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Published on January 16, 2008

The Land Development Department has just finished spotting areas of land for additional palm plantations, and the Agriculture Department is preparing seedlings to suit each area while researching new technologies with which to raise crop yields.

"We can't expand the plantation areas, so we need to look at the yields," said Office of Agricultural Economics (OAE) secretary-general Apichart Jongskul.

The office is responsible for demand and supply forecasting.

The ministry plans to increase palm-oil yields from 3 tonnes per rai, or 17 per cent of palm-kernel output, to 3.5 tonnes. As well, under a five-year plan approved by the Cabinet and starting this year, palm-plantation areas will be expanded by 2.5 million rai. Degraded and deserted areas in the South, the Eastern Seaboard and Central parts of the country are the main targets.

Apichart is optimistic about the plan's success, with financial support for farmers coming from a Bt9.5-billion Agriculture Ministry loan package and another Bt7 billion from the Oil Fund and the Bank for Agriculture and Agricultural Cooperatives. He said loan interest of 7.5 per cent and 7 per cent, respectively, could be further reduced, because output would be destined mainly for biodiesel production and reducing Thailand's imports of crude oil.

Plantation areas must also be expanded further, because even with an additional 2.5 million rai planted with palms, output will still fall short of meeting the Energy Ministry's plans for increasing the proportion of biodiesel mixed into conventional petroleum-derived diesel, he said. The Energy Ministry plans to raise the amount of biodiesel progressively, from 2 per cent mixed into the B2 fuel that all retailers will be selling next month to 5 per cent, 50 per cent and eventually 100 per cent, or pure biodiesel.

Last year, Thailand produced 7.27 million tonnes of palm kernels, which produced 1.24 million tonnes of palm oil. Of this, 850,000 tonnes were used domestically and the rest exported. Palm-oil production is expected to climb to Bt1.47 million tonnes this year, but domestic demand is forecast to rise to 920,000 tonnes, due mainly to the hunger of biodiesel plants. The OAE sees this domestic demand growing to 980,000 tonnes next year and 1.2 million tonnes in 2012.

"At the end of this [five-year] plan, we should have enough palm oil to support the B50 [fuel containing 50-per-cent biodiesel] policy, but it'd be far-reaching to aim at B100," he said.

To ensure the smooth conversion of additional palm oil into biodiesel, Apichart said the Industry Ministry would need to entice manufacturers to set up plants around new plantation areas. Palm kernels must arrive at factories within 24 hours of being harvested, so these facilities must be located within a 200-kilometre radius of plantations.

Although there is no guaranteed price for palm kernels, Apichart is confident higher demand will keep the price above Bt3.50 per kilogram. Farmers are able to break even at Bt2.50 per kilogram, and the current price is Bt5.

With prices continuously escalating, he foresees difficulty for the Commerce Ministry in controlling consumer prices. To ease speculation-driven shortages, the ministry recently allowed imports of palm oil despite the possibility of hurting domestic prices, with a new crop of palm kernels expected to reach the market next month.

Aside from palm oil, the Commerce Ministry is also expected to suffer a sugar-driven headache. Due to ongoing disputes with sugar mills, farmers who suffered from low prices last year may turn to other crops. This will hurt the country's 11 ethanol plants, which need sugar molasses as a raw material. The OAE predicts the plants will need 1.87 million tonnes of molasses this year, but output will be only 1.48 million tonnes.

"Hopefully, once sugar prices go up, farmers will once again plant sugar cane," Apichart said. "Still, plantation areas may not increase beyond 6.4 million rai, which was the total area last year, so we'll need to increase yields."

He said farmers might be more enthusiastic about planting sugar cane if there were a benefit-sharing scheme between sugar mills and farmers for revenue from molasses. At present, farmers make money only from sugar cane.

It would also be a plus if domestic sugar prices were allowed to move in line with world market rates, because this would encourage sugar mills to sell syrup for ethanol production rather than turning it all into sugar for export.

Thailand's sugar production this year is expected to be about 7 million tonnes. Of this, 5 million tonnes will be exported.

The OAE is also optimistic about tapioca prices, which are now Bt1.90 per kilogram, against a farmer break-even point of Bt1.20. Still, with higher demand for ethanol production from limited plantation areas, the Agriculture Department faces the need to raise tapioca yields from 3.2 tonnes per rai to 3.5 tonnes.

"Because corn is more expensive, China and Europe need more tapioca for animal feed and energy production. This will raise prices further and could lead to farmers switching land from sugar cane to tapioca," Apichart said.

Last year, 7.3 million rai was planted with tapioca, producing 26.72 million tonnes of cassava root. The area is expected to increase marginally to 7.4 million rai this year, for an output of 27.97 million tonnes. At present, domestic consumption demands 6 million tonnes. The rest is exported.

As more farmers turn to higher-priced crops, this will inevitably lead to smaller areas of food crops, and food prices will rise as a consequence. As supply and demand pressures intensify between the need for energy and for food, Apichart said cooperation between the Agriculture, Energy, Industry and Commerce ministries was essential in setting a national agenda.

"Agricultural zoning is not working. In this situation, consumers will have to bear higher food prices," he said.

The Agriculture Ministry will also have to investigate whether farmers are really benefiting from higher prices for farm goods or simply being forced to bear higher costs of living like everyone else.

Achara Deboonme

The Nation