasingly stringent, market-driven quality, safety and „niche‟ standards, and a fast-moving, globalizing trade environment. Export growth in particular is constrained by these new demands, with small and medium enterprises (SMEs) bearing the brunt of the impact as they largely lack financial or technological resources or skills to comply with new importer requirements for safety and quality standards. Today‟s standards-driven global trading environment thus presents small farmers with formidable barriers to market access (Markelova et al., 2008). Their relatively higher transaction costs compared with more „efficient‟ corporate production units render them increasingly marginalized and in extremis, commercially non-viable (Vorley and Fox, 2004).
Beginning with some examples to illustrate the continuing strong private sector investment in the agricultural sector, this chapter has considered the profound transformation that accompanied the „professionalization‟ of the sector, particularly over the past decade. The nature of this transformation is described in terms of four fundamental shifts in institutional arrangements – the rise of modern trade in retailing, the dominance of contract farming at the production level, the influence of standards, certification and traceability, and the growing interest in organics. All these trends are driven overwhelmingly by the private sector. Private sector investment in Thailand‟s agricultural sector has led to a reconfiguration of supply chains, clearing the way for opportunities to produce higher value products in place of raw commodities. There has also been a significant rise in downstream agro-processing enterprises, boosting demand, e.g. for ready-to-eat and convenience products. Whilst private sector investment has stimulated market-led technological innovation and raised farm productivity and produce quality, the distributive effects of such changes tend to benefit processors, exporters and buyers rather than farmers. Thus, the modernization of agri-food systems exposes smallholder farmers to increased risks, and can constrain their access to local and international value chains. Though there appear to be no empirical studies to quantify such impacts, farmers – especially small farmers- are clearly losing ground. On the production side farmers are increasingly vulnerable to downward price pressure from modern trade buyers and rising input costs, resulting in declining net incomes and spending power, and on the consumption side to food price inflation. We see these trends reflected in reduced employment opportunities – both farm and off-farm- in rural areas, and a sharp increase in overall inequality in Thailand since 2006, as measured by the GINI index (Figure 9). The Office of the National Economic and Social Development Board projects that the urban population (those living in municipal and peri-urban areas) will increase from 39.2 percent of the total population to 47.2 percent by 2028 (Kmonwatananisa, 2008).
Figure 9: Thailand GINI Index 1981-2009
Source: World Bank, World Development Indicators - updated March 2, 2011, cited in www.indexmundi.com
Thailand exports more than half of its total rice production (Poapongsakorn, 2011). In 2010 Thailand exported an estimated 9.03 million tons of rice, or US$ 5.3 billion in value. Whilst this was a retreat from the record peak of 10 million tonnes in 2008, Thailand still retains its position as the world's largest rice exporter. Thailand‟s exports accounts for 30 percent of the world‟s rice market (Thai Rice Exporters Association, 2011). However, Thailand's worst floods in half a century have inundated farms and mills, making it unlikely that it can meet its export targets for 2011. In the 1980s growth in rice production was driven mostly by area expansion, but was also stimulated by public investments in irrigation (Falvey, 2000; Isvilanonda and Bunyasiri, 2009). Despite this, average yields have remained stubbornly low compared with those of other rice producers in the region (Figure 10). Of the five countries shown, Thailand has the lowest per hectare yields.
Figure 10: Rice yields in Southeast Asia (t/ha)
Rice production has not undergone the same type of transformations seen in the chicken, cassava and horticulture sectors, where contract farming encouraged the development of highly productive growers to service the processors and export markets. For now, contract farming in the rice sector remains limited mostly to organic growers. The rice value chain is shown schematically below in Figure 11. Private seed companies are anxious to provide high-yielding hybrid seeds and at least five companies have active programmes in Thailand; however, their efforts have met with strong opposition from activists and the Rice Department itself. Nevertheless, the five companies engaged in developing rice hybrids are currently negotiating with the Rice Department to set up a national yield trial system under irrigated conditions (FAO, 2011; Poapongsakorn 2011). However, any yield gains from hybrid rice would primarily benefit the farmers in the irrigated Central region rather than the poor farmers in the rainfed Northeast.
An estimated 16 million Thai rice farmers, mostly in the Northeast region, remain poor (Vanichanont, 2004). In the Northeast there is little or no access to irrigation and smallholdings growing only one crop per year are common. Most of these small farmers rely on at least one family member working in a factory. Sometimes the farmers themselves will work at least part time in factories and must hire labour to help them in the fields.
Figure 11: Rice value chain
Source: Adapted from Maneechansook (2011)
In contrast, closer to Bangkok, farmers in the Central region have access to irrigation and can grow up to five crops over a two year period. Moreover, these farmers have more opportunities to diversify into high value added crops because of the availability of irrigation. These farmers tend to be merchant farmers and can usually make a living from their crops although family members often seek additional income from factory work. Since these farmers are closer to Bangkok than the farmers in the Northeast region, they have better access to jobs that pay more than the jobs available to farmers in the Northeast; the cumulative result is a marked disparity of income between the two regions (Ahmad and Isvilanonda, 2003). Poapongsakorn (2009) investigated the distribution of benefits of the rice pledging program, and found clear evidence pointing to distributional inequalities, with benefits increasing with scale of operation (Figure 12 below).
Figure 12: Distribution of benefits of paddy pledging programme by farm income decile 2006-07
Note: Assumes the benefit received by each farm household is equal to its share of marketable surplus of paddy. Source: National Statistics Office socio-economic survey 2006, cited in Poapongsakorn (2009)
Thailand‟s new Prime Minister Yingluck Shinawatra has committed her government to buying rice from farmers at higher prices to boost their incomes. In the midst of disastrous floods that have destroyed some 20 percent of the main season rice crop, the government launched its highly contentious rice mortgage scheme. The scheme differs fundamentally from the scheme introduced by the Abhisit government, as summarized in Table 3 below.
Table 3: Comparing rice policies- Abhisit vs. Yingluck
Source: BAAC (2011), cited in Isaan Record 7 Oct., 2011
However, the new pledging scheme has not been especially well received by farmers, particularly as farmers appear even more vulnerable to exploitation by millers. The price for unmilled rice is set at 15,000 baht, or around US$480 per ton from October 2011, compared to $330 a ton previously. For fragrant rice, the price will be over 25,000 baht or $830 per tonne. Critics argue that under the new scheme, Thai farmers will not benefit, whilst opportunities for corruption are greater through the creation of perverse incentives. Poorly regulated rice millers now have more incentive to replace good quality rice with poor quality rice, often by smuggling lower-priced rice from neighbouring countries. In addition, national politicians assigned to specific mills are expected to meet a certain quota of rice. This mandated relationship between millers and the politicians is unlikely to benefit farmers. Of even greater concern is the predicted impact on the overall competiveness of Thai rice, which will fall because of its substitutability by lower-cost Vietnamese rice. The Thai Farmers‟ Association has urged the government to set a paddy rice quota for farmers to prevent land owners from exploiting the rice mortgage scheme and increasing indebtedness among farmers (Bangkok Post, 2011c). In the domestic market, per capita rice consumption has fallen from 119 kg p.a. in 1990 to 100 kg p.a. in 2011 (Isvilanonda and Kongrithi, 2007; Institute of Nutrition, Mahidol University, 2011). This is attributed to changes in urban lifestyles and Westernization of diets associated with increased affluence. Nevertheless, total consumption continues to rise because of the growing population. The sharp rises in world rice prices are expected to be felt domestically too. With rice as a staple for rural households living near the poverty line, the expected jump in food price inflation is likely to adversely affect net household income and food security status for many low-income rural households who are net rice buyers.
The poultry sector is recognized as the country‟s greatest agro-business success story. Over the past 40 years the industry has been transformed from a backyard activity into a leading source of foreign exchange. Today the industry is one of the most advanced in the world. The private sector, represented primarily by large agribusiness units such as Charoen Pokphand Foods (CPF) has driven this transformation from family farm to technologically advanced, industrial-scale, vertically integrated operation. As a result, 90 percent of output is produced in large integrated operations or corporate farms. However, the small backyard operation remains a mainstay of rural areas and 98 percent of the country‟s poultry producers fall into this category (Figure 13, Heft-Neal et al., 2008).
Figure 13: Distribution of poultry production in Thailand
Source: Rushton et al., adapted by Heft Neal et al.(2008)
The structure of the value chain for vertically integrated poultry production was analyzed in detail by HeftNeal et al. (2008) and is summarized in Figure 14: A vertically integrated chicken supply chainFigure 14 below.
Figure 14: A vertically integrated chicken supply chain
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development: Thailand working paper
Note: Solid lines represent market transitions, while dotted lines denote internal resource movements Source: Heft-Neal et al. (2008)
The characteristics of poultry production and marketing systems in Thailand are summarized in Table 4 below.
Table 4: Summary of Poultry Production and Marketing Systems in Thailand
Source: Adapted from Taenkaew (2001), cited in Heft-Neal et.al (2008): p. 50
Chicken production increased from 82,000 tons p.a. in 1961 to 1.3 million tons in 2002, the peak production year before Highly Pathogenic Avian Influenza (HPAI) hit the country (Heft-Neal et al., 2008; FAOSTAT). The increase in chicken productivity was accomplished by using contract farming to introduce new crossbreeds that use feed more efficiently, combined with modern housing, ventilation and husbandry techniques. CP‟s quest for low-cost feed motivated the company‟s interest in hybrid corn seed, which spawned a new and profitable business unit for the company (Chia Tai). New technologies adopted by CP‟s contract farmers gave them a strong competitive advantage over smaller independent broiler farms, who could not achieve similar productivity and economies of scale. The 2004 HPAI outbreak severely reduced poultry exports and led to stricter regulations on imported Thai poultry meat. Importing countries banned imports of fresh and frozen chicken meat from Thailand, accepting only cooked poultry imports. In response to the HPAI challenge, the Thai broiler industry improved farming systems to mitigate animal health and food safety risks. All integrated producers now strictly implement bio-security measures from farm to processing. Nearly all broiler houses of integrated producers are equipped with evaporative cooling systems which, in addition to increased productivity,
reduce disease exposure and mortality rates. This has been a key factor for the absence of HPAI incidents since the last affected flocks were depopulated in November 2008. The net effect of the bio-security measures has been an expansion of integrated operations at the expense of contractors and small farmers. Most integrators in Thailand engage in a combination of contract farming and in-house farm production, giving them oversight over all production stages. On the other hand, smallholders have struggled to adapt but many have been unable to raise sufficient capital to meet new mandatory requirements. Their access to markets has eroded as large-scale closed systems became de rigeur (Heft-Neal et al., 2008). Still, backyard chicken raising of indigenous breeds remains common in small villages (Na Ranong, 2008). Since 2004 broiler meat exports have slowly recovered; by 2008 Thailand accounted for 4.6% of total global broiler meat exports, making it the 15th largest producer of chicken meat. By 2010 production had recovered to 2002 levels (Table 5).
Table 5: Thailand and world broiler meat production and exports
Production (ready-to-cook equivalent, 1000 MT) 2007 Thailand World 1,050 68,525 2008 1,170 71,718 2009 1,200 72,293 2010 1,280 75,991 2011* 1,380 78,283 % +8% +3%
Exports (ready-to-cook equivalent, 1000 MT) 2007 Thailand World 296 7,381 2008 383 8,413 2009 379 8,213 2010 432 8,793 2011* 475 8,913 % +10% +1%
Note: Chicken paws are excluded. Data for 2010 is preliminary. * Data for 2011 is forecast. % represents percent change from 2010 to 2011. Source: USDA (2011a)
Currently, only processed chicken products from Thailand are allowed into Japan. Despite the outbreak‟s negative effect, Thai poultry exports to Japan have been steadily increasing and are projected to continue to do so. In 2009 Thailand was responsible for 56% of Japan's prepared poultry meat imports; poultry exports to Japan for the January to May period of 2011 are already 28.8% higher than the same January to May period of 2010. Overall, Thailand's export growth is expected to increase by 15%, to US$ 219 billion in 2011 (DEP, 2011) amid renewed confidence to the expected lifting of the EU‟s ban on imported uncooked chicken meat, which was extended until 30 June 2012. Thailand poultry producer Saha Farms Group has mapped out a US$ 489.4 million (15 billion baht) plan to expand production capacity in order to meet higher anticipated import demand.
Thailand has a well-developed and diversified horticultural sector including fruits, vegetables, floriculture and ornamentals, and serves as an important source of income, employment and nutrition for many smallholder households. In 2008, fresh fruit and vegetable (FFV) exports were valued at US$1.3 billion (38.9 billion baht, or 4% of total agricultural exports) with the most important fruits and vegetables being durian (US$ 103 million, or 3.1 billion baht), longan (US$ 86.7 million, or 2.6 billion baht), asparagus (US$ 25.97 million, or 779 million baht) and baby corn (US$ 15.23 million or 457 million baht). In the same year, processed fruit and vegetables exports reached US$ 1.82 billion (54.5 billion baht) with the most important products being canned pineapple (US$ 570 million, or 17.1 billion baht), pineapple juice (US$ 183 million, or 5.5 billion baht), canned corn including baby corn (US$ 200 million or 6 billion baht) and canned fruit salad (US$ 103 million or 3.1 billion baht). By 2009, total exports of horticultural produce had reached US$ 3.38-3.79 billion (101.4-113.6 billion baht) per year, with fruits and vegetables accounting for US$ 2.34 billion, or 70.3 billion baht (OAE, 2010). The most important fruits and vegetables for export are longan, durian, asparagus, and baby-corn. Thailand produces over 140 kinds of vegetable crops. The main crops are chilli, sweet corn, baby corn, yard-long beans, Chinese kale, watermelon, cucumber, water spinach and pumpkin. Vegetable production steadily increased from 1985 through 2005, as did the area cultivated (Figure 15). In 2005 Thailand exported 1.3 million tons of vegetables and imported 280,000 tons (Johnson et al., 2008, FAOSTAT). Currently, vegetable production amounts to 4.7 million tons p.a. cultivated on an area of approximately 406,000 hectares.
Figure 15: Vegetable production and area planted (1985 – 2005)
In 1969, His Majesty the King established a series of Royal Projects in the northern border areas to promote high value vegetable production to alleviate poverty among the many ethnic groups in the mountains straddling the remote borders with Laos and Myanmar, and to give them a viable alternative to opium. These projects are considered a major success. Opium production has virtually vanished from the region and farmers enjoy annual incomes at or above the national average of 30,000 baht per year (Jayamangala, 2006). Today, many be people have access to high value export markets and a supply of nutritious vegetables (Sananikone, 2006). Though these projects were conceived as part of a drug eradication programme, the focus evolved towards diversification to expand income opportunities; later, under pressure from the demands of export markets, the emphasis has shifted towards compliance with safety and quality standards. In the Central region, west of Bangkok, large integrated corporate production and processing enterprises have sprung up (e.g. Swift, River Kwai, KC Fresh), many achieving GLOBALG.A.P or organic certification. As with chicken production, contract farming is the norm in the fruit and vegetable subsector. With rising urban incomes and increasing health consciousness of consumers, higher safety and quality standards have grown in importance for domestic as well as export markets. There is now a growing domestic market for vegetables branded as “safe” or organic. Such produce typically carry significant price premiums over non-branded produce (interviews and Johnson et al., 2008). Thailand‟s highest value export markets are Japan and the EU. The private sector has played a major role in penetrating these markets through (a) organization of packing houses that cater to surrounding farmers either through contracts or through informal agreements; and (b) through rigorous compliance with importing country and private importer standards for quality and safety. Asparagus has emerged as an attractive alternative high-value crop for smallholders under contract farming arrangements (Uathavikul, 2004). Revenues from fresh asparagus exports reached approximately US$ 28.1 million in 2005, representing 14% of Thailand‟s total vegetable exports (Wanamolee, 2008). A generalized value chain for fruits and vegetables is shown in Figure 16 below. The sector is dominated by smallholders, who sell either directly to a packinghouse or to an aggregator who consolidates produce and then sells to the packinghouses. Almost 95 percent of fruit growers belong to grower groups contracted to processors or exporters. These actors control 72 percent of the added value in the chain and thus hold considerable bargaining power in relation to grower groups due to their control over both domestic and export markets. Packhouses generally ship directly to wholesale and retail customers in the EU or Japan, usually by air from Chiang Mai or Bangkok. Note that in the case of the EU, pressure on meeting SPS standards has resulted in a system where growers and packhouses wishing to serve the EU market must be registered with the Department of Agriculture (interviews).
Figure 16: Supply chain for vegetables in Thailand
Source (Johnson, 2008)
The horticultural sector suffers from a number of constraints to competitiveness. Some of these are systemic, relating to Thailand‟s geographical distance from key markets such as the USA and EU, and increasingly stringent food safety and quality requirements of importing countries. Such constraints apply to most categories of fruits and vegetables, but particularly to fresh and perishable produce. Other constraints apply to specific value chains, for example unsustainable farming practices in tangerine production, fluctuations in supply of longan, and limited access to export markets for tropical fruits and vegetables. To understand the reasons for these constraints to subsector competitiveness in a rapidly globalizing trading environment, it is important to remember that Thailand‟s horticultural sector remains dominated by smallholders. These producers typically have limited access to almost all the necessary types of resources (e.g. financial, knowledge, technological capacity) deemed essential to participation in today‟s export trade environment. They seldom employ systematic modern farm management practices, quality control is often haphazard, and - of greatest concern - chemical residues are frequently detected. For tree crops, production planning is often inadequately managed, and the lack of coordination among producers sometimes leads to seasonal gluts. Use of inputs such as chemicals and water is often inefficient, sometimes posing hazards to health and the environment. Agricultural runoff, especially in upland areas, creates widespread but largely unreported environmental problems such as contamination of watercourses. Moreover, most fruit and vegetables are exported as fresh or chilled produce, with a correspondingly low level of processing and value-added. Processing is still limited in scope, and pineapple and corn are the only processed products of any economic significance. Thailand is the world‟s largest producer and exporter of pineapple and baby corn. Thailand‟s exports are particularly impacted by inadequacies and systemic inefficiencies in the regulation and enforcement of official food safety standards. As production in Thailand has expanded and producers have increasingly targetted higher value export markets, the government has strengthened monitoring systems to ensure compliance with overseas SPS requirements. Thailand‟s food quality infrastructure is shown in Figure 17 below.
Figure 17: Thailand food quality infrastructure
Source: Anon (2006)
However, despite these measures, Thai produce has remained as a persistent violator of EU standards for pesticide residues, microbial contamination and insect pests. The EU has recently sent expert teams to Thailand on three separate occasions to advise on remedial action (EU, 2010). Overseas buyers do not recognize test certificates issued by the government-owned Laboratory Centre for Food and Agricultural Products Co., Ltd (renamed in 2008 as the Central Laboratory (Thailand) Co. Ltd.). Neither do they recognize certificates of GAP compliance issued by the Department of Agriculture. However, accreditation of official control bodies in Thailand and their compliance with internationally accepted norms (e.g. ISO/IEC17025) are now being addressed to protect the long term viability of Thailand‟s export markets. The National Bureau of Commodity and Food Standards (ACFS) is spearheading reform of the accreditation and certification system to achieve ISO/IEC17025 compliance. In the meantime, exporters typically arrange for certification of their suppliers against GLOBALGAP or other standards by accredited private sector certification bodies. In view of the substantial and ongoing losses caused by food safety issues in exported produce, private sector producer groups and exporters have been actively engaged in working to find solutions, for example in collaborating to secure equivalence between the ThaiGAP and GLOBALG.A.P. standards, and also in developing traceability solutions. Recently a collaborative public-private sector initiative between CAT Telecom Public Company Limited (CAT), Department of Agriculture (DOA), National Bureau of Agricultural Commodity and Food Standards (ACFS), Thai Fruit and Vegetable Producer Association (TFVPA) and FXA Company Limited (FXA) signed a memorandum of understanding to coordinate an electronic traceability system named „CAT e-smart Farm‟. The new electronic food
traceability system designed by FXA aims to build trust from trace-back procedures of quality control process of 16 vegetables exported to EU. The system uses GIS technology to pinpoint the location of each GAP-certified farm.
Thailand‟s cassava industry was originally developed to serve the European and Asian animal feed industry. Thailand has since become the world‟s largest producer and exporter of tapioca starch and starch derivatives, with 70% market share and total export value of US$ 470 million in 2008. However, due to high local labour costs and rapid growth in competition from Vietnam and Indonesia, Thailand‟s competitive edge has been declining. Whilst in the early years production was achieved mostly by area expansion ( Figure 18), as with other crops, production has since grown mostly through yield increases. Figure 19, development of new varieties and distribution of high quality planting materials are managed by the government and the Thai Tapioca Development Institute, in collaboration with the International Centre for Tropical Agriculture (CIAT), through CIAT‟s Cassava Office for Asia at the Department of Agriculture in Bangkok.
Figure 18: Cassava- area planted in Thailand (ha) 1961-2009
Figure 19: Cassava - yields in Thailand (kg/ha) 1961-2009
Source: FAOSTAT (2011)
Though the private sector‟s role in varietal improvement has been limited, agribusiness has been active in production and processing of cassava, primarily for export markets, but latterly also to serve new demand from the domestic ethanol production industry. Private sector initiative was responsible for organizing plot consolidation among farmers to permit increased mechanization and efficiency in planting and production (Hershey and Howeler, 2001; Howeler and Hershey, 2001).
In 2008/09 Thailand produced 30.3 million tons of cassava on 1.3 million hectares (FAO RAP, 2007; Thai Tapioca and Starch Association, 2010). Production for 2008/9, 2009/10 and 2010/11 are estimated at 30, 22 and 21 million tons, respectively, while planted areas were relatively flat at 1.28, 1.168 and 1.104 million hectares, respectively (Thai Tapioca Development Institute, 2011; Thai Tapioca and Starch Association, 2010). The sharp decline from 2009 is attributed largely due to a devastating outbreak of cassava mealybug (Figure 20).
Figure 20: Cassava root production in Thailand 2001 to 2011
Source: (Thai Tapioca and Starch Association, 2010)
Thailand exports approximately 70 percent of its cassava production and is the world‟s biggest exporter (Poapongsakorn 2011, FAOSTAT). Almost all of Thailand‟s dried cassava exports (chips and pellets) are destined for China, whose burgeoning demand is stimulated by the country‟s growing energy needs combined with a ban on grain-fed ethanol plants and the increasing demand for animal feed. Some high value cassava starch exports (e.g. modified starch products) go to the EU. The cassava value chain comprises two major sub-chains (Figure 21) – the dried cassava and the starch value chains.
Figure 21: Cassava value chains in Thailand
Source: Kaplinsky, et al. (2011)
From 2009 to 2010, ethanol produced from cassava fell from 1.72 million litres a day to just 0.75 million litres a day, in line with weakening demand. The ensuing fall in farm gate prices have led to calls to introduce a new pledging scheme along the same lines as that for rice. Given cassava‟s strategic importance as an industrial and energy feedstock, it will be important to quickly recover from the declining production seen over the past two years, and which has been further impacted by the 2011 floods. Re-establishment of a stable supply will be particularly important as (a) twenty-five of Thailand‟s thirty-six ethanol facilities utilize cassava as a feed stock, and (b) Thailand seeks to increase the contribution of value-added products from cassava. For example, PTT Aromatics, a large Thai petroleum refining company, has announced that it will invest over US$150 million into the construction of a new jet biofuels facility using cassava. The new facility will be unique in that it will be the first to produce bio-based aviation fuel that meets new European regulations set to come into force in 2012. Furthermore, major bioplastics firms are evaluating Thailand as the site for future manufacturing facilities. PTT recently took a US$ 150 million 50 percent equity share in US-based NatureWorks LLC (a Cargill subsidiary), which produces polylactic acid-based bioplastics. A new biopolymer production facility in Thailand is scheduled to be completed by 2015. Thailand has also declared its interest in serving as a regional base for technology transfer. Under the „South-South Technology Transfer: Ethanol Production from Cassava‟ initiative, funded by the Global Environmental Facility (GEF), Thailand will serve as a focal point in forging cooperation with Vietnam, Laos, and Burma. The four-year programme will be launched in 2012, and includes building of two pilot ethanol plants in Thailand and Vietnam which could be taken to commercial scale with private sector investment In a subsequent phase (Bangkok Post, 2011d).
Thailand is an important rubber producer, accounting for about 35% of global latex production (OAE, 2011). The crop is an important source of employment, with approximately 600,000 working in rubberbased industries. With a total planted area of approximately 2 million hectares, production is concentrated in the Southern provinces, although the government plans to extend into the north and northeast of the country under an ambitious expansion programme: “Rubber Cultivation for Raising the Sustainable Income to Farmers in the New Planting Area Phase 1 (2004-2006)” The Office of Rubber Replanting Aid Fund (ORRAF), a State body, has launched a second expansion phase, focusing on the Northeastern region. By 2010, rubber cultivation in the Northeast had extended to over 940,000 ha (Figure 22), with the rest spread over the North and Central provinces.
Figure 22: Rubber expands to the northeast (2006-2010)
Source: Baumüller et al. (2010)
Production is mainly undertaken by smallholders (95%), with an average land holding of 3.2 ha (Priebprom, 2001). In 2010, total fresh latex production amounted to approximately 3 million tons, valued at US$ 8.1 billion (249.2 billion baht) was exported from Thailand in 2010, representing a 76 per cent growth from 2009 (Table 6: OAE, 2011). Almost all the country‟s rubber is now devoted to clonal rubber, originally introduced to Thai farmers by ORRAF.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development: Thailand working paper Table 6: Rubber- planted area, harvested area, production, yields
Source: Office of Agricultural Economics (2011), accessed from http://www.thainr.com
Rubber is grown on a total area of about 2 million hectares under five main farming systems as shown in Figure 23.
Figure 23: Major rubber-based farming systems
Source: Somboonsuke (2002)
Rubber is one of the country‟s biggest exports. Ninety percent of total rubber exports is in raw or unprocessed form, i.e. latex, rubber cup lump, smoked sheets, or concentrated latex. The remainder is exported as finished products such as tyres, gloves, or scientific instruments. At present, eight foreign tyre producers have invested in Thailand, (including Bridgestone Co Ltd Siam Rubber Co Ltd, Siam Michelin Co Ltd, and Goodyear (Thailand) Co Ltd. The majority of Thai companies produce gloves, elastic bands and condoms from natural rubber. China and India are currently the largest importers due to their booming economies. An overall picture of the rubber value chain is provided in Figure 24 below.
Figure 24: Rubber- domestic value chain
Source: Kaiyoorawong and Yangdee
The government‟s promotion of rubber has already had a dramatic impact on land use patterns. Driven by government policies, the production system was transformed from being a mixed agroforestry operation (“rubber forest” or suan somrom, “integrated plantation”) into a large-scale high-yielding clonal rubber monoculture. Current incentives to plant rubber are leading smallholders in southern Thailand to convert their farms to rubber monoculture; Rubber plantations now cover most of southern Thailand at all elevations. Rubber trees are shallow-rooted and their cultivation on lands with 40-60 degree slopes has increased the risk of erosion and landslides. Clearly such large scale land use conversion will have significant implications for the economic and food security of hundreds of thousands of rubber farming households, as well as agro-biodiversity and the conservation of forest ecosystems. Monocultures have replaced food plants and animals and undoubtedly to loss of local wisdom. From a sustainable livelihoods perspective, small farmers are vulnerable to market uncertainties, but the predominance of rubber as the primary source of income for many small producers ensures an adequate income flow to cover times of crisis (Viswanathan, 2008). In northeastern Thailand, traditional rice culture is yielding to the more profitable rubber cultivation, and according to Jitjam et al. (2009) has brought with it a positive impact on livelihoods. Labour migrants returning from the traditional rubber-growing provinces of the South are bringing with them new agronomic and production skills, production of bio-fertilizers, latex extraction methods, and sheet making. Associations and organizations of rubber farmers have emerged to represent farmers in marketing negotiations, and for procurement of inputs. Somboonsuke et al. (2009) have also researched the viability of alternatives to rubber monocultures. Their simulation model, covering ten years of data, compared three smallholding rubber-based farming systems: rubber-fruit, rubber-rice, as well as rubber monoculture. The study found that the rubber-rice system yielded the lowest and the rubber-fruit system the highest returns. This finding has also been supported by others (e.g. Simien and Penot, 2011), citing the need for diversification to prepare for possible future commodity price volatility and noting the potential of durian as a high-value „economic buffer‟ to counter any new drop in rubber prices.
The last 30 years have seen the expansion of upland cash crops above the rainfed lowland rice ecosystem, especially in the Northeastern region. With a fall in returns to rice relative to sugar, whose prices were supported by sugar mills, farmers converted low-yielding and drought-prone upper paddies into more profitable sugarcane plantations. Since then, Thailand‟s sugar industry has continued to grow rapidly, both in terms of production and refining capacity, in response to rising domestic and international demand (Figure 25). Sugarcane growing and processing is now one of Thailand‟s largest industries, and the country ranks among the world‟s top three sugar exporters. Total sugar exports in 2010 reached a record 95.7 million tons of cane, or 9.66 million tons of refined sugar in 2010 (up 35% from 2009). USDA predicts that 2011 may see a new record production up to 10.2 million tons from 100 million tons of cane (USDA, 2011).
Figure 25: Sugar production and exportable surplus 1980-2010
Source: Commonwealth Bank (2011)
Sugarcane is grown on an area of just over 1 million hectares. Although grown in most provinces, production is concentrated in the central region, which accounts for more than 50 percent of total output. There are currently about one million sugarcane farmers in Thailand. In the face of rising oil prices, demand for ethanol has further stimulated production and increased revenues in the sector. Nevertheless, cane yields are comparatively low, at 50 - 55 tons per hectare. Output growth is still largely based on expansion of areas under harvest; contributing factors are the low levels of mechanization, combined with the fact that more than 95% of the sugarcane area is rainfed, receiving no irrigation. In 2008 the Cabinet approved a National Action Plan on Sugarcane Development to drive primary production as well as improve efficiency. The plan comprised seven measures, involving land improvement, efficient use of fertilizers, water source development and management, logistics and geographical information systems, industrial restructuring, and mechanization. The overall goal was to increase efficiency and bring down costs, thus encouraging investment in secondary industries. In September, 2010 the government approved a US$ 100 million (3 billion baht) three year soft loan for cane growers to buy harvesters to improve efficiency. At the time of writing, loan applications totalling US$ 47 million (1.4 billion baht) have been received under this programme. Thailand‟s sugar industry has always benefitted from public subsidies, which is attributed to its strong political lobbying power (Warr and Kohpaiboon, 2007). Sugar is an export commodity, but the domestic sugar industry is protected by a system that taxes domestic consumers and transfers the revenue to producers. NRPs have averaged over 60 percent.
The role of sugarcane as a feedstock for a range of industries ensures strong and growing demand. Utilization of sugarcane and its products is shown in Figure 26 below.
Figure 26: Utilization of sugarcane
Source: Office of the Cane and Sugar Board (OCSB), Ministry of Industry
Though Thailand‟s 47 sugar mills typically have their own plantations to ensure reliable feedstock supply, this is supplemented by contract farming, either on a formal or informal basis. The mills do not deal directly with farmers, but operate via middlemen or “quota men” who recruit participating farmers to meet the mill‟s forecasted demand. In practice, sugar growers can only operate if they have been allocated such a quota, since the sugar mill is the only buyer in the area (i.e. the mills enjoy monopsony powers over growers). This system extends to cross-border contract farming by Thai companies to source cane grown in Laos and Cambodia. According to Arjchariyaartong (2006) farmers reported the following problems under such arrangements: High labour costs for sugarcane cutting Losses incurred through price penalties caused by non-standard cutting of sugarcane sticks at a height of about 6-8" from ground level Rejection of sugarcane by factories due to contamination by waste in the sugarcane (farmers must bear cleaning costs).
The private sector has played an active role in enhancing productivity through investment in advanced technologies. Perhaps the best example of an integrated, community-centred approach is provided by Mitr Phol Sugar Group, the country‟s largest sugar manufacturer, with an annual milling capacity of 1.3 million metric tons, 208,000 hectares under cane production and 5 mills around the country. The group
claims to place strong emphasis on community development, and has invested in community development projects impacting on 30,000- 40,000 households of cane farmers. Among its initiatives, the following are some examples (from Naktipawan, 2011). In 2002, Mitr Phol Sugar Group began utilising geospatial technologies through the Sugarcane Information and Management System (SIMS) initiative. SIMS launched a number of programmes to improve productivity, from planning and planting to cane harvesting. SIMS was subsequently integrated with financial and legal information on the Web, and the service was renamed as “Cane Smile.” SIMS and Cane Smile address the following issues: Land-use and cane area mapping: Coupled with remote sensing imagery and GPS, land use map and soil series map accurately identify and determine contract farmer's cane plantations. Additional data such as actual land usage, soil properties and prevailing climate help seek out potential areas for cane cultivation. Early crop monitoring: The applications assist in plantation zoning, gauging crop conditions and analysis, leading to the improvement of cane yields. This can also fill up any gaps spotted in data analysis. Cane production estimation: Geospatial technologies ensure precise measurement of plantation areas to support cane supply estimation techniques with mapping accuracy of 95% and surveying time cut by one-third. Harvest planning and monitoring: The harvesting sequence with cane farmers is mapped out and coordinated to cut the cane at its optimum sucrose content. Cane backlogs are eliminated and logistical obstacles in delivery smoothed out. Data on cane maturity and climate conditions for each plot of land are stored in the database memory for monitoring. Harvested fields are GPS marked on a real time basis, so the mill management is well aware of the remaining cane supply for each day. Irrigation planning: Remote sensing images help identify sources of water and design an efficient irrigation application for the farming communities, who review and work together with the mill management to build irrigation systems. Investment of > US$ 10 million (300 million baht) from 2011-13 to improve irrigation systems for its contract farmers covering 5,120 hectares in five provinces. At present, 40 per cent of Mitr Phol‟s contract farmers already have irrigation systems, and the company expects to increase that to 60-65 per cent by 2013 (The Nation, 2011b). Dan Chang Bio Energy Power Project and Phu Khieo Bio Energy Power Projects - two 40MW biomass-fuelled cogeneration plants, burning up to 90t/hour of bagasse to provide process heat and electricity, which is sold to the national grid. There plant can also accommodate alternative biomass fuels to ensure continuous power generation during the non-crushing season.
In terms of farmer support and assistance, the „Cane Smile‟ system comprises three main elements: GIS, a web database, and an online loan approval scheme. It offers prompt credit information, shortens loan processing time, and provides updated information on fertilizer and plantation management. This streamlined process reduces the chances of overestimating cane output and ensuing likelihood of loan defaults, and shortfalls of raw materials. Mitr Phol conducts its own R&D at its Sugarcane Research Centre, with a staff of 55 working on highyielding, high-sugar content, disease-resistant sugarcane varieties to suit its own farms as well as those of its contract farmers. The centre collaborates with BIOTEC, and is working in areas such as the use of molecular biology, particularly marker-assisted selection, to develop new smut-resistant varieties.
In terms of the impact of sugar production on smallholders, a mixed picture emerges. In 2009 the Alternative Agriculture Network – Esan published a strong critique of the expansion of sugarcane in the northeast of Thailand, and in the way farmers are disadvantaged by inequitable contract terms (Mapati and Sriprasit, 2008). Based on fieldwork in Dong Dib village, Pontong district, Roi Et province, AAN‟s main conclusions were as follows: Government promotion of bioethanol has encouraged farmers to grow sugarcane in their rice paddies and orchards. ANN is further concerned for the future of dry evergreen forests- a significant resource for non-timber forest products (NTFP) for the community, including vegetables, indigenous herbs, and mushrooms. Sugar factories sometimes renege on their promises to pay pre-agreed prices to farmers. Sugarcane needs considerable investment in irrigation and fertilizers to reach its production potential, and many farmers became indebted to the sugar factory as a result of loans for planting material, tractor rental, fertilizers, pesticides, and labour. Some farmers are forced to sell their land. Moreover, farmers may not even be able to check on the size of their debt until harvest time. The farmers‟ contracts with the sugar companies include several deductions, including additional fees for the Sugarcane Farmer Association, personal insurance contracts (a 1-year contract between each farmer and the sugar factory, committing the farmer to supply an agreed volume), and a quota insurance contract. Soil degradation and environmental contamination has been caused by the high quantities of fertilizers and herbicides used, including increases in abortions among buffaloes, fish abnormalities, and air pollution caused by the practice of burning the fields to make harvesting easier and quicker. To counter this negative perspective, Thai sugarcane farmers enjoyed record prices after a continuous surge over the past few years, with most of them able to improve their standard of living and expand their plantation areas. Though prices have since declined, The Nation (2011) reports that sugar has allowed entire communities in parts of Chaiyaphum and Supahanburi Provinces to improve their homes, buy new vehicles, expand their planted areas, and invest in their children‟s education.
Role of the donor community
Overview of donor support
Thailand has progressed rapidly from its status thirty years ago as a least developed country (LDC) to newly-industrialized country (NIC) and most recently in August 2011, its promotion to the ranks of „Uppermiddle-income-economy‟ under the World Bank classification. Over this period, bilateral and multilateral support has progressively dwindled as Thailand demonstrates its ability to fend for itself. Historically, Japan, USAID and Australia have been at the core of overseas development assistance to Thailand. Japan has long been Thailand‟s largest donor. Japan's Technical Cooperation to Thailand in 2009 amounted to US$48 million, covering all sectors. A large proportion of Japan‟s ODA to Thailand is provided as loans. Japan‟s share in the total amount of loans provided to Thailand during this five-year period exceeded 90 percent of total lending, including loans provided by international organizations such as the World Bank and ADB. The Japan International Cooperation Agency (JICA) terminated all grant aid to Thailand in 1993, except for grassroots and cultural grant aid. The World Bank and ADB were Thailand‟s main donors until the 1997 economic crisis. However, on 2 May 2002 plans for a US$300 million Agricultural Sector Program Loan (ASPL) provided by ADB to support Thailand‟s policy reforms in the agriculture sector were cancelled prematurely at the request of the Thaksin government. The official reason given was to reduce Thailand‟s external public debt, but the loan had become controversial for several reasons, including opposition to proposed introduction of irrigation user fees under the reform programme. Other key conditions of the proposed ADB reform related to minimizing government intervention in markets and prices, including elimination of government competition with the private sector and withdrawal from procurement and distribution of fertilizer. The loan also required a review of its intervention in other agricultural input markets to ensure equitable access of small and marginal farmers to inputs. Given the political interests at play, such conditions would have been difficult to satisfy. At the time of the closing of the loan, US$150 million (half of the loan amount) remained undisbursed. In the context of ADB‟s support for PSD it is also worth noting its inclusion as a loan condition of the implementation by the Department of Cooperative Promotion and DOAE of a countrywide program “to stimulate establishment by the private sector (cooperatives and farmer groups) of a network of one-stop service centers at regional, provincial, and district levels to facilitate trading of agricultural inputs and outputs, exchange of market- and technology-related information and access to credit.” ADB coordinates its efforts in Thailand closely with those of the IMF, World Bank, and Government of Japan, which are the other three major sources of official external (loan) assistance to Thailand, as well as UN agencies and bilateral donors. The total portfolio of external loan and grant assistance amounts to over $10 billion, of which the ADB, World Bank, and the Japan Bank for International Cooperation together account for 95 percent of the total. ADB interacts regularly with their counterparts in the IMF, World Bank, and JBIC, Australian Agency for International Development (AusAID), Canadian International Development Agency (CIDA), European Union (EU), Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (GIZ), Japan International Cooperation Agency (JICA), UNDP, and the Kenan Institute of Asia (which is supported by USAID). ADB lists the following opportunities for possible cooperation with the above agencies: education sector development and accountability activities with AusAID and UNDP; accountability activities with CIDA; SME development, decentralization, and agriculture/natural resource management activities with GIZ;
specialized financial institutions restructuring, SME development, area development, economic corridors development, and border town development with JBIC and JICA; poverty alleviation activities with UNDP; and SME development and accountability activities with the Kenan Institute of Asia. Apart from the World Bank, ADB and Japan, other donors have tended to provide their assistance mainly in the form of grants, and they too have reduced their bilateral cooperation with Thailand. Canada (Canadian International Development Agency: CIDA), New Zealand (New Zealand Agency for International Development: NZAID) and Australia (Australian Agency for International Development: AusAID) are moving in a similar direction towards terminating their bilateral cooperation with Thailand. For example, Germany (German Technical Cooperation: GIZ, formerly GTZ) implemented a bilateral cooperation programme from 2004 to 2010 focusing on competitiveness and eco-efficiency. GIZ has provided significant support to stimulate private-public partnerships in Thailand, via the Thai-German Programme for Enterprise Competitiveness, and its Eco-Efficiency Programme. Support was given to encourage mapping and matching of innovation in selected agro subsectors, in cooperation with consortia of universities, the Federation of Thai Industries and private companies. GIZ also provided marketing and technical support for exporters of organic shrimps to Europe, and has supported efforts to popularize ThaiGAP and gain equivalence with GlobalG.A.P. In the palm oil subsector, GIZ has worked with the Office of Agricultural Economics and the private sector to encourage adoption of sustainable palm oil standards, and with the Thai Organic Trade Association and Ministry of Commerce in promoting organic foods to health-conscious consumers. GIZ also implemented a joint project sponsored by the German Federal Ministry for Economic Cooperation and Development (BMZ) to establish „Northern Agro Industrial Clusters‟. Focusing on three agro sub-sectors (longan, tangerines, and saa (mulberry) paper) the project aimed at promoting competitiveness and eco-efficiency of Thai agro-industries, reducing production costs and improving product quality, productivity, environmental performance and export opportunity. Though GIZ and other donors have withdrawn from Thailand in line with its GDP growth, and as Thailand itself emerges as a donor country, GIZ continues its presence in Thailand with a programme on climate change mitigation, and its regional consultancy services arm. GIZ and other donors have recognized Thailand as a natural base for regional cooperation, and have empowered their Thailand offices to service their regional activities. For instance, following the closure of USAID‟s bilateral assistance programme in 1995, it reopened as a regional office in 2003. Germany and Australia are doing likewise. The ADB also opened a regional office in Bangkok in January 2005, to coordinate activities under the Core Environment Programme for the Greater Mekong Sub-Region Program (GMS Program), though ADB‟s Core Agricultural Support Program for the GMS is managed from ADB‟s headquarters in Manila. This program offers some support for subregional projects in agriculture, in which Thailand can participate. Thailand‟s relationship with the World Bank has progressed from that of loan recipient towards a true development partnership. Under the “Country Development Partnership” (CDP) programme launched in 2000, the Bank works with other partners to address specific challenges identified by the Government. Each CDP is led by the Government with support from other stakeholders, including the Bank and other donors. The CDP also serves as a vehicle for engaging civil society, the private sector, and other partners in the policy design, implementation, and monitoring process. Cooperation between the European Union and Thailand commenced in the 1970s. In the early stages emphasis was placed on assisting the Royal Thai Government‟s crop diversification efforts and boosting farmers' incomes. Over time the focus of cooperation evolved and shifted towards economic assistance in
line with Thailand‟s rapid growth. The EU no longer sees its role as a donor of development assistance but rather as a facilitator of knowledge sharing and a partner for policy dialogue on key development issues. As a result, EU and Thailand developed a cooperation strategy based increasingly on technical assistance to help meet Thailand‟s development priorities and serve mutual interests. Today the EC Delegation in Bangkok oversees a diverse portfolio of co-operation projects in Thailand; the Thailand-EC Co-operation Facility provides targeted EC support for strategic interventions on a demanddriven basis covering areas such as environment, health, higher education, technology and economic collaboration. For the period 2007–2013 a new and innovative partnership between Thailand and the EU places emphasis on these areas as well as on capacity constraints crucial to advancing Thailand's national development agenda, though this does not include agriculture in its scope. The EU has established a Thai-EU Business Forum as a first step towards its goal of obtaining approval for a EU-Thai Chamber of Commerce. In agriculture, the EU has supported projects related to strengthening the export capacity of Thailand‟s organic agriculture, strengthening official control systems for shrimp safety and quality standards, and Geographical Indicators. FAO‟s regional headquarters for Asia and the Pacific are located in Bangkok but current programs in Thailand are limited. FAO recently completed its implementation of an ADB-financed project on organic supply chains for smallholders for the GMS. The Kenan Institute Asia (KI Asia) is supported by USAID, and is perhaps unique in that unlike bilateral donors, it supports private sector development in the form of technical assistance and market research. KI Asia undertakes contract research and consultancy to help food processing companies, for example, in market research. Australia (ASEAN-Australia Development Cooperation Program (AADCP) funded a project from 2005 to 2007 coordinated by ACFS in Bangkok is to build confidence in ASEAN's ability to support domestic safe food production and consumption, and facilitate international trade and competitiveness. The two year project was supervised by the ASEAN Secretariat and ASEAN Expert Group on Food Safety (AEGFS) in cooperation with the ASEAN Food Safety Network (AFSN) and ASEAN Subcommittee on Food Science and Technology (SCOST). Thailand International Cooperation Agency (TICA) coordinates Thailand‟s own development assistance to neighbouring countries. TICA works closely with several traditional donors, both bilateral and multilateral, under a partnership framework of trilateral cooperation, including the Colombo Plan, donor countries (France, Hungary, Japan, Sweden, Singapore) as well as UN agencies such as UNDP, UNFPA, and UNICEF. Meanwhile, TICA is also exploring the possibility of extending the partnership arrangement with other donors, including Canada and Switzerland.
The Gates Foundation has funded research in Thailand on malaria, which is important in agricultural areas that border Cambodia and Myanmar. In addition the Gates Foundation provides support for the Population and Community Development Association (PDA), a Thai social enterprise that uses a marketbased approach to help empower poor farmers and link them to markets. Through its educational and training projects at the community level PDA serves as a model for market-based approaches to helping poor rural communities achieve independence. This is in contrast to government policies of cash payments to the poor that tend to foster a culture of dependence.
In 1969, His Majesty the King established a Royal Project in the northern border areas to promote high value vegetable production to alleviate the poverty among ethnic groups inhabiting the area, and to offer them viable alternatives to opium cultivation. For the diverse ethnic groups living in these remote highland border areas, these projects have resulted in vastly improved living conditions, access to high value export markets and a supply of nutritious vegetables for the urban consumers (Sananikone, 2006). Opium production has by now vanished from the region and farmers have enjoyed annual incomes at or above the national average of 30,000 baht per year. (Jayamangala, 2006). One of the most successful examples is provided by another Royally-inspired project- the Doi Tung Development Project (DTDP) in Chiang Rai Province, northern Thailand. DTDP has adopted the social enterprise model to offer landless „slash & burn‟ cultivators employment, a degree of land tenure, technical training, credit and market access. Over the past 22 years since the project‟s inception, the 29 participating villages have reversed the deforestation that had devastated the area, eradicated opium cultivation, introduced new crops such as coffee and macadamia that provide sustainable livelihoods, and helped develop new non-farm cottage industries such as weaving, saa (mulberry) paper-making and handicrafts. Social cohesion and dignity have been restored to drug-ravaged communities. In 2009 the DTDP won the Schwaab Foundation‟s „Social Entrepreneur of the Year‟ award for the East Asia region. Because the DTDP model has been successfully replicated in other countries including Afghanistan, Myanmar and Aceh, the approach may offer promise as a practical and effective alternative to conventional extension measures for enhancing livelihoods and social welfare in the rural sector (www.doitung.org).
This analysis has attempted to elucidate the roles of the public and private sectors as well as the donor community in shaping Thailand‟s agricultural sector. To illustrate the effects of state policies and private sector interventions, six key agricultural value chains have been described in overview as specified in the Terms of Reference. In addressing the three main research questions and sub-issues, the report has provided an overview of State intervention in agriculture, including the switch from taxation to support for the sector, provision of public goods such as research and extension, agricultural credit and commodity strategies. The report notes the fundamental importance of State intervention in infrastructure (rural roads, electrification and irrigation) as a prerequisite for private sector development. The subsequent retreat of the State in certain areas during the late 1980s, for example in large-scale irrigation infrastructure, market intervention and in the phase-out of monopsomy procurement, is also documented. Finally, the role of regulation in constraining technological progress is mentioned in the context of seeds, biotechnology and pesticides, and in terms of its attempts to limit the entry of foreign actors in the agricultural sector, especially in food retailing. Evidence from academic and grey literature is given in relation to the overall efficacy and impact of State programmes and especially their roots in political, rather than macro-economic logic, the political influence of powerful private sector conglomerates and the distributional effects of commodity support programmes. The political lobbying power of large agribusiness conglomerates has created a policy environment that protects exporters and large producers, while doing relatively little to improve livelihoods, food security and equity for small farmers. Turning to the private sector, the report notes that the State has in general allowed considerable operational latitude to the private sector. Laws and regulations are often unevenly enforced and easily circumvented. The private sector has flourished, and helped propel Thailand as one of the world‟s top food producers and exporters. State R&D spending on crop breeding was highly successful in the 1970s and 1980s, and was strongly supported by the international donor community. New crop varieties and knowledge emerging from the pipeline were incorporated into private sector breeding programmes that emerged as public sector spending declined and skilled plant breeders were lured from government. Since the 1990s the private sector helped transform the sector, responding to importer concerns over food safety and quality as well as trade globalization. The report uses four key shifts to highlight this transformation- the reconfiguration of supply chains through the rise of modern trade food retailing; the emergence of contract farming as a dominant production modality; standards, certification and traceability and the growing interest in organics. All these trends have been driven overwhelmingly by the private sector. Whilst private sector investment has stimulated market-led technological innovation, raised productivity and produce quality, critics note that the distributive effects of such changes tend to benefit processors, exporters and buyers rather than smallholder farmers who face increased risks and limited access to local and global value chains. Small farmers are clearly losing ground, whether through their vulnerability to downward price pressure from modern trade buyers, rising input costs, declining spending power, or to food price inflation. We see these trends reflected in reduced employment opportunities – both farm and off-farm- in rural areas, and a sharp increase in overall inequality. The prosperity and dynamism of rural
areas are in decline, and migration to the major cities is rising rapidly in the absence of suitable off-farm economic opportunities in rural areas. Thus we may conclude that though Thailand has been successful in reaching its Millennium Development Goal target with respect to poverty alleviation, this has been accomplished largely through growth of the industrial sector, rather than as an outcome of agricultural sector stimulation or rural development policy. Both State policies and private sector interventions have, whether by design or neglect, served large business interests rather than the rural poor. Recognizing this, the multilateral and bilateral donor community has attempted to address these concerns through policy guidance and reform to minimize market distortions and perverse incentives that affect the poor, and to give specific assistance to strengthen the competitive position of resource-poor small farmers. NGOs and social enterprises have likewise attempted to provide livelihoods to disadvantaged small farmers, and align economic welfare with sustainability goals.
As a “lagging sector” in the context of rapid and sustained transformation of the Thai economy, agriculture and the rural sector face a wide range of existing and emerging challenges. These include constraints on access to technological innovations, skills, knowledge, financing, environmental and resource management, land ownership, and water rights; as well as new demands of a changing international trading environment. The main responsible ministry, MOAC, is seen to have changed little over the years, leaving a widening gulf between its existing institutional structure and operations, and its ability to cope with the unfamiliar demands and changing rules of an agricultural sector in rapid transition. While public goods matter, some policy challenges are institutional, above all in linking small farmers to lucrative but increasingly demanding supply chains and ensuring that land tenure protects rights while allowing full-time farmers to use agricultural land. In restructuring toward land-intensive but less waterintensive commodity production there is a need to re-examine land and water policy. In the process of commercialization, laws are needed to facilitate land transfer and the increase in farm size. In the case of water, there is a need to shift from ineffective supply augmentation to demand management. Institutional reform or innovation is needed to establish water rights and regulate the allocation of water among sectors. Thailand has successfully developed its food processing industry to add value to raw food commodities, and must continue to drive the transition to higher value products to serve an increasingly sophisticated domestic, regional and global demand. Organic, geographical Indication (GI) and other niche products have already made inroads, and because the sector is increasingly market-driven, contract farming for both specialist niche products and commodities has been eagerly embraced by the private sector. This restructuring of agriculture will require more sophisticated and intensive management provided either by individual farmer-entrepreneurs or by contract farming. There is a need to promote professionalism in farming, to provide farmers with information on new farming techniques and to lower the cost in establishing business relations with modern food marketing firms. Farmers' groups may achieve economies of scale in obtaining extension services and in dealing with marketing firms. Technological change has been one of the main driving forces in the growth of agricultural productivity and Thailand will have to continue to invest in research if it is to remain competitive. However, there is a need to prioritize public sector research to focus on those areas not covered by the private sector.
Moreover, the public sector faces a shortage of qualified research and extension workers due to the unattractive reward system in government service. However, the overarching challenge will be to reduce the inequalities that have steadily widened in Thai society between urban and rural areas, and especially between the Central region and the periphery. Policy responses to this challenge have historically been populist in their aims, rather than addressing root problems, (i.e. they have been politically rather than economically driven) and their goals have almost always been subverted by inefficiency and corruption. Moreover, distributional effects mean that benefits from crop subsidies tend to accrue disproportionately to exporters, manufacturers and large agribusiness firms, with little if any remaining for smallholder farmers. For the government, the continuing exodus from agriculture, and the increase in rural-urban migration pose major questions in terms of its ability to implement effective policy reforms that can sustain rural livelihoods and reverse the erosion of the sector‟s export competitiveness. The government‟s laissez-faire approach has left the private sector accustomed to considerable operational latitude, which arguably has contributed to Thailand‟s export leadership in key commodities, but has brought with it a range of social and environmental issues. It remains a key role for government to ensure the private sector operates in a socially and environmentally responsible way and mitigates the adverse social and environmental impacts of intensifying farming systems. The government‟s role in provision of public goods (especially agricultural R&D) has steadily declined, and it remains to be seen to what extent the private sector will invest in R&D to address fundamental national challenges in situations where the benefits cannot readily be appropriated to recover costs (e.g. the stagnation of rice productivity, or competition for water). Discontent among farmers as a result of inequitable terms of trade within restructured supply chains represents an increasing threat to the sector‟s long-term sustainability, to the availability of capital to allow rural people to diversify their livelihoods while permitting specialised farmers to invest and innovate, and to social stability within rural communities. While Thailand‟s accomplishments in poverty reduction are attributed primarily to manufacturing growth, the creation of new off-farm opportunities will be critical to alleviating the concentration of poverty in rural areas, especially in the Northeast, and to help reduce the rural-urban income gap.
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Annex: Organizations interviewed
Affiliation Sector * Commodity
Thai Rice Foundation Biotechnology Alliance Association Singapore National Institute of Education, Nanyang Technological University Chulalongkorn University Kasetsart University Policy Institute for Farmer Welfare Thai Development and Research Institute Syngenta Cargill Cargill Pioneer Bayer CropSciences Thai Broiler Association Thai Sugar Millers Tapioca Development Institute Mechai Viravaidhya Foundation TG Agritrade CP Foods Sustainable Agriculture Foundation Fair Trade Original Kenan Institute Asia
G, N N
A A A, N, G N, G N, G P P P P P P P P N P P N N N
Rice All All All All All Cassava Chickens Corn All Chickens Sugar Cassava All Horticulture Chickens All Horticulture All
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development: Thailand working paper Department of Agriculture Thai Rice Exporters Association Thai Organic Agriculture Foundation Office of Agricultural Economics Department of Agriculture Department of Agricultural Economics Rice Department G P N G G G G * G = Government A = Academia N = NGO P = Private sector Horticulture Rice All All All All All
Prepared by: Platform Secretariat Published by: Global Donor Platform for Rural Development Godesberger Allee 119, 53175, Bonn, Germany Study conducted by: Overseas Development Institute, London Author: Wyn Ellis Photo credits: www.123rf.com/haak Date of publication: December 2011