1 Agriculture in Thailand Part B

2 IV. Markets 1.Factor Markets: Land Rights:  High tenancy rates in central and north (old rice areas), but small rates elsewhere  In 2003, total= 24%, central= 44%, north= 36%, northeast= 16%, south= 5%

3 IV. Markets 1.Factor Markets: Land Rights:  Unclear ownership of farmers’ land  20% of farmers are “squatters” in forest land  Problems of no incentive for land conservation  Problems of no incentive for land conservation  No loan collateral, and low productivity  No loan collateral, and low productivity

4 IV. Markets Labor  Seasonal demand and supply  More cash-wage labor VS household labor exchange  Supply from the Northeast, but no year-round surplus  More labor shortage in recent years

5 IV. Markets Labor  More farmers become “professionals” rather than “casual” –“professionals”: new generation, new technology coping with market changes and labor shortage; households obtaining >60% of income from agri., and heads of families have no second jobs – number of “professionals” rising from 0.94 million HH in 1986 to 1.36 million HH in 2004 (20% of total farm HH)

6 IV. Markets Credit  Traditional (informal) sources VS formal sources (Bank of Agriculture and Agricultural Cooperatives or BAAC)  Debt problem for small farmers  60% of farming households are indebted  Not enough long-term credit

7 IV. Markets 2.Output Markets: Not much government intervention, except in rice Not much government intervention, except in rice Arm’s length markets through middlemen: efficiently organized, except product quality Arm’s length markets through middlemen: efficiently organized, except product quality

8 IV. Markets 2.Output Markets: Contract farming: firms contract farmers in advance to produce and sell products at fixed prices e.g. poultry, pigs, tobacco, pineapples, vegetables Contract farming: firms contract farmers in advance to produce and sell products at fixed prices e.g. poultry, pigs, tobacco, pineapples, vegetables Contract farming: lower price risk for farmers, quality control, technology promotion Contract farming: lower price risk for farmers, quality control, technology promotion

9 IV. Markets 2.Output Markets: Sugar cane: pre-arranged 70:30 price split between growers and sugar millers, with negotiated basic farm price Sugar cane: pre-arranged 70:30 price split between growers and sugar millers, with negotiated basic farm price A case of bilateral monopoly, with political power to get subsidy from govt. and domestic sugar consumers A case of bilateral monopoly, with political power to get subsidy from govt. and domestic sugar consumers

10 V. Policies Land  Not clear in granting land rights for agriculture: natural forests VS economic forests  Clashes between officials and farmers over unclear “forest land”  Slow land titling for farmers

11 V. Policies Irrigation  20% of agri. Land is irrigated (VS rainfed)  Fail to increase efficiency of existing systems, wasteful use of water, and conflict among different users  Present system based on “unlimited supply”  “Pricing of water” still politically unacceptable

12 V. Policies Credit  3 modes: –In the past, commercial banks required to lend x% of deposits to agri.; but not so successful –BAAC, most successful with large impact, reaching 90% of farm households

13 V. Policies Credit  3 modes: –mortgage scheme, paddy-pledging scheme: farmers pledge their paddy with BAAC at guaranteed price, and get loans at subsidized rate; problems of small price impact, corruption, and expensive subsidy –Recent change to “price gaurantee” at minimum levels for rice, corn and cassava by the Apisit government

14 V. Policies Credit  3 modes: –Past debt deferment program, allowing farmers to postpone debt repayment for 3 years; problems of financial discipline and benefit to the not-so-poor farmers

15 V. Policies Pricing  Border measures on exports & imports  Heavily-taxed agriculture in the past; a controversial “rice premium”  Agricultural taxes reduced after 1982  Some protection from import for sugar, soybean, cotton, oil palm  Ineffective direct price intervention

16 VI. Future Directions  Three causes of agri. decline since 1980s: –Natural decline: agri. share naturally declines with economic growth; but not clear why this is always true analytically –End of land frontier: land surplus ended in 1980s

17 VI. Future Directions  Three causes of agri. decline since 1980s: –Dutch disease: industrial export boom causes baht appreciation, adversely affecting agri. exports (But the baht depreciation after the crisis has invalidated this argument? What about the recent baht appreciation?)

18 VI. Future Directions  Thai agriculture at a crossroads with no land surplus and good export market  Absolute decline of agricultural labor, and labor become more scarce  Not enough water during dry season

19 VI. Future Directions  Towards land-intensive, capital-intensive, and less water-intensive horticulture (fruits, vegetables, flowers) and livestock  Towards safe and organic food crops (alternative agriculture)  Different government role is required: away from price intervention, towards R&D promotion and extension  Role of genetically modified organism (GMO)?

20 VII. Recent Issues: Agriculture and the Economic Crisis in 1997  Thai agriculture was less affected than other sectors  Agriculture (rural economy) absorbed some laid-off workers  Reduced government spending in rural areas

21 VII. Recent Issues: Agriculture and the Economic Crisis in 1997  Rural community development efforts strengthened  The King’s “sufficiency economy”: produce for own consumption and sell the surplus to reduce risk in world market –Household, community, and national levels –Farm land use: 30/30/30/10  water irrigation + poultry & aquaculture/ rice/ other cash crops/ housing & backyard production

22 VII. Recent Issues: Agriculture and Thaksin’s Policy  Kitchen of the world  Debt postponement/deferment  Asset capitalization  One Tambon One Product  Free Trade Agreement with China, Australia, NZ and impact on temperate-zone fruits, vegetables, and dairy products

23 VII. Recent Issues: Agriculture and High Oil Prices  High oil prices since 2004  biofuels become a more competitive substitute  Ethanol from sugar (molasses), maize, and cassava  Biodiesel from oil palm, coconut, jathropa, and algae

24 VII. Recent Issues: Agriculture and High Oil Prices  Agricultural wastes can be used as fuels in producing electricity, e.g. sugar cane waste, paddy husk, cassava roots, wood waste, as well as bio-gas from animal waste