Rising crop prices a chance to close urban-rural divide

The rice price has increased along with the price of corn since a large amount of corn has been used in the production of alternative fuel. I also tried to explain that this is a good opportunity for Thailand to enhance the income of people in the farming sector to outpace the income of people in the industrial and service sectors. This big boost in income for those in the farming sector could strengthen domestic consumption and make it a more meaningful growth engine for the Thai economy.

Some economists think that what I wrote is a bit of a dream since farm income constitutes only about 10 per cent of the GDP. How then could it increase by a higher amount than the industrial and service sectors? I only indicated that the income of the farming sector is increasing at a higher rate of growth. Representing only a small portion of the GDP, farm income cannot increase by a larger amount than other sectors, even if it does have a higher rate of growth. However, the increase in farm income this time is at an all-time high and has generated much income for farmers and people upcountry to spend on necessities.

The attached table shows the rate of increase in the prices of four major crops this year compared to the same period last year. All increases have been very high and have come at the same time, while at the same time the price of sugarcane also increased by 33 per cent from Bt600 per tonne to Bt800 per tonne, resulting in a big jump in farm income in April, May and June of as much as 39.3 per cent, 69.4 per cent, and 52.7 percent respectively.

This big surge in crop prices has generated a large increase in the income of upcountry farmers, who are much in need of basic necessities. This led to a substantial increase in consumption. The increased spending of people living in urban areas, as well as the increase of crop prices at a higher rate than the prices of consumable and durable products in general, have led to a higher than normal increase in consumption in rural areas. This has compensated for the slowdown of consumption in the urban area, and thus total private domestic consumption grew by 2.4-2.6 per cent in the first and second quarter, which was not much different from last year.

Information from experts in agriculture indicates that the prices of all five crops at this level are quite high compared to costs and mean a good profit for farmers. This big increase in income enables farmers to repay some of their debts along with spending more on necessities. Crop prices at their current level give farmers hope that they will have such profits again in the coming season, which would enable them to pay down their debts. When people upcountry are rid of their debt burden and have enough income for the basic necessities, domestic consumption would strengthen and that would lead to the growth of trade activities and service businesses located in rural areas. The gap in living standards between rural and urban areas should then be reduced and the country would be more stable economically as well as socially.

Now is a golden opportunity for Thailand to strengthen her economy and social well-being, and to enable people in rural areas to get rid of their debts and live better lives through proper management to ensure that the prices of all major crops remain at a profitable level.

Sugarcane and tapioca are used for producing ethanol, which is blended with benzine to produce gasohol. At the moment, 8 to 10 million litres of gasohol are being produced daily, while demand is as high as 18 to 20 million litres. Refineries are gradually adjusting their production mix and are said to be capable of producing up to 20 million litres per day of gasohol within two to three years. At the same time, while the total capacity of ethanol plants per day is now about 1.5 million litres, and current production is about 1.2-1.4 million litres per day, of which 800,000 - 1,000,000 litres are used for blending with Benzene to produce gasohol and 400 litres per day are exported, there are more ethanol plants coming up in the next one to two years which would bring total capacity of ethanol to 3 million litres per day. These movements indicate that there will be increased demand for sugarcane and tapioca as raw materials for producing ethanol at the volume of more than double current production.

It should not then be difficult for government officials to see to it that the price goes up steadily. As for palm, which is used to produce biodiesel, it is known that the supply of biodiesel is way below the demand since supplies of palm, used for producing palm oil as well as biodiesel, are limited and it would take a few years for new palm trees to grow and generate palm nuts. However, this implies an opportunity for a rise in the price of palm nuts.

As for rice, the recent price increase is not only indirectly caused by the increase of the oil price, but also by natural disasters in other producing countries in the last season. For the upcoming production season, provided there are no natural disasters, supply should increase to a normal level and bring the price down from the current level. Since the current price from April to July is about 100 per cent higher than it was last year, there is room for the price to come down to a certain level, which is still considerably higher than the cost of production and that would then generate profit for farmers. It is necessary for government agencies to intervene in the market right after harvest season to prevent the price from going down beyond the proper level. Stock financing is one way of market intervention. However, the pledging price should not be too high and result in too much of a stockpile that could not be sold without incurring too much of a loss. The accommodation of a high stockpile would finally prevent the market price from going up. If this scheme is executed effectively, so that the price of rice in the upcoming season would not go down to 2007's level but kept at a price that is profitable for farmers, this would benefit them and society greatly.

I am doubtful because besides the Commerce Ministry, who else in this government is interested in crop prices? I believe that at this juncture, the prices of major crops are more critical to the progress and economic as well as social stability of the country than any other economic factor. Definitely, it is more important than the interest rate issue, an argument that has been blown out of proportion. In my view, whether the interest rate is reduced or maintained should not make much of a difference as the economy is already growing at a rather high rate of 5.7-6 per cent in the first half. However, if the price of major crops would reduce or not increase to its potential, the impact on the economy will be widely felt and the rural area would miss the current opportunity to progress.