Ongoing subsidy schemes weaken the agricultural sector and open the door for our competitors to take over with better productivity and sustainability
The Asean Economic Community (AEC) will provide both opportunities and threats to Thai businesses. But the prospects are not bright for the agricultural sector.
Thai rice will face direct and severe competition from neighbouring countries once Thailand is fully integrated into the AEC in 2015. This situation will be harder to deal with in the medium to long term if the government maintains flawed policies that are wrecking the competitiveness of Thai rice.
Many economists and traders in Thailand have voiced concerns about the negative impact that the rice subsidy programme will have on exports. The policy of shoring up the rice price may lift the domestic price of rice instantly – to the short-term benefit of farmers – but to what end if the farmers don’t enjoy a sustainable and better standard of living and increased productivity?
Spending on the rice price-guarantee programme is not insignificant – around Bt100 billion yearly. Middlemen and rice dealers benefit most from this expensive scheme, while the majority of Thai farmers remain poor. At the same time, some agro-businesses have relocated to neighbouring countries where costs are cheaper.
Populist policies that appeal to farmers may be important for the government, but without long-term goals they will eventually weaken Thai farmers to the point that they can no longer compete with their counterparts in other Asean countries – and thus no longer make a living.
The competitiveness of Thai rice has been eroded largely because of these government policies. The Board of Trade has revealed that some agro-industrial producers have already moved to neighbouring countries to capitalise on the cheaper commodity prices and labour costs there. For instance, Thai corn is currently sold at around Bt10.50 per kilogram, compared to Bt6 or Bt7 in neighbouring countries.
This trend will almost certainly continue after the AEC comes into existence, because these industries will obviously prefer to operate in places where they can source raw materials at the best prices. In addition, due to the AEC requirements for freer flow of goods, the Thai government may end up subsidising some farm produce that is smuggled into the country from neighbours such as Laos, Cambodia and Myanmar.
Thailand might still like to brag about being the world’s leading rice exporter, but soon that boast will no longer be possible. Last year Vietnam exported 7.1 million tonnes – one-fifth of the total international trading volume. Thailand is failing to take notice and improve its productivity and competitiveness. Our farmers will eventually lose out, as will the Thai public.
Vietnam’s success is down to the application of more appropriate methods. The authorities help farmers by, for instance, laying down proper infrastructure, such as irrigation. Around 90 per cent of that country’s agricultural land is fully and effectively irrigated, compared to 22 per cent in Thailand. Vietnam also enjoys high productivity partly due to the good quality of the soil. Vigorous efforts in research and development contribute to Vietnam’s higher productivity and yields. Vietnam’s current rice yield per rai of 884 kilograms compares to only 666 kilograms in Thailand.
Thailand is now competitive only in terms of niche markets. For instance, the yield per rai of fragrant rice in Thailand is 337 kilograms. But Vietnam does not produce this strain of rice.
To ensure the successful continuity of our agricultural sector, Thai farmers need to understand that farming is a business. They can only stay competitive via effective land management. They must not rely totally on government support through endless rice subsidy programmes or rice pledging programmes that do not help them strengthen their competitiveness and potential in the long term.
The government must adjust these policies if it really wants to improve farmers’ productivity. This will also promote food security. If this does not happen, no amount of money will be sufficient to save our farmers and our position as a leading producer of rice and other agricultural products.