Adding value in the agricultural sector under the AEC

Economy June 29, 2016 01:00

By Special to The Nation

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IS IT TRUE that Thailand’s agricultural products face more competition after the establishment of the Asean Economic Community (AEC)? Does Thailand have a disadvantage compared with neighbouring countries? And most important, are Thai farmers worse off?

Modern international trade theory states that free trade is not a zero sum game: Every country should gain.

Compared with Cambodia, Laos and Myanmar, Thailand’s agricultural sector faces higher wages and older farmers on average. Fortunately for the agriculture and food sectors, Thailand has far more experience in international markets and has adopted higher levels of technology. Hence Thailand specialises in agricultural products that are both more marketing-intensive and technology-intensive.

Moreover, Thai food exporters have more leverage to reduce the cost of raw materials as well as access to more varieties of agricultural products from the AEC countries.

These are examples of how to add value in Thailand’s current market and value-chain conditions. The added value plays a pivotal part in ensuring the success and survival of Thailand’s agricultural sector.

There are several schools of thought that elaborate on the|creation of added value; however, |the smiling curve that was first proposed by the founder of Acer is the most suitable in this case.

The curve is an illustration of value-adding potentials through different components of the value chain. The smiling curve measures added value against the stages in the value chain of an industry.

On the backward linkages or the input side, research and development to improve seed quality will increase yield and raise the productivity of farmers to match with their higher wages. Also, designing more varieties of processed food to respond to different tastes in different global markets will increase revenue as well as profit of the food-processing sector.

Moreover, adopting organic or sustainable products (that is, products that put extra focus on environmental or animal welfare) might be a better choice for farmers, since these products command higher prices. For instance, there is a QR (quick response) code on the milk label that consumers can use to trace which cow the milk came from, what has been fed to the cow and even how happy she is.

Moving towards forward linkages or the market side, value can be added from marketing, advertising, branding, specialised logistics, and after-sales services.

Branding is an important strategy to differentiate the product in order to capture higher market power and higher prices. For many years, rice was treated as a homogeneous product; however, nowadays Thai rice is perceived as a heterogeneous product. Consumers can find many varieties of rice, especially in the modern retailers, which may offer more than 50 different packages and prices.

Adopting higher standards, such as Good Agriculture Practice (GAP) and Hazard Analysis and Critical Control Point (HACCP), can partially guarantee the quality and safety of food. That will lead to higher returns of such goods.

Also, a traceability system is an important factor to ensure food safety. For example, in 2010, more than 1,000 Americans got sick because of a salmonella outbreak. A traceability system helped the industry solve the problem and control consumer panic in a very short time. To conclude, the Thai agriculture sector should benefit from the establishment of the AEC since it can expand into this huge market worth US$2.6 trillion and with more 622 million people.

The strategy should be to add more value through both backward and forward linkage within the AEC and international value chain. This would ensure sustainable prosperity in not only Thailand’s agricultural sector but also the AEC’s.

Thasanee Satimanon is with the School of Development Economics, National Institute of Development Administration.