Competitive Commercial Agriculture in the Northeast of Thailand

by

Benchaphun Ekasingh Chapika Sungkapitux

Jirawan Kitchaicharoen Pornsiri Suebpongsang

August 2007

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Preface

This study is a comparative analysis of competitive commercial agriculture in seven countries, namely Brazil, Thailand, Mozambique, Zambia and Nigeria. The focus is for sub-saharian African countries so that policies and future investment in such countries can be designed. In such an attempt, a backward look into regions with similar bio-physical constraints like the Northeast of Thailand and the cerrado region in Brazil. These sets of projects is called CCAA for short. Much of the research for Thailand is mostly drawn from literature review although for the value chain methodology, a combination of existing studies and collection of primary data was done. The analysis of value chain followed a set of uniform templates developed for this study by the World Bank in order to ensure comparability. What happened in Thailand and Brazil in the last four decades can be analysed and lessons can be drawn from such studies. The authors recognize several limitations of this study. While there are many experts on the Northeast Thailand, we have attempted this study hoping that it can positively contribute the different points of views and methodologies. The comparative nature of this study will be very useful and will further the thoughts and debates on competitive commercial agriculture for many parts of the world including the development in the Northeast Thailand itself. Both positive and negative impacts can happen and it is in this context that we compile this study. We wish to thank Dr. Michael Morris from the World Bank who has efficiently coordinated this project over much of 2006-2007. We also wish to thank the Italian Trust Fund and the United Nations Food and Agriculture Organization (FAO) which finance our research. We would like to specially thank our four research assistants, Ms. Malirat Nimnuan, Ms. Suratsavadee Poontachak, Ms. Sudarat Nantanoi and Ms. Kamolrat Changthong . They have worked very hard for us and we appreciate them greatly.

Benchaphun Ekasingh Chapika Sungkapitux

Jirawan Kitchaicharoen Pornsiri Suebpongsang

Department of Agricultural Economics

and the Multiple Cropping Center Faculty of Agriculture,

Chiang Mai University, Thailand

August 2007

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Table of Contents

Preface ...................................................................................................................................ii List of Figures ......................................................................................................................vi List of Tables.......................................................................................................................vii List of Boxes .........................................................................................................................ix List of Acronyms...................................................................................................................x Executive summary ...........................................................................................................xiii 1. History of Competitive Commercial Agriculture in the Northeast Thailand.........1

1.1 Introduction to the Northeast of Thailand ........................................................ 1 1.1.1 Topography .................................................................................................. 1 1.1.2 Geology and soils ......................................................................................... 1 1.1.3 Climate and rainfall .................................................................................... 3 1.1.4 Water resources ........................................................................................... 3 1.1.5 Other natural resources .............................................................................. 4 1.1.6 Population .................................................................................................... 4

1.2 Northeast economy and its context ................................................................... 6 1.2.1 Growth indicators........................................................................................ 6 1.2.2 Agricultural sector....................................................................................... 7 1.2.3 Non-agricultural sector .............................................................................. 8 1.2.4 Political and bureaucratic context ................................................................................. 8 1.2.5 Roles of the military .................................................................................... 9 1.2.6 Foreign aid and investment ...................................................................... 10 1.2.7 Linkage to macro economy....................................................................... 13

1.3 Northeast Commercialization and its drivers ................................................. 14 1.3.1 Commercialization of the Northeast agriculture .................................... 14 1.3.2 Drivers to competitive commercial agriculture ...................................... 17

2. The rise of competitive commercialization of major crops in the region ..............35 2.1 Rice in the Northeast economy ......................................................................... 35

2.1.1 Rice production.......................................................................................... 35 2.1.2 Rice production cost and profit................................................................ 39 2.1.3 Rice processing........................................................................................... 40 2.1.4 Rice marketing........................................................................................... 41 2.1.5 Rice exports ................................................................................................ 44 2.1.6 Rice prices .................................................................................................. 45 2.1.7 Rice policies ................................................................................................ 46 2.1.8 Conclusions: rice........................................................................................ 49

2.2. Maize................................................................................................................... 49 2.2.1 Maize in the Northeast economy .............................................................. 49 2.2.2 Maize production....................................................................................... 53 2.2.3 Farm size .................................................................................................... 54 2.2.4 Maize costs and profits.............................................................................. 54 2.2.5 Maize marketing and processing ............................................................. 55 2.2.6 Domestic use of maize in livestock industry ............................................ 56 2.2.7 Sources of maize input supplies................................................................ 57 2.2.8 Maize-related policies................................................................................ 57 2.2.9 Maize farmers’ institutions....................................................................... 62 2.2.10 Conclusions: maize .................................................................................... 62

2.3. Cassava ............................................................................................................... 63 2.3.1 Cassava production ................................................................................... 63

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2.3.2 Farm size, farm price and value............................................................... 65 2.3.3 Cassava costs and profit............................................................................ 66 2.3.4 Sources of raw material ............................................................................ 67 2.3.5 Cassava processing .................................................................................... 67 2.3.6 Cassava marketing .................................................................................... 69 2.3.7 Farmers’ institutions ................................................................................. 71 2.3.8 Government policies concerning cassava ................................................ 72 2.3.9 Conclusions: cassava ................................................................................. 75

2.4. Sugarcane ........................................................................................................... 77 2.4.1 Sugarcane production ............................................................................... 77 2.4.2 Sugarcane price and profit ....................................................................... 80 2.4.3 History of sugar production and processing ........................................... 81 2.4.4 Sugar cane marketing ............................................................................... 82 2.4.5 Sugar export ............................................................................................... 83 2.4.6 Farmers’ institutions ................................................................................. 83 2.4.7 Milling and refining sector ....................................................................... 84 2.4.8 Sugarcane and sugar policies ................................................................... 85 2.4.9 Conclusions: sugarcane ............................................................................. 93

3. Summary: drivers for competitive commercial agriculture in the region ................94 3.1 Drivers relating to overall economic framework............................................ 94

3.1.1 Scope and directions in National Plans and policies .............................. 94 3.1.2 Stable political and administrative institutions ...................................... 95 3.1.3 Adequate infrastructural development ................................................... 95 3.1.4 Freely functioning and export oriented markets .................................... 96 3.1.5 Active entrepreneurs ................................................................................. 96 3.1.6 Well-run credit institutions ...................................................................... 96 3.1.7 Provision and support of both basic and advanced education, research and development ........................................................................................................ 97 3.1.8 Progress of non-farm sector as supplementary sources of farm households’ income.................................................................................................... 97

3.2 Drivers relating to specific commodities ......................................................... 97 3.2.1 Good vertical coordination and domestic competition .......................... 98 3.2.2 Moving towards world market competitiveness ................................... 101 3.2.3 Supporting policies .................................................................................. 101 3.2.4 Technology generation and transfer ...................................................... 102 3.2.5 Effective public-private sector collaboration ........................................ 103

4. Value chain analysis of rice, maize, cassava and sugar cane in the Northeast Thailand.............................................................................................................................104

4.1 Rice value chain ............................................................................................... 104 4.1.1 Farm level rice production...................................................................... 104 4.1.2 Rice and products .................................................................................... 105 4.1.3 Composition of shipment value .............................................................. 106 4.1.4 Competitiveness ....................................................................................... 108

4.2 Maize Value Chain ................................................................................................ 109 4.2.1 Farm-level maize production.................................................................. 109 4.2.2 Maize products......................................................................................... 110 4.2.3 Composition of shipment value .............................................................. 110 4.2.4 Competitiveness ....................................................................................... 111 4.2.5 Discussions: .............................................................................................. 112

4.3 Cassava value chain............................................................................................... 113

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4.3.1 Farm-level cassava production in the Northeast .................................. 113 4.3.2 Assembly of cassava fresh roots ............................................................. 114 4.3.3 Cassava products ..................................................................................... 115 4.3.4 Composition of Shipment Value............................................................. 115 4.3.5 Competitiveness ....................................................................................... 118

4.4. Sugar value chain ............................................................................................ 119 4.4.1 Farm characteristics and final products of the value chain ................ 119 4.4.2 Cost structure along the stages of value chain ...................................... 120 4.4.3 Competitiveness of exported Thai sugar ............................................... 123 4.4.4 Conclusion ................................................................................................ 124

5. Social impact of competitive commercial agriculture ...........................................125 5.1 Reduced poverty and improved standard of living ...................................... 125 5.2 More efficient productive systems.................................................................. 129 5.3 Farmers’ adaptability to market system ....................................................... 131 5.4 Better farmland distribution and security .................................................... 132 5.5 Greater hired labor market ............................................................................ 133 5.6 Increased credit use and associated indebtedness problems ....................... 134 5.7 Migration and effects on social welfare ......................................................... 134 5.8 Political empowerment.................................................................................... 135 5.9 Mitigation of impact of the 1997 financial crisis on the northeast economy 136 5.10 Conclusion ........................................................................................................ 137

6. Environmental impact assessment of commercialized agriculture......................139 6.1 Forests............................................................................................................... 139 6.2 Land resources ................................................................................................. 141

6.2.1 Soil erosion ............................................................................................... 141 6.2.2 Soil salinity ............................................................................................... 142

6.3 Biodiversity and genetic diversity .................................................................. 143 6.4 Increasing uses of agrochemicals ................................................................... 144 6.5 Water resources ............................................................................................... 146 6.6 Mitigating adverse environmental effects of commercial agriculture ........ 147

6.6.1 Reversing the loss of forestland ..................................................................... 147 6.6.2 Protecting land resources and restoring soil fertility .................................. 147 6.6.3 Preserving the remaining wetlands ............................................................... 149 6.6.4 Enhancing alternative forms of agriculture ................................................. 149

6.7 Conclusion ........................................................................................................ 150 REFERENCES .................................................................................................................151

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List of Figures

Figure 1.1.1 19 Provinces of the Northeast 2 Figure 1.1.2 Regional Population Growth Rates, 1919 to 2005 6 Figure 1.3.1 Planted areas in major cash crops in Northeast Thailand, 1961-2006 15 Figure 1.3.2 Yield of major cash crops in the Northeast relative to other regions, 1973-2005 16 Figure 1.3.3 Planted areas in wet season rice in Northeast and other regions of Thailand, 1973-2005 17 Figure 1.3.4 Wet season rice production for the Northeast and other regions of Thailand, 1973-2003 17 Figure 1.3.5 Yield of wet season rice for the Northeast 17 Figure 1.3.6 Provincial distribution of the education index 22 Figure 1.3.7 Exports of major commodities over four decades in Thailand. 23 Figure 2.3.1: Distribution of cassava growing areas in Thailand in 1995/96. 63 Figure 2.4.1: Domestic Marketing Channel (Quota A) 89 Figure 2.4.2: Marketing Channel of Quota B and Quota C 90 Figure 4.1a: Build-up of costs at farm- level production cost 105 Figure 4.1b: Build-up of Total Final SV by Stage 106 Figure 4.1c: Composition of SV (USD per MT raw material) 107 Figure 4.2a Maize: build-up of farm-level production costs 110 Figure 4.2b Maize: composition of shipment value of farm gate product 110 Figure 4.2c Build-up of final shipment value by stage. 110 Figure 4.2d Composition of maize shipment costs 111 Figure 4.3a. Build-up of farmer’s financial costs for cassava fresh root production 114 Figure 4.3b. Composition of shipment value at the farm production stage 114 Figure 4.3c Build-up of assembler’s financial costs 114 Figure 4.3d Composition of shipment value at the assembling stage 114 Figure 4.3e Build-up of final shipment value by stage of three cassava finished products 116 Figure 4.3f Build-up processor’s costs and build-up shipment value of each cassava product 117

Figure 4.3g Composition of shipment values stage by stage from farm level to traded products 118 Figure 4.4a Composition of final shipment value for raw sugar 122 Figure 4.4b Composition of final shipment value for white sugar 122 Figure 4.4c Build up of final shipment value of raw sugar by stage 122 Figure 4.4d Build up of final shipment value of white sugar by stage 122 Figure 5.1 : Northeast agricultural land use in 1978-2003 132

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List of Tables

Table 1.3.1 Education attainment in different regions in Thailand, 2001 21 Table 1.3.2 Debt situations in Northeast Thailand 25 Table 1.3.3: Land reform implementation classified by region from 1975 to 2005 26

Table 1.3.4 Summary of ALRO project implementation and land reform progress, as of the end of fiscal year 2005 27 Table 2.1.1 Wet season rice: area, production and yield 36 Table 2.1.2 Dry-season rice : area, production and yield , Thailand, 1980-2005 37 Table 2.1.3 Total cost, return, net profit, yield and farm gate price for

KDML 105 rice in the Northeast. 40 Table 2.1.4 Comparison of intervention prices, market prices, and carry-over stocks 48 Table 2.2.1 Planted areas, production, yield and prices of maize in Thailand and the Northeast, 1987-2004 50 Table 2.2.2 Domestic use, volume and value of exports and imports of maize in Thailand, 1980-2000. 50 Table 2.2.3 Exports of Thai chicken, 1985-2004 51 Table 2.2.4 Domestic production of animal feed in Thailand, 1992-2003. 56 Table 2.2.5 Use of maize in animal feed in Thailand, 2006 56 Table 2.2.6 Public-sector maize OPV and hybrids developed during 1975-1997 and private-sector maize hybrids in the market in Thailand, 1997-98. 59 Table 2.2.7. Area planted, yield, and seed prices of hybrids vs. improved OPVs, 1996/97 for all regions, Thailand. 60 Table 2.3.1 Cassava: planted area, total production and yield for the whole kingdom and the Northeastern region, 1973-2005 64 Table 2.3.2 Cassava : farm gate price and farm value 65 Table 2.3.3 Variable and fixed cost of cassava production in 2005 67 Table 2.3.4 : Quantity and value of cassava products exports 70 Table 2.3.5 Cassava starch export, 2005 71

Table 2.3.6 Development of cassava cultivars in Thailand 73 Table 2.4.1: Planted area of sugarcane by region 77 Table 2.4.2: Sugarcane production by region 78 Table 2.4.3: Sugarcane yield by region 78 Table 2.4.4: Average costs of sugar cane production in the north-east region, 1999/2000 80 Table 2.4.5: Average final price of sugarcane by zone 81 Table 2.4.6: Export Value of Sugar Products 83 Table 2.4.7: Number of Sugar Mill by Region 88 Table 2.4.8 Wholesale price relative to world price, 1997 92 Table 3.2.1 Nature of market in major crops by stage of value chain 100 Table 4a Policy analysis matrix 104 Table 4.1a Total shipment value by stage of production (per 1 MT of raw material) 108 Table 4.1b Calculation of rice parity prices ($US) 108 Table 4.1c Summary of rice production costs 109 Table 4.1d Policy analysis matrix: rice 109

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List of Tables (cont’d) Table 4.2a Build up of maize shipment value 111 Table 4.2b Calculation of maize parity prices 112 Table 4.2c Farm level analysis of financial and economic prices 112 Table 4.2d Maize policy analysis matrix 112 Table 4.3a Cassava policy analysis matrix 119 Table 4.4a Farm-level cost for sugar cane production in the Northeast Thailand 120 Table 4.4b Costs per ton of processed raw materials 121 Table 4.4c Costs of raw and white sugar per ton of final traded product 122 Table 4.4d Policy analysis matrix (PAM) for raw sugar 123 Table 4.4e Policy analysis matrix (PAM) for white sugar 124 Table 5.1 Northeast nominal and real farm income and wage rate 126 Table 5.2 Poverty ratio by region, 2004. 127 Table 5.3 Gini coefficients in term of income distribution in 1980-2002 by region128 Table 5.4 Number of equipments used in agriculture, 1981-1997 130 Table 5.5 Distribution of land holdings in the Northeast region from 1993-2003 133 Table 6.1 Forest Area in the Northeast of Thailand 140

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List of Boxes Box 1.1 Some foreign assisted projects in the Northeast during 1980s-1990s.12 Box 2.1 Role of production of rice for consumption in the Northeast 38 Box 2.3 How could cassava become so dynamic in Thailand, especially in the Northeast Thailand? 76 Box 2.4 Sugar Pricing: negotiation for revenue-sharing 86

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List of Acronyms

ACP Asset Capitalization Program ADRC Agricultural Development Research Center

for the Northeast AFET Agricultural Futures Exchange of Thailand ALRO Agricultural Land Reform Office ALRO Agricultural Land Reform Office ARD Accelerated Rural Development Program BAAC Bank of Agriculture and Agricultural

Cooperatives BOB Bureau of the Budget BOD Biological (Biochemical) Oxygen Demand BOI Board of Investment of Thailand BPH Brown Plant Hopper CAP Common Agricultural Policy CBDC Community Biodiversity Development and

Conservation Programme CCS Commercial Cane Sugar CFB Community Forestry Bill CIAT Center of International Agriculture in the

Tropics CIMMYT International Maize and Wheat Improvement

Center CP Charoen Pokapand Co. CPT Communist Party of Thailand DC Double-cross hybrid DLD Department of Land Development DNWP Department of National Park, Wildlife and

Plant Conservation DO Dissolved Oxygen DOA Department of Agriculture DOAE Department of Agricultural Extension DOL Department of Land DOLA Department of Local Admistration DRC domestic resource cost DVA domestic value added ECF Emerging commercial farms EGAT Electricity Generation Authority of Thailand EIA environmental impact assessment EPC effective protection coefficient EU European Union FAM Family farms FAO Food and Agriculture Organization FPO Fiscal Policy Office GAP Good Agricultural Practices GATT General Agreement on Tariffs and Trade GRP Gross Regional Product ICEM International Centre for Environmental

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Management IIED International Institute for Environment and

Development IRRI International Rice Research Institute JICA Japan International Cooperation Agency JIRCAS Japan International Research Center for

Agricultural Sciences KDML Koa Dok Mali (rice) KSL K.S.L. Export Trading LDV Land Development Village LPG liquid petroleum gas LTP land titling program MCM Million Cubic Meters MOAC Ministry of Agriculture and Agricultural

Cooperatives MOF Market Organization for Farmers MONRE Ministry of Natural Resources and

Environment MPN Most Probable Number MSC Modified single-cross hybrid MT Metric ton MTBE Methyl Tertiary Butyl Ether NAREBI Natural Resources and Biodiversity

Institution NEA National Energy Authority NEED North-East Economic Development NESDB National Economic and Social Development

Board NPC nominal protection coefficient NRC National Research Council NSO National Statistical Office NSO National Statistical Office OEPP Office of Environmental Policy and Planning OPV Open pollinated varieties PAM policy analysis matrix PSC Pacific Sugar Corp., Ltd. PWO Public Warehouse Organization RD Rice Department RFD Royal Forest Department RID Royal Irrigation Department RYFCRC Rayong Field Crops Research Center SC single-cross hybrid SD Soil doctor SES Thai Socio-Economic Survey SITCO Sugar Industry Trading Co., Ltd. SPK Sor Por Kor land certificate SSEC Siam Sugar Export Corp., Ltd. SV shipment value TAMNET Tropical Asian Maize Network TBC Thailand Biodiversity Center

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TCSC Thailand Cane and Sugar Corporation TDRI Thailand Development and Research Institute TISS TISS Co., Ltd. TRF Thailand Research Fund TSC Thailand Sugar Corp., Ltd. TSTC Thai Sugar Trading Corp., Ltd. TTDI Thai Tapioca Development Institute TTFITA Thai Tapioca Flour Industries Trade

Association TTSA Thai Tapioca Starch Association TTTA Thai Tapioca Trade Association TWC Three-way cross hybrid USAID United States Agency for International

Development WTO World Trade Organization

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Executive summary Northeast Thailand is the largest region of Thailand consituted approximately a third of landmass and population. The region is the poorest in terms of income and gross regional product compared to other regions of Thailand. This is not only because natural resources are relatively poorer whether in terms of soil, water and forests, but also historical factors dealing with political division. Geographically, the terrain is largely upland with poor soil, often with salinity problem. Irrigation is possible only in limited areas. Climatically, the amount of rainfall is not low but quite erratic and unreliable making the region vulnerable to droughts and floods. Politically, the region had been neglected by past governments up until 1960s when popular discontents and communist insurgents required concerted attention by governments. Due to high population growth during the 1960s-80s, forests was cleared and used for agricultural purposes. In such forest areas, land tenure security was a problem for Northeast farmers who use the land for agricultural purposes. In agricultural areas, however, most farmers are land owners. Farm households in the Northeast are mostly small farmers with an average size of 2.4 ha. per household. Rice has been the traditional crop in which the population has depended for their livelihood. Some 5.6 m. ha of rice is planted in the region with 2.5 m. ha is planted to other crops. Total production of wet season rice in the Northeast reached 9.6 m. ton in 2003, up from 4.6 m. ton in 1973 as against 13.9 m. in 1973 and 20.9 m. ton for 2003 for the whole country. Almost half of the glutinous rice produced is consumed by the household, compared to no more than 20 percent of non-glutinous rice. Over the last four decades, rice has been sold also as cash crops with other crops as maize, cassava and sugar cane expanded greatly in the region. Farming is mostly rainfed but irrigation facilities have been stepped up and now occupying some 17 per cent of the farm areas. Most of the irrigation facilities were invested and administered by the public agencies. They deal mainly with rice and vegetable farming. They were behind substantial increase in the volume and stability of rice production in the region although rice yield increase is still considered moderate. Maize and cassava came to the region in the 1960s but began to take off in the mid of 1970s. Cassava came in a big way and reached some 700,000 ha in 1976-1979 while maize occupied some 400,000 ha in the same period. Maize peaked in 1985 with 500,000 ha while cassava continued to grow to 1 million ha in 1988. Both crops declined in the 1990s giving way to sugar cane which peaked in 2003 with nearly 500,000 ha. In the 2000s, cassava and sugar cane are the two dominant cash crops in the Northeast, cassava slightly surpasses sugar cane in terms of areas planted. As a result of both agricultural and non-agricultural commercialization and growth, the Northeast’s economy expanded greatly over the last few decades. Its economy is three times larger now than in 1970: Real GDP increased from 131,837 m. baht in 1981 to 365,969 m. baht in 2004, measured in 1988 prices. Real GDP per capital in 2004, measured in 1988 prices, amounted to 34,000 baht, compared to only 11,000 baht in 1970. Its average per capita growth rate is 3.1 percent since 1970. If it is a country, the Northeast Thailand would be one of the fastest growing economies of the world in the past 35 years. Compared to the periods of 1950s-1970s, for the last three decades, the Northeast of Thailand has enjoyed relative peace and transition to a more democratic political system although with ups and downs. This region has emerged as a political force as an important

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voting base for many political parties. As a major political force, the northeastern region has continuously received political budgets and promises of development support. Northeastern farmers’ protests and demands are quite frequent in recent days with some of their leaders become major political players in the national arena. The Thai governments with its plans, policies and its administrative bodies facilitated many development programs for the Northeast population given its political importance. Foreign aids have also been substantial for the region especially during and post Vietnam war. Many aid projects dealt with infrastructural and agricultural research and development. The expansion of the market and increasing commercialization of agriculture in the region arose from socio-political and economic changes at national and international levels. The Thai government has been supportive of free trade system encouraging the function of traders or middlemen. Chinese traders particularly brought agricultural implements and a range of basic consumer goods to villages and at the same time purchased agricultural products from the villagers to sell in the towns. For the rice trading, Chinese traders established rice warehouses close to the railway stations and main highways. Rice mills and later on maize feed, sugar and cassava factories have been established and work in competitive market atmostsphere facilitated by government supported road and communication network. At the same time, credit, tenure reform, irrigation, research, extension, education has been promoted to support farmers in the process of commercialization. Northeast farmers are active users of modern inputs such as new varieties, fertilizers, machineries and chemical inputs. Traders, millers, assemblers and exporters are also active to improve their practices through adoption of new technology and practices. Much research is now undertaken by the private sector. Promotion of commodity exports has been a dominant policy of the Thai governments. In such a process, farmers have been accustomed to international prices and have to adjust themselves to them through their agronomic practices. Although the government has had price support programs of various kinds in all major commodities, such programs are either small in scale, ineffective or having limited effect mainly to stabilize prices in the short term. When prices are depressed over many years such as in the case of cassava and maize, the government would have active programs to cut back production and areas while promote the diversification of farming activities. Vertical integration is also a way to absorb production and price risks by processing the product to other forms and diversified export markets. For example, maize, once an important export crop, is now all consumed in the country for livestock industry. A balanced role between the public and private sector and good collaboration between them is crucial to the success of competitive commercial agriculture in Thailand. Thai government policies on specific crops were also instrumental to the rise in competitiveness of those crops in the world market. In the case of maize, support on public sector research, promotion of private sector hybrid varieties, support to livestock and feed industry as well as credit provision have made farmers’ maize production more productive with higher yields. In the case of sugar cane, promotion of strong farmers’ institutions and the government role as a mediator between sugar companies and farmers have made the sector very strong and competitive. In the case of cassava, the Ministry of Industry regulated standard of cassava processing and oversaw the expansion of factories while the Ministry of Commerce allocated export quota in order to diversify market to overcoming the oversupply problems. The Ministry of Agriculture and Agricultural Cooperatives oversaw the supply of cassava through land retirement program. In this case,

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when there was oversupply, incentives were given to farmers who wanted to replace cassava by other crops. As for rice, farmers grow them as part of subsistence crop. The surplus is used for market. The government has been much concerned with farm gate prices and it always launched price support programs. The success of such price support programs has been limited but recently the government has been more successful in its rice mortgage program through BAAC. BAAC has been an effective credit institution helping farmers in their cash needs and it has been well run. In terms of investment, the government has spent the most investment for rice compared to other crops e.g. in water resource development and research for rice. Marketing is however mostly done by the private sector. Value chain study of the four crops using data for 2004 for maize and 2005 for rice, cassava and sugar cane revealed that these crops as grown in the Northeast were competitive internationally as can be seen in the domestic resource cost (DRC) which for KDML rice—a well known quality export variety mostly produced in the Northeast, 0.71, maize 0.86, cassava products 0.58-0.74, and sugar cane products 0.49-0.62. For maize, if the foreign exchange rate increases from $USD 1= 40.22 baht as it was in 2004 to $USD 1= 35 baht as it was in the beginning of 2007, it will not be competitive internationally. This is not so for rice, cassava and sugar cane. Costing at different stage of production for each crop is evaluated and can be used as benchmarks for other countries in terms of international competitiveness. Final shipment value per ton of finished products in 2005 were for rice $USD 237, cassava chips $USD 102.7, cassava pellets $USD 101.3, cassava starch $USD 207.4, raw sugar $USD 221.5 and white sugar $USD 280.5. For maize in 2004, it was $USD 115.3 per ton. These were based on the average yield level of 2.2 ton per ha for KDML rice, 3.7 ton per ha for maize, 16.7 ton per ha for cassava, 62.5 ton per ha for sugar cane. In terms of social impact, improved income from commercial agriculture has made the general economy of the Northeast much revived. In absolute terms, commercial agriculture have provided higher standard of living and growth to the people of the Northeast but in relative terms, the Northeast population is still lagging behind their counterpart in other regions but without development in the farm sector during the last four decades, the standards of living of the people would be much worse. Poverty in the region is rapidly declining. Many positive impacts can be attributed during periods of commercialization of agriculture during the past four decades. The farming population is now more acquainted with commercialization and the use of new technology. They are more politically empowered through more active engagement in policy dialogue as it affects them directly. The use of farm machineries has eased farmers’ work loads and many farmers find more time for off-farm and non-farm employment. Remittances provide their families with extra income and sometimes financing the farm sector. At the time of the 1997 financial crisis in the country, the farm sector was more stable than other sectors and had provided employment to workers who returned home from cities. Increasing amount and levels of use of loans due to commercial production of cash crops is reported although institutional credit now replace much of the high interest informal credit, the majority of Northeast farmers can still finance their debts. Viewing from the overall, the Northeast population is now well-off and better educated. The economy is expanding and diversified, the society is modernizing and the people enjoy higher income.

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In terms of environmental impact, it was found that forests are depleted at a fast rate in the region although population growth, logging concessions, poverty, road density were contributed factors apart from commercial agriculture. The rate of decrease has slowed down in the last decade as population growth rate decreases. While there are concerns on the effect of soil erosion, salinity and loss of fertility reportedly as a result of expanding areas of cassava, sugar cane and maize, much evidence on these topic are site-specific. More scientific studies are needed to confirm some of these negative environmental effects.

CHAPTER I HISTORY OF COMPETITIVE COMMERCIAL AGRICULTURE IN THE

NORTHEAST THAILAD

1. History of Competitive Commercial Agriculture in the Northeast Thailand There are much literature on the Northeast of Thailand but most demonstrate how the region is relatively poor and disadvantaged compared to the rest of Thailand. While this is true, to highlight such facts obscures the many achievements which have taken place in the region. This report will examine the Northeast in the context of its development of competitive commercial agriculture in the world economy--which is regarded as successful. Despite many expectations, the region can be protraited as a successful model of competitive commercial agriculture starting from disadvantaged positions of natural resource endowment and economic development. Many lessons can be learnt from its rapid development. The rise of major cash crops, namely rice, maize, cassava and sugarcane in the world economy will be explored. Value chain analysis of these crops will be made together with assessments on the resulting impacts on the environment and social aspects.

1.1 Introduction to the Northeast of Thailand 1.1.1 Topography

The northeast region of Thailand is the largest, occupying a landmass of 16.88 m. ha, roughly one-third (32.8 per cent) of Thailand's total-area landmass. The area in the region is, on average, 122 to 183 meters above sea level (Myers, 2005). It is located on the Khorat Plateau and a few low hills, bordered by the Mekong River to the north and east, and by Cambodia to the south. To the west it is separated from Northern and Central Thailand by the Phetchabun mountain range. The plateau consists of two main plains: the southern Khorat plain is drained by the Mun and Chi rivers, while the northern Sakon Nakhon plain is drained by the Loei and Songkhram rivers. The two plains are separated by the Phu Phan mountains. There are 19 provinces in the northeast, although the south-western province of Nakhon Ratchasima located approximately 130 miles northeast of Bangkok is considered by some to be more closely connected with Central Thailand. Figure 1 displays provinces of the Northeast with major rivers and roads (Figure 1.1.1). 1.1.2 Geology and soils Geologically, the Northeast plateau is basically composed of fine-grained sandstone and shale strata which overlay in valley depressions of alluvium and river terrace deposits. There are 35 different soil types in the Northeast but the majority of soils fall into on of five major groups: ustifluvents, tropaquepts, dystropepts, paleaquults, paleustults. Tropaquepts and dystropepts lie on the adjacent flood plain. They are fine textured and poorly drained, and used for rice cultivation. The recent alluvial soils being ustifluvents on the natural levees lying along the rivers. They are fine to medium textured, well drained and slightly acidic; they are used primarily for garden crops and vegetables. Paleaquults and paleustults soil cover over 65 per cent of the region area; they are terrace soils, with more clay and a finer texture in the lower horizon than on the surface. The paleaquults are on the lower terraces, poorly drained and are saturated with water at some periods of the

2

year. Rice is planted in these soils. The paleustults are on higher terraces; they have lower water holding capacity and are dry for more than 90 days in the year. The paleustults are suitable for upland crops such as cassava, kenaf, and sugar cane (KKU-Ford Cropping Systems Project, 1981). Much of the land is typically flood-prone and often difficult to cultivate and maintain. Its semi-fertile soil has a high rate of acidity and is nutrient-depleted from over-use and under-replenishment.

Figure 1.1.1 19 Provinces of the Northeast

3

Compared with other regions of Thailand, the Northeast soils are mostly of inferior quality. A third of the total agricultural land of 8.6 m. ha or about 2.8 m. ha is affected by saline contamination, making it not well suitable for agriculture purposes. Clearing forest for cultivation is a common response to the problem of saline soils. The progress of surface soil salinization in the irrigated areas is estimated at 10 per cent over a period of 10 years. This type of secondary salinization has made the areas unsuitable for any productive use. Examples of salinization in irrigation areas can be seen at the Nong Wai irrigation project area in Khon Kaen, Kampuwapi south of Udorn, the Lam Pao irrigation scheme at Kalasin and Nam Oon irrigation area in Sakhon Nakhon (Fedra, Winkelbauer and Pantulu, 1991). 1.1.3 Climate and rainfall While Thailand is a tropical monsoon climate, the climate in the Northeast is distinct from other regions of the country. This is partly because of the mountain ranges that prevent the southwesterly monsoons from reaching the area. Nevertheless, the Northeast still receives rainfall from the many thunderstorms that blanket the area, originating in the South China Sea. The amount of rainfall is variable, causing unpredictable agricultural productivity. Rainfall is concentrated in the rainy season from May to October. Average annual precipitation can vary from 900 to 2,500 mm to mm (OAE, 1975-2005). Only two provinces receive more than 1,500 mm of rainfall per year, while five provinces receive less than 1,300 mm, the rest lie between 1,300-1,500 mm. The short monsoon season brings heavy flooding in the river valleys (NESDB and the World Bank, 2005). Although an average rainfall of 1,310 mm annually is not much different from other regions, the absorption capacity in the region is considered poor due to sandy soils. This results in a shortage of water resources for year-round cultivation. As water resources are not sufficient; irrigation is an alternative, but possible for only less than one-fifth of the farm land. The Northeast experiences a long dry season and is typically hot and dry in the hot season (February to May), although cold northeasterly winds from Siberia and China chill the area during the cold season (October to February). The average temperature range is from 19.6 °C to 30.2 °C. The highest temperature recorded was 43.8 °C in Udon Thani province, the lowest 0.1 °C in Loei province. The rural economy in the Northeast depends heavily on weather conditions, and experience frequent weather hazards, like drought and floods. Agricultural growth fluctuates widely from one year to the next due to changing weather conditions (NESDB and the World Bank, 2005). 1.1.4 Water resources The Northeast region is drained by two rivers, Mun and Chi rivers which all drain into the Mekong River, but they have few tributaries and vast tracts of land are beyond their reach.The Mun River rises in the Khao Yai National Park near Khorat and runs east joining the Mekong in Ubon Ratchathani Province. The other main river is the Chi River, which flows through central northeast before turning south to meet the Mun in Sisaket Province. The smaller Loei and Songkhram rivers are also tributaries of the Mekong, the former flowing north through Loei province and the latter flowing east through Udon Thani, Sakon Nakhon, Nakhon Phanom and Nong Khai Provinces. Unsustainable water extraction rates (21,000 and 9,300 cubic meters per year, respectively) have led to declining water

4

balances. While average landholdings are small, lack of water results in one third of the land not being cultivated (NESDB and the World Bank, 2005). Irrigation in the Northeast has lacked behind the rest of the country. More than 45 percent of the arable land in the Central Plain is irrigated as compared with 17 percent in the Northeast, 26 percent in the North, and 10 percent in the South in 2000 (Fan, Somchai and Nuntaporn, 2004). Smaller irrigation programs are prominent in the Northeast. These projects, managed often by communities, provide typically wet season irrigation only. 1.1.5 Other natural resources van Liere and Mcneely (2005) described forest types in the Northeast into two categories: Deciduous Monsoon Forest and Dry Dipterocarp Forest (also called “Savanna Forest”). Deciduous Monsoon Forest occurs around Aranyaprathet, in part of the Dangrek range, along the Lao border in Ubon, throughout the hilly regions of Sakhon Nakhon, and along the Petchabun range. In the recent past, it was much more widespread throughout northeastern Thailand, but this forest type has been greatly reduced in favor of growing cash-crops such as cassava, sugar cane, and maize. Dry Dipterocarp Forest is found in much of the Northeast especially in Chiyaphum and Nakhon Ratchasima. The Northeast was once with much forest areas. In 1937, forest areas covered about 60 percent of the Northeast region or about 10 million hectares. For newly settled families, it was then not easy to find good lowland for growing rice without cutting down most of the trees. Much forest areas had been transformed into paddy land in the last 60 years. The forest cover fell from around 5 m. ha in 1973 to only 2 m. ha in 1991 (Cropper, Griffiths and Mani, 1997). It had nevertheless increased to2.8 m. ha in 2004 (Royal Forest Department, 2004). Upland areas were needed for house building and also upland fields such as cotton, mulberries and jute for basic necessities such as clothing and rope. Livestock such as cattle, buffalo, chickens and ducks were kept on the ground under the high house. Beside the house would be a small barn in which rice would be stored for household consumption.

1.1.6 Population The Northeast of Thailand, the country’s most populous region, comprises approximately one-third of the nation's entire population. The region was populated predominantly by Lao families who resettled there in various waves from the 14th century up until the mid 19th century. The region formed for centuries a buffer zone between the Lao and Siamese kingdoms. Towards the end of the 19th century, Thailand started administrative reforms to transform a loosely integrated kingdom into a nation state governed from Bangkok, a location with sea access surrounded by fertile lands. Although the distinction between the Lao and Thai ethnicities is often blurred, there are certain physical features which are more prominent in the Lao. The distinction is primarily one of culture and language. (NESDB and the World Bank, 2005). This distinction between Thai and Lao culture and population was more pronounced in the Northeast back before World War II and the backwardness of the region was claimed to be from historical reasons as much as geographical ones. Only after 1950, when popular discontents and uprisings fuelled by communist insurgents were important political problems, the Thai governments would start giving serious attention to the Northeast region and its development (Donner, 1978).

5

The Northeast population had been increased from 3 million to 18 million within the 65 year period from 1920-85 (Thomas, 1988). In 2000, the population of the Northeast is 20.8 m., a third of the whole kingdom which is 60.9 m. (National Statistical Office, 2002). After decades of very fast population growth, the rate of natural growth in the Northeast decreased continuously since 1970s. It was 2.8, 2.3. 1.81, 1.64 and 1.38 per cent during 1972-76, 1976-81, 1985, 1991, 1995 respectively. During 2000-2005, it was 0.6 per cent (NESDB, 1982, National Statistical Office, 1995, 2007). The total farm households increased from 1.68 m. in 1975 to 2.62 m. in 2001 (OAE, 1975, 2001). The proportion of total Northeast population in agriculture was 93.5 per cent in 1960 decreasing to 91.8 per cent in 1970 and by 2000, still as high as 78.8 per cent (Donner, 1978; National Statistical Office, 2002). Its population density has been increased from 18.1 persons per square kilometer in 1919 to 128.6 in 2005, continually higher than of the whole country. About 40 per cent of the population is concentrated in the provinces of Nakorn Ratchaseema, Ubon Ratchathani, Udon Thani and Khon Kaen (NESDB, 2005, National Statistical Office, 2003). Khon Kaen was the most urbanised province and Roi Et the least. In the 1970s, the Thai governments had forseen the necessity of creating urban centers in the region as growth centers which offerred to the younger generation and the potential emigants what they expected in Bangkok: education, employment, and entertainment. In 1972, the World Bank approved a substantial loan for urban development for four northeastern towns. It was reported that the loan would be used to develop Udon Thani, Ubon Ratchathai, Khon Kaen and Nakhon Ratchasema into major commercial, business and recreational centres and pump captial into the entire North-East to reduce its dependence on Bangkok. Facilities were provided for bus terminal, marketing facilities, industrial estate, modern abatoir, flood control, water utility, sewage and drainage and feeder road systems (Donner, 1978) The Northeast population growth rate fell from around 3.5 percent in 1970 to below 1 percent in 2005 (Figure 1.1.2). In spite of this decline, the Northeast population is young. Around 30 percent of the population is younger than 15 years of age (NESDB and the World Bank, 2005). This indicates that large increases in population are likely to persist for some time. Even with lower fertility rates, the large increase in the number of young adolescents implies strong increases in population numbers.

6

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1919

1929

1937

1947

1960

1970

1980

1990

2000

2005

Years

Popu

latio

n (1

,000

Hea

ds)

00.511.522.533.544.5

Ave

rage

Gro

wth

rate

per

yea

r

Whole KingdomNortheastNortheast Population Growth

Figure 1.1.2 Regional Population Growth Rates, 1919 to 2005 Source: National Statistical Office. 2006a, b. 1.2 Northeast economy and its context The Northeast has a reputation of being a backward region, far distant from Thailand’s economic hubs. However its economic record shows that this image is misleading in reality. Aided by a dynamic and rapidly changing economy, the region has had three major accomplishments: it has grown quickly, it has noticeably reduced poverty, and it has still preserved its strong communities. Even still, the Northeast’s performance could not compared to Thailand’s other regions like the Central region and Bangkok as it is still the poorest region in Thailand. But during the last 35 years, the Northeast was one of the fastest growing economies in the world. The Northeast’s long-run growth rate of annual real GDP during 1970 to 2004 was 3.1%, rivaled that of Latin America, South Asia or of high-income countries. Strong growth led to a tripling of per capital income during 35 years, also led to a steep fall in poverty, dropping from close to one in two people (48%) in 1988 to less than one in five (18%) in 2002 (NESDB and the World Bank, 2005). Difficult natural conditions have made agriculture unattractive and consequently forced people to seek for other income generation alternatives such as off-farm employment in urban areas and other regions. Poor resource endowment of this region is a major barrier for the northeastern development, and its agricultural sector in particular. 1.2.1 Growth indicators The Northeast’s economy expanded greatly over the three decades. Its economy is three times larger now than in 1970: Real GDP increased from 131,837 m. baht in 1981 to 365,969 m. baht in 2004, measured in 1988 prices (http://www.nesdb.go.th/Default.aspx?tabid=96 ). Real GDP per capital in 2004, measured in 1988 prices, amounted to 34,000 baht, compared to only 11,000 baht in 1970. (NESDB and the World Bank, 2005). This growth has come about in both the agricultural and non-agricultural sectors. In any case, whatever expansion has taken place over the last decade and a half occurred from very low levels of value added.

7

1.2.2 Agricultural sector

Agricultural products have dominated the Northeast’s economy with the four main crops being rice, cassava, sugar cane and corn. Rubber and fruit crops are also increasing in its importance in the region. Livestock production also plays a crucial role in the Northeast with poultry and cattle being the most prevalent animals raised (National Statistical Office, 1993, 2003)

In terms of relative share of gross regional product, the agricultural sector in the Northeast’s share reduced from 27 per cent in the late 1980s to 19 percent in 2004, whereas industry increased from 18 per cent to 28 percent (NESDB and the World Bank , 2005). Since the late 1980s, with an average annual GDP growth rate in manufacturing of 10 percent the real growth in agricultural sector averaged around 4.2 per cent during 1970s and 1980s, then dropped to no more than 1 per cent since 1990. Until the early 1980s, agricultural expansion depended on increased area. Farmers seeked their farm lands from degraded unoccupied forests (Jermsak, 1992). Among the crops normally planted in the Northeast are: wet-land glutinous rice (the staple food of the area), field and regular rice, along with sugar cane, cassava root (tapioca), tobacco, cotton, watermelons and other various locally-consumed items. As pastoral farmers, Northeastern Thai villagers raise domesticated animals (either for use or consumption) such as water buffalo, oxen, pigs, chickens and ducks (Myers, 2005). The Northeast is more dependent on rice than any other region. Over 60 percent of all agricultural land holdings of around 10 m. ha are under rice during 1978- 2003. Much tradition in the Northeast revolves around rice which has both the customary and subsistence significance of the people. Rice is the primary subsistence staple for the Northeastern. Production of adequate rice for household consumption is a main factor of food security of the Northeastern. Glutinuous rice is prominent in the Northern part of the region while the non-glutinous rice is for the Southern part. Rice paddies were usually established as soon as a group of migrants decided to settle in a new location that they found suitable. The first paddies to be established were usually located in the low-lying parts of the undulating terrain that is the dominant land form (KKU- Ford Cropping Systems Research Project, 1981). The production methods and technology of rice cultivation has remained traditional systems, low external input use, from the 1950s - 1990s (Rigg, 1987). The focus of rice growing for the Northeastern farmers is to ensure survival and stability of production than to maximize yields. The traditional varieties have been used due to its large degree of ecological flexibility which is able to deal with a varying water supply (Rigg, 1987). Although crops are more diversified nowadays than previously, still only 870,000 farm households out of 3.3 m. households (26 per cent) in the Northeast specialize in non-rice crops with a total of around 2.5 m. ha (31 per cent of total cropped areas in 2003) as compared to 5.67 m. ha for rice in 2003 (National Statistical Office, 2003). Most farmers, rice or non-rice, are small farmers farming an area of around 2.4 ha per household. Also, many agricultural areas in the region are left uncultivated with poor soil conditions coupled with the lack of water. Forest areas under occupation for agricultural purposes were

8

reported as high as 3 m. ha by mid 1980s (Royal Initiative Project: Greening the green Isan. 1987) 1.2.3 Non-agricultural sector Industry is of increasing importance throughout the decades. In the past, the northeast industries used to include only rice mills, tapioca mills, and cassava baling factories. At present, labor-intensive factories are becoming more common. The Northeast specializes in labor-intensive and resource-intensive sectors, such as wearing apparel, textile and food processing, which have either contracted or grown modestly since the mid-1990s (NESDB and the World Bank, 2005). Industrial factories increased about 22 times between 1975-1995 although a large proportion of them were still rice mills (Bank of Thailand, 2005). Even though the trends for the Northeast look more encouraging since the late 1980s, with an average annual GDP growth rate in manufacturing of 10 percent, about 2 above the national average but between 1999 and 2004, the annual growth rate dropped to 4.4 percent in the Northeast compared to a national average of 6.5 percent. In any case, whatever expansion has taken place over the last decade and a half occurred from very low levels of value added (NESDB and the World Bank, 2005). Over the last 30 years, the financial sector expanded also in the Northeast. In 2007, there are 567 branches of commercial banks in the Northeast, mobilizing deposits totaling more than 323,191 m. baht and releasing loans totaling more than 315,776 m. baht. This is compared to just over 100 branches of commercial banks, deposits of 5,500 m. baht, and loans of 2,700 m. baht in 1975 (Bank of Thailand,2005,2007). When counting also government banks and branches like Government Savings Bank, Bank of Agricultural and Agricultural Cooperatives (BAAC) and so on, there were as high as 971 branches of these banks in the Northeast in 2007. Credit is provided through these banks as well as through government supported cooperatives and village fund programs. BAAC for example has also a mandate to provide credit to farm households in non-agricultural purposes as well.

1.2.4 Political and bureaucratic context 1.2.4.1 Political changes During the 1950s to 1970s, the northeastern region – and its rural areas in particular – was the base of the Communist Party of Thailand (CPT). As a response to communist subversion, various rural development programs designed to diminish poverty and improve welfare of people in the Northeast were initiated by the central Thai Government. Obviously this was done not only to counter the communist threat in the region, but due to security concerns for the entire nation. Under the attempt of the Thai government to secure the region, the Accelerated Rural Development Program (ARD) was established in 1964 to suppress Communist encroachment and subversive activity. The improvement of communication was also seen as a necessary factor to ensure loyalty and patriotism of the northeastern people. To accomplish this, the government established radio and television stations in the key northeastern provinces. Under this project, which was partially funded by the United States, a powerful new radio station covering the whole area, called "Radio Free Asia", was instigated (Myers, 2005).

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Thailand’s political context after the communist era has been changed dramatically from an authoritarian regime to a more democratic political system although with ups and downs. Compared to other regions, the northeast is still behind in terms of economic growth and modernization, but under the democratic system, this region has emerged as a political force as an important voting base for many political parties. As a major political force, the northeastern region has continuously received political budgets and promises of development support. Northeastern farmers’ protests and demands are quite frequent in recent days with some of their leaders become major political players in the national arena. 1.2.4.2 Stable and capable bureaucracy Under Thailand’s governance system, amid sometimes political turmoils, the Thai bureaucracy has long played a dominant role in engineering the nation’s economic and social development. It is manned by capable, efficient and well-trained civil servants. National policies and planning processes are outlined by one responsible agency, the National Economic and Social Development Board (NESDB). Since its inception in 1959, the NESDB has already completed nine National Development Plans. Planning is done on a macro-level, while implementation is undertaken by the various government agencies at the micro- or operational level. The major role of the NESDB is to steer and monitor those agencies responsible for policy and project implementation. In addition to the NESDB, the Bureau of the Budget (BOB) and the Fiscal Policy Office (FPO) also play significant roles in the national economic development. Achievements of the work of these key agencies are manifested in a number of important accomplishments in areas such as macroeconomic management, infrastructure development, and social development (including education and health). These laid the foundation for subsequent rapid economic growth throughout the nation and even in the less-favored region like the Northeast (ADB, 1999). 1.2.5 Roles of the military Apart from the fight against communist insurgency in the 1960s-70s and the support of US military activities for the Viet Nam war in 1950s-1970s, the Thai military was active in the Northeast throughout the last fifty years. In 1987, the “Greening of the Northeast” Project was initiated under the patronage of the King. This project was a poverty alleviation project with natural resource conservation component and was comprehensive covering employment creation, irrigation, sustainable land use, forest protection, livestock promotion, domestic water supply, sanitation, fishing, agro-industry and others. It designed a 5-year Master Plan for development of the Northeast with a development budget planned as high as 55,000 million baht or around 50 per cent of national development budget during the Third National plan. This project was coordinated by the Thai Army. Chai-anan (1989) claimed that this project was the first project of the Thai military which was not directly related to security and as the military was interested to maintain political power vis-à-vis other groups, this project being instrumental to such a cause. He mentioned that through such a project, the Thai military had been more confident and aggressive in claiming its legitimate place in the overall developmental process. Some however thought that the project was just another psychological warfare activity aiming at boosting the morale of the Northeasterners. According to this view, the military was concerned with the stabilization of the Loatian socialist regime and its successful programmes in making its economy self-sufficent. The “war” against poverty

10

would be a way to win favour from the Northeastern masses who had been mobilized by the Communist Party of Thailand over the long years of insurgent wars. In the 1970s, Thailand underwent many changes in governments and a number of coup-d’etat were staged by top military personnel. In the 1980s and 90s, when democracy was demanded by the people, with fewer coups, the military turned more to its professional function and to developmental roles. In late 2006, however, another military coup-d’etat was again staged. The roles of the military in the Thai economy, especially in the Northeast economy are again highlighted. 1.2.6 Foreign aid and investment Beginning in the 1960s, when the Thai government began to face internal instability due to the imposing threat of Communism at their borders, they made a concessionary arrangement with the United States. The U.S. was engaged in a build-up of forces in the Southeast Asian arena, aimed at halting North Vietnamese Communist ‘aggression’ towards South Vietnam. Thailand allowed the U.S. to establish Air Bases in strategic areas in the northeast in exchange for aid and assistance. Permitting the US bases in the northeast region entailed numerous benefits for Thailand, and the northeastern region in particular. These included rural development assistance and modernization of the transportation and communication infrastructure in the northeastern region (Myers, 2005).

One major US aid project was the construction of the Friendship (Mitraphap) Highway in 1958. This highway spanned the entire region and assured a quick connection between Bangkok and Nongkhai, one of the northeastern provinces. It marked a major event in Northeast development as it really opened up the region to outside world, something the railway system was unable to do for a long time (Donner, 1978). Several improved country roads followed subsequently and linked most of the provincial and district centers and connected isolated villages with main highways. The new road network also permitted easier travel and access to Bangkok. Apart from serving the national security purposes and promoting rural, economic and communication development in the region, this road network has been an important means for the northeastern people seeking both temporary and permanent job opportunities in Bangkok (Gebhardt, 2005 and Myers, 2005). The construction of the Friendship highway earmarked the beginning of full-scale commercialization in the Northeast.

Two of the most important dams constructed in the northeast were the multi-purpose Nam Pong Project in Khon Kaen province and the Lam Pao Project in Kalasin province were supported by the U.S. aid funds (Sneddon, 1998 and Myers, 2005). It gave substantial aid for the Government of Thailand to set up and worked out the North-East Economic Development (NEED) Plan during 1962-6 and 1972-6 as part of the National plans. The Accelerated Rural Development (ARD) program was one of the channels through which funds and personnel were provided. Many young American volunteers worked in the rural areas of the Northeast during the 1960s and 70s (Donner, 1978). Priorities in the 1960s were on water supply, irrigation, flood control, transport facilities, expansion of agricultural services, marketing, increase of power supply and promotion of industry and commerce. In the 1970s, priorities were to 1) diversification of agricultural production, 2) more investment in manufacturing and 3) raising the standard of education and health (Donner, 1978; Myers, 2005).

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While the U.S. was a big aid donor to the Northeast for military and security reasons in the 1960s and 1970s, this aid dried up after the Viet Nam war. Luckily, there were other major donors who were interested to giving development aids in the 1980s and 1990s. The Japanese government, through its funding and development agencies called JIRCAS and JICA inititated many aid programs in the Northeast during such time. Most of the Japanese money came to development of agricultural research. Many foreign donors such as Swedish, German, Australian, New Zealand, Canadian aids were also active as well during the 1980s-1990s. Water supply, irrigation and integrated development were popular development projects (The Projects from the King’s Kindness: Greening of Isan, 1988, see Box 1.1). These aid money supplemented the development budgets from the Thai Government which although increasing seemed still inadequate for the region’s needs, especially in agricultural research. In terms of foreign private investment, there has been little in the Northeast especially in the 1980s-1990s.

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BOX 1.1 Some foreign assisted projects in the Northeast during 1980s-1990s.

Donors Project Period Budget Areas Government of Germany

1. Water supply 1982-1989

46 m. baht aid, 301 m. baht loan

Udon Thani

2. Village development

1982-1988

378 m. baht Phase I, 140 m. baht Phase II, 140 m. baht Phase III

Burirum, Srisaket, Surin, Ubon Ratchathani and 3 Eastern provinces

3. Maintenance of irrigation projects

1983-1987

64 m. baht aid, 182 m. baht loan

Khon Kaen, Maha Salakam, Udon Thani, Loei, Nong Khai

4. Small irrigation projects

1985-1987

15.4 m. baht aid, 140 m. baht loan

Khon Kaen, Maha Salakam, Udon Thani, Loei, Nong Khai

Government of New Zealand

1.Water resource development

1983-1987

48,946 m. baht Chaiyaphum

2. People’s Weir 1986-1987, 1988-1990

1,718 m. baht Phase I, 22 m. baht Phase II

Ubon Ratchathani, Nakorn Ratchasima

European Union

1. Huai Mong Irrigation and Drainage

1981-1986

11 m. ECU Nong Khai

2. Chi Basin Water Management

1985-1987

4 m. ECU Kalasin, Nakorn Ratchasima

3. Crop development

1981-1990

4.9 m ECU

8 NE provinces

Government of U.S.A

1. Small scale Irrigation

1980-1987

73 m. baht 5 NE provinces

Government of Australia

1. Tung Kula Ronghai Land Development

1984-1989

177 m. baht Roi Et, Yasothorn, Sri Saket, Maha Salakam, Surin

Canada 1. Development of People’s Organization

1985-1989

88 m. baht 9 NE provinces

2. Integrated development including research

1985-1990

173 m. baht, Roi Et, Khon Kaen

Government of Nethelands

1. On-farm water management

1987-1989

2.4 m. baht 6 NE provinces

2. Small farmers participation in development

1986-1989

16 m. baht Udon Thani, Khon Kaen, Nong Khai, Loei

Source: The Projects from the King’s Kindness: Greening of Isan, 1988

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1.2.7 Linkage to macro economy Since the First National Economic Development Plan (1961-1966), the Northeast has been more fully integrated into the national economy through better transportation, communication, trade and national administration. External trade has effects on the regional development although not as much as the national level. Ammar and Suthad (1985) reported that until about 1975, Thai monetary policies under the guidance of the Bank of Thailand had been very conservative. The foreign exchange rate were maintained at a fixed level. The real value of the baht against the combination of other major currencies has remained stable up until early 1970s. Although in 1981 and again in 1984, the baht was devalued against the dollar but the fixed exchange rate system against the dollar was maintained. Excluding effect of higher oil prices during 1970s and 1980s, inflation for the national economy was around 3.3 per cent per annum for the 20 year period of 1961-1981. As a result of the macroeconomic stability of the early periods of development, the regional economy expanded unadrupted. The national economy expanded its exports both in agricultural and manufacturing sectors. By the 1980s, the Thai economy was a very open economy, trading actively with the foreign countries. Also growth in manufacturing and services exceeded that in agriculture. During these periods, industry and tourism expanded in the Northeast. A large proportion of the enterprises were agribusiness in nature. By mid 1980s, the relative fall in international agricultural prices, world financial crisis and inflationary pressure as well as the closing of the land frontier negatively affected the Northeast. Not only that market prices of cash crops were lower but also the input prices increased. By this time, it is apparent that the Northeast is lagging behind the rest of the country in its income generation capacity. The relative share in national income for the Northeast decrease from 17 per cent in 1960 to 14.7 per cent in 1981. The problem of disparity of income between regions was officially recognized by planners (NESDB, 1982) and specific area development plans were made for “Thung Kula Rong Hai”1 area and the southern provinces of the region. Periods of overvalued exchange rate and continued balance of payment deficit extended from the 1980s to the 1990s giving rise to the collapse of financial sector and macroeconomic stability in 1997. The national economy sufferred tremendously and its real GDP growth rate hit a record low of -10.2 per cent in 1998. The Northeastern region economy contracted by 3.5 per cent in 1998 as opposed to the growth of 3.2 per cent in 1997. Inflation was also high at 8.3 per cent. Nevertheless, the agricultural sector sufferred less as it still was able to grow at 3.8 per cent due to favourable rainfall and more attractive prices of major crops. Also the baht depreciation enabled rural Northeastern households to earn more income from overseas remittances (Bank of Thailand, 1998). As the overall economy was recovering quickly from the financial crisis, by 2001, the Northeast economy enjoyed relatively higher cassava and sugarcane prices which rose markedly due to increased demand from international markets (Bank of Thailand, 2001).

1

Thung Kula Rong Hai is literally meant “Kula’s Crying fields”—Kula being the name of local people. It is a vast low-lying area of the Mun river, around 330,000 ha in Southern part of the Northeast. It is well known for continual problems of droughts, floods, saline and poor soil. The rice yields are usually unstable and low (NESDB, 1982)

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1.3 Northeast Commercialization and its drivers 1.3.1 Commercialization of the Northeast agriculture

Patma et al (2004) stated that expansion of the market and increasing commercialization of agriculture arose from socio-political and economic changes at national and international levels and described the gradually change of subsistence farming into more commercialized agriculture. Commercial rice cultivation first began on a small scale during the 1920s and 1930s when railway lines were established (Dixon, 1978). Rice exports from the Northeast were only 7 percent of total country rice exports in 1925 and increased to be 18 percent in 1935 (Chatthip, 1999). Apart from rice, no other commercial crops were developed. The commercial-economy phase of the Northeast began in the 1950s when thousands of kilometers of roads were constructed to link the large towns in the Northeast region. In addition, a few large dams were constructed to provide electricity and irrigation water and accelerated regional development. Trading system in the Northeast was established by Chinese traders or middlemen. Seri and Hewison (1990) described the trading system and development of the commercial crops in the Northeast that Chinese traders brought agricultural implements and a range of basic consumer goods, such as clothes, gasoline, paper, materials for school, to many large villages and at the same time they purchased agricultural products from the villagers to sell in the towns. For the rice trading, Chinese traders established rice warehouses close to the railway stations. Rice mills were established in several places. In 1930, there were 33 in several provinces in the Northeast. Commercial rice production expanded following the railway. By the 1950s, many villages had shops in place, selling many of the consumer goods which were becoming daily necessities. In the 1960s, the development plan of the Thai government started to promote new cash crops, kenaf was the first promoted crop. Farmers began to grow kenaf on the free land or shared a part of their field with this new crop and finally expanded the cultivated area into public land and forest area in the vicinity of their villages. Chinese traders supported this process by offering credits to farmers. The products were delivered by the network of traders and government officials to factories established in various urban centers around the Northeast. The late 1960s and early 1970s cassava, a new crop, was introduced and became popular with the government and traders providing villagers with planning stock. Loans from the Bank for Agriculture and Agricultural Cooperatives were provided to encourage villagers to grow cassava. Many areas of the Northeast have been cleared for cassava production including forest areas. Apart from kenaf and cassava, the major upland cash crops grown in the Northeast have been maize, sugarcane and peanuts. Upland cash crops production has deepened the commercial nature of the Northeast agriculture. Changes in market prices have played an important role in determining the kind of upland crops farmers decide to grow at any particular time. During the period 1950 to 1975, the upland crops cotton, sugar, kenaf, cassava, and maize added over US$ 4,000 million to the foreign exchange earnings of Thailand, an appreciable increase in wealth for the country (van Liere and McNeely, 2005). The trend in cash cropping in the Northeast can be seen clearly in Figure 1.3.1 which shows planted areas of maize, cassava, sugar cane and dry season rice over 4-5 decades since the first National Plan in 1961. Maize and cassava came to the region in the 1960s but began to take off in the mid of 1970s. Cassava came in a big way and reached some 700,000 ha in 1976-1979 while maize occupied some 400,000 ha in the same period.

15

Maize peaked in 1985 with 500,000 ha while cassava continued to grow to 1 million ha in 1988. Both crops declined in the 1990s giving way to sugar cane which peaked in 2003 with nearly 500,000 ha. In the 2000s, cassava and sugar cane are the two dominant cash crops in the Northeast, cassava slightly surpasses sugar cane in terms of areas planted. Investigating yields of the two crops relative to other regions, it shows that the Northeast is competing quite well with other regions of Thailand in cassava and sugar cane production (Figure 1.3.2). Maize and dry season rice production are not competing well with other regions judging from yields. Maize especially is declining in terms of area coverage and in 2005, it occupies only 200,000 ha of the region. Dry season rice also increases in area planted where there are irrigation facilities but the yields are not competing with other regions (Figure 1.3.1).

0

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HaMaize

Cassava

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Figure 1.3.1 Planted areas in major cash crops in Northeast Thailand, 1961-2006 Source: Agricultural Statistics of Thailand

16

Cassava Yield

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010203040506070

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Other regions

Figure 1.3.2 Yield of major cash crops in the Northeast relative to other regions, 1973-2005 Souce: calculated from Agricultural Statistics of Thailand Figure 1.3.2 Yield of major cash crops in the Northeast relative to other regions, 1973-2005 Souce: calculated from Agricultural Statistics of Thailand In terms of wet season rice, Figure 1.3.3 demonstrates still the dominance place for wet season rice in the Northeast with 4-5 million ha planted each year. This is about 55 per cent of wet season rice areas for the whole kingdom. Much of the rice produced is for home consumption but increasingly the Northeast farmers are producing for the domestic and world market. In the Northeast, almost half of the glutinous rice produced is consumed by the household, compared to no more than 20 percent of non-glutinous rice. (NESDB and the World Bank, 2005). Total production of wet season rice in the Northeast reached 9.6 m. ton in 2003, up from 4.6 m. ton in 1973 as against 13.9 m. in 1973 and 20.9 m. ton for 2003 for the whole country (Figure 1.3.4). In 2003, rice yield for the Northeast averaged 2 ton per ha as compared to 3 ton per ha for other regions of Thailand. For the Northeast, this level of rice yields were an improvement from 1.3 ton per ha in 1973 and 1.5 ton per ha in 1986 (Figure 1.3.5). Despite lower relative yield in the Northeast, these figures, nevertheless, show that food production as well as cash crop production have been increasing through time in the Northeast making good foundation for competitive commercial agriculture in the region. Moreover, the region has become more diversified

17

agriculturally and the situation of competitive commercial agriculture extends to other crops as well. For example, more varieties of vegetables, fruits, perennials, rubber, and grape for wineries are increasingly being grown on suitable land in the region as well as livestock and rice-fish culture in rainy season as alternative agriculture production enterprises. More diversified modes of production and marketing systems e.g. contract-farming are observed. Apart from the diversification of the farm sector, the Northeastern people nowadays are much more diverse in their income earning from other sectors. Non-farm, service and industrial production are increasing and becoming as equally important as the Northeast is becoming more diversified in its economy.

0.01.02.03.04.05.06.07.08.09.0

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a

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Figure 1.3.3 Planted areas in wet season rice in Northeast and other regions of Thailand, 1973-2005

Figure 1.3.4 Wet season rice production for the Northeast and other regions of Thailand, 1973-2003

Source: adapted from Agricultural Statistics of Thailand

0.0

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Figure 1.3.5 Yield of wet season rice for the Northeast and for other regions of Thailand, 1973-2003 Source: calculated from Agricultural Statistics of Thailand In the next sections, we would like to identify important drivers to competitive commercial agriculture in the Northeast.

1.3.2 Drivers to competitive commercial agriculture

1.3.2.1 National plans and government policies Despite past governments’ neglect of the Northeast, since 1960s, the Northeast has received special interests of Thai governments for political reasons. It is a large region and its people are among the poorest in the country and for many decades there were political

18

concerns on security. There were threats from communist insurgency during 1960s-1970s, much more prevalent in the Northeast than in other regions. Looking back into history, the Northeast was abundant in its stories of revolts and discontents (Pasuk and Baker, 1997). The relationships with the Bangkok government were distant until around 1960s when education and communication was much improved between the Northeast and Bangkok. Since 1961 when the first National Economic plan was incepted, the Thai governments have invested more in the Northeast. Looking at agricultural plans and policies in the Northeast during 1961-1981, one can say the plans and policies have been comprehensive, covering all aspects ranging from infrastructure, crop and livestock research and extension, credit, cooperative development, land reform, environmental conservation, price support, provision of services, diversification, export promotion and institutions (Office of the Northeast Region Agriculture and Cooperatives, no date). In the First National plan (1961-1966), efforts were put in establishment of government offices in charge in agricultural development. Infrastructure like road building and irrigation systems were also made in such period with further expansion and improvement in the Second plan (1966-1971). Pisit ( 1972 ) argued that during the First and Second National Plans of the country (1961-1971), there was not adequate and satisfactory regional and spatial planning resulting in the deterioration of the position of the Northeast relative to the rest of Thailand. He argued for a stronger focus toward regional development. Towards the end of Third Plan (1973-76) and during the Fourth National plan (1977-1981), the country was in political turmoil from the democratic movement. During such time of political turmoil, it was the Thai bureaucracy and its officials who were actually in charge of the country. During the Fifth National Plan (1982-1986), more emphasis was put in rural development programs and projects. Poverty alleviation was a high national priority. Poor villages were identified and development projects were introduced by five major government ministries, namely Ministries of Agriculture and Agricultural Cooperatives, Education, Health, Interior and Commerce. Diversification programs and restructuring of agricultural production were introduced. Farmers were encouraged to diversify their production away from basic crops like rice or cassava since major crop prices continued to be depressed. The Thai government through its Sixth National Plan (1987-1991) was active in promoting commercialization. A distinction was made in the Plan between “production for sale” and “sale-based production”, the former being passive marketing of produce while the latter being active marketing-cum-production. The role of commercial agriculture in which integrated production and marketing was highlighted and actively planned was specifically promoted in the Plan. Associated measures such as grading, information dissemination, advertising, market promotion, packaging, quality assurance and logistics were also promoted. Public-private collaboration for smooth running of the market was given a high profile. Diversification of markets and products and export promotion was still repeatedly emphasized (NESDB, 1987). One can say through the National Plans up until the Sixth Plan at least, the Thai Government advocated free and well functioning market with good support to the private sector. After the Sixth Plan, the Thai government’s policies were put more into human capacity development and natural resource conservation. Commercialization and its associated

19

measures was no longer specific in the plan but its possible adverse impact e.g. income distribution and environmental health was given emphasis in the Seventh Plan (1992-1996). Since 1997, however, the country was facing an economic crisis and with baht devaluation in July 1997, the subsequent plans, policies and programs were really to counteract the impact of economic crisis. The Eighth National Plan (1997-2001) was really disfunctional. The Ninth National Plan (2001-2006) focused on specific areas of strategic focus--among them good governance, sustainable development, human development and social protection, environmental and natural resource quality, stability of macro economy, science and technology and efficient administration. Also notably among the strategic foci was the strengthening of economic capacity and the country competitiveness. Such Plans and policies have been the overarching framework in which the Thai economy in general and the Northeast economy in specific have operated. These plans and policies have distinguighed Thailand from the neighboring communist and socialist countries of Southeast Asia making Thailand a capitalist free trader economy. Many of the other drivers are products of such government plans and policies although final outcomes also depend on the actual budgetary allocation and implementation of specific programs and policies as well as other complementary factors.

1.3.2.2 Infrastructure and communication Pasuk and Baker (1997) reported on the cash crop boom in the Northeast starting from improved transportation in the 1950s. From the mid-1950s, the US funded road-building in Thailand as infrastructure for its military plans in Indo-China. US military material flowed up these roads during the military crises in Laos which started in 1958. These roads opened up a region once difficult in accessibility and trade between regions flourished ever since. Railways in the Northeast were constructed around 1890-1895 but its network were improved around 1950s in response to counter-insurgency policy of the Thai government (Seri and Hewison, 1990, Pasuk and Baker, 1997). Electricity was introduced around 1960s and by 1980s, hardly any village in the Northeast was without electricity. Seri and Hewison (1990) described travel in the Northeast before 1950s as difficult, full of dangers from wild animals and malaria. Given the fact that the Northeast is the largest region in Thailand, the Office of the Prime Minister reported in 1991 that rural roads in the Northeast constituted 44 per cent of all rural roads in the country while they were 22, 21 and 13 per cent for the North, Central and South respectively (Office of the Prime Minister, 1991). This was significant despite the fact that the Northeast is the largest region occupying one-third of the areas in Thailand. There are also good networks of railways, bus, air transport as well as telecommunication network in the Northeast. The measurement of transportation and communication index in Thailand in 2003 however still identified the Northeast provinces as relatively worse-off positions than such indices in other regions (UNDP, 2003)

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1.3.2.3 Education

Education in Thailand started its first period of development in 1932 when the Thai political system was changed from the traditional system of absolute monarchy to a constitutional monarchy system. The first National Education Scheme was devised whereby individual educational ability regardless of sex, social background or physical conditions would be formally recognized. In 1960, compulsory education was extended to 7 years. In addition, special provisions were, for the first time, made for disabled children, who were originally exempted from compulsory education, so that they might be given some form of basic education, regardless of their handicaps. Apart from the formal system of education, the government also placed importance to the adult education and non-formal education. Education to those in remote areas such as in the Northeast was being promoted since 1961 and much expanded in scope in 1969 (Jirapa, 1982). Around mid 1970s, Watson (1980) criticized the Thai education system as being more towards quantitative expansion than quality improvement. He mentioned poor quality of eduation especially in remote areas and inadequate attention to improvement of welfare, salaries and quality of teachers. The disparities of rural/urban schools in terms of quality were noted. Scarcity of equipments, textbooks, goods, teachers, etc was often mentioned for rural areas especially in the Northeast where the population was generally very poor. Seri and Hewison (1990) described children in Isan (Thai name for the Northeast) who skipped schools because brothers and sisters had to rotate their school uniforms. Those who came came with no lunches. Many parents also did not see much value in education and sent their children to schools because (primary) education was mandatory. Despite criticisms, by 2000, the Northeast population was educated and had literacy rate not far from those in other regions. Ambihadevy (2003) reported despite some areas of concerns, education expansion and performance, especially in the Northeast, was satisfactory in the past 10 years. In 2000, illiteracy rate for persons 6 years and over was 8.5 per cent for the country , 5.2 per cent for Bangkok and vicinity, 7.2 per cent for the Central region, 6.8 per cent for the Northeast, 13.6 per cent of the North and 10.6 per cent for the South. The percentage of people aged 15-24 years not in schools was however still high in the Northeast compared to other regions. 32.3 per cent of those aged 15-17 years were not in school in the Northeast, compared with 28.4, 27.2, 31.6, 23.4 and 30.5 per cent for those in the whole country, Bangkok and vicinity, Central, North and South respectively. 84.5 per cent of those aged 18-24 years were not in schools in the Northeast compared to 77.7, 69.7, 80.2, 78.7 and 81.9 per cent for those in the whole country, Bangkok and vicinity, Central, North and South respectively. Ambihadevy, however, reported the Northeast statistics on student enrolment in secondary schools during 1992-1997 showed the fastest rate of progress. Mean years of schooling was 6.7 years for the Northeast compared to 6.4-7.2 in other regions in 2001 (Table 1.3.1)(UNDP, 2003) . The percentage of those without formal education was low for the Northeast but enrolment rate and education attainment for upper secondary school, vocational training and tertiary education was still low in this region compared with others. Figure 1.3.6 shows the United Nation Development Program’s report on provincial distribution of education as indices measured in terms of mean years of education, gross enrollment ratio for lower and upper secondary education, education achievement and education infrastructure. Most

21

provinces of the Northeast showed lower education index than provinces of the North, Central and South. One can say that education in the Northeast, fundamental to many development efforts including competitive commercial agriculture, has been improving over the last 40 years although currently is still with mixed pictures of progress and shortfalls. Table 1.3.1 Education attainment in different regions in Thailand, 2001

Enrolment rate Education attainment

Mean years of schooling

No formal education

Lower secondary

Upper secondary

Tertiary

Vocational Training

Upper secondary

2001 2001 2000 2000 2001 2001 2001 years % % % % % % Whole kingdom 7.3 5.5 73.8 52 11.9 3.7 8 Bangkok Vicinity 8.4 4.2 86.5 51.8 18.5 6.2 9.1 Central 7.1 4.8 82.3 61.5 10.2 5 7.7 East 7.2 5.1 88.6 58.2 10.1 4.4 7.8 West 6.7 7.1 77.1 52.6 9.2 3.5 7 North 6.4 10 75.2 55 8.7 2.8 7.1 Northeast 6.7 2.8 70.6 45.7 7 2 7.9 South 7.1 7.7 73.5 54 10.7 4.1 8.8

Source: United Nations Development Program (2003)

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Figure 1.3.6 Provincial distribution of the education index Source: UNDP (2003)

1.3.2.4 Export oriented Thai economy Due to the policies and plans of the Thai government, the Thai economy has been an open economy with good flow of imports and exports. In agriculture, the Thai government and the private sector have pushed for export oriented development since the Fourth National Economic and Social Plan (1977-81). During 1970s and 1980s, Thai exports of agricultural commodities increased greatly and this made the drive to competitive commercial agriculture felt all over the country. One can examine the volume of exports of major commodities of interest from Thailand to the world market over the past four decades in the following figure (Figure 1.3.7). Rice and sugar continues to increase with some fluctuations, while maize and cassava exports decrease over the years. Rice exports have been around 8 m. ton during 2000s while exports of sugar products have been around 5 m. ton over the same period. For cassava products, exports stabilize around 5 m. ton during 1990s-2000s despite the peak of 10 m. ton around 1989 while most of the maize is consumed domestically even if the country enjoyed an export volume of 4 m. ton in 1985. In order to compete with the world market, the prices of these commodities need to be in line with the world prices unless the government intervene or distort domestic prices. In

23

Thailand, the government has intervened in the commodity market but not to the extent to substantially deviate domestic prices from the world prices except in the case of sugar products whereby quotas for domestic consumption has been set. More details of each crop will be examined in Chapter 2.

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Figure 1.3.7 Exports of major commodities over four decades in Thailand. Sources: constructed from statistics of Office of Agricultural Economics.

1.3.2.5 Credit Provision of agricultural credit has always been an important policy for the Thai Government and is a crucial driver for competitive commercial agriculture in the Northeast. The Bank of Agriculture and Agricultural Cooperatives (BAAC) was set up in 1966 as a state enterprise under the Ministry of Finance with a mandate to provide agricultural credit to farmers. In the early years of its operation, it suffered from the lack of money for the provision of rural credit but later was able to convince the Government to issue a regulation to commercial banks in the country to provide a required quota to provide agricultural credit either by themselves or through BAAC. This quota was increased through the years and reached 13 per cent of all credit given in 1986 (Pleunpit, 1991). In 1977, funding from commercial banks constituted 47 per cent of BAAC operating fund. This figure was reduced to 35 per cent in 1984 (Wanrak, 1991). Recently, BAAC has been more independent from funds from commercial banks but has operated on funding and borrowing from Ministry of Finance, overseas borrowing and shares and

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savings from general public (BAAC, 2005). It has gained its reputation of being a financial healthy public enterprise which can operate without much subsidies from the government. BAAC has been an important source of capital fund for farmers but in the beginning served better rural well-off farmers due to its requirements on collaterals (Falvey, 2000). Later, it enabled poor farmers to borrow through group borrowing schemes in which each farmer was guaranteed by their peers in the same group. It continually adapted ways to deal with farmers and has been considered quite an effective organization for agricultural development, especially for the poor. It provides credit to cooperatives and rural businesses and has expanded work to include other services e.g. specific purpose savings fund, insurance services, etc. It also supports various government policies on agricultural development including relief programs. Informal credit provided by relatives and merchants used to be an important source of agricultural credit in the 1960s now reduces in importance as BAAC increases its lending to rural farmers. A survey by Nipon (1991) indicated that in the Northeast, informal credit constituted 92 per cent of all credit in 1962, decreased to around 65 per cent in 1971. In 1982, the Office of Agricultural Economics (1985) reported that formal credit for the whole country constituted 60 per cent, about half came from BAAC, while informal credit constituted around 40 per cent. The role of informal credit declined sharply in the 1990s as institutional credit increased. The Agricultural Census for the Northeast revealed that formal credit borrowed for agricultural purposes, namely credit from BAAC, banks, financial institutions, cooperatives and farmers’ group constituted as high as 83.6 per cent of all loans in 1993 increasing to 91.3 per cent in 2003, while informal credit from merchants, money lenders, relatives, neighbors, etc constituted only 16.3 per cent in 1993 reducing to 8.4 per cent in 2003 (National Statistical Office, 2003). This shows that by 1993, formal credit was readily accessible to average farmers in Thailand and the Northeast. The amount of loans the Northeast households borrowed from BAAC itself were 58.4 per cent in 1993, increasing to 69 per cent in 1998 but decreasing to 55 per cent in 2003 due to the introduction of government village funds with 18.8 per cent of the loans being borrowed from village funds (NSO, 2003) (see Table 1.3.2). Many of them borrowed from more than one source. Since 2001, the government introduced the “one-million baht village fund” scheme managed by village fund committees. Here, villagers can borrow without collaterals for one year with the details of administration managed by the village fund committees. The amount of loans typically ranges from 5000-20,000 baht per household and villagers take turn to borrow. In terms of households, 35 per cent of the farm households in the Northeast borrowed from village funds (NSO, 2003). Also, during 2001-2003, the government asked BAAC to introduce the “debt moratorium” for farmers who had difficulty of repayment. The scheme suspended the debt repayment for farmers for three years but also gave a preferential interest rate to those farmers who chose not to participate in the scheme. NESDB and the World Bank (2005) argued however that the access to many of the government credit programs was greater for non-poor households compared to poor households. This is because the poorest households lack credit standing and collaterals. Nevertheless, it should also be recognized that these credit programs have

25

lifted many farming households out of poverty and the proportion of poor farming households has reduced over the years. Table 1.3.2 Debt situations in Northeast Thailand

1993 1998 2003 Whole kingdom % in debt for agriculture 45.9 53.2 61.1 Average debt per household in debt 23,342 34,422 45,079 Average debt per total household 10,712 18,305 27,544 % borrowed from BAAC 58.4 69.3 55.3 % borrowed from village fund 18.8

Source: National Statistical Office (2003) Looking at the extent of subsidization in these credit programs, NESDB and the World Bank (2005) reported that the subsidies on credit did occur for example when the government was to allocate to BAAC 6,000 m. baht for the Debt Moratorium Scheme to 1.2 m. farmers and 900 m. baht in interest compensation during 2001-2005. In the past, BAAC had been operating the credit programs at cost with minimum subsidy or operating losses. BAAC asks the government to compensate or transfer money to finance its special programs. When BAAC operates its own credit programs, the interest rates on loans charged are normally in line with the market rates i.e. 8-15% varying year to year and also varying according to credit rating of clients. It is when it operates the special government programs that the interest rates and credit programs may be subsidized. In examining the credit provided by BAAC through special government programs during 1987-2006, around 11 per cent of total credit would have to be subsidized either by the government or by BAAC—amounting to around 1570 m. baht a year (BAAC, 2005).

1.3.2.6 Land tenure reform Farmers in the Northeast are mostly owner operators. Surveyed data in Northeast in 1973-74 showed that 89 percent of farm operators were full owners with 8 percent were part owners-part tenants and full tenants constituted only a negligible proportion (LePoer,1987). Nevertheless, a large proportion of farmers in the Northeast were using their farm without legal land titles. Many of them are at risk of being evicted from their land due to legality problem. Northeast farmers’ demands for the government to grant their legal land rights were frequent and resulted many times in political protests and conflicts (Jermsak, 1992). This was also because forest area encroachment was common during the cash crop expansion periods of 1960s-1980s. Some 3 m.ha of forest were cleared in the Northeast, initially through logging and later on most of which was used for rice and upland crop farming. Farmers who use these forest areas for cultivation have been subject to eviction and they have put pressure for the government to step up land tenure reform whereby land use rights are granted. In 1975, Thailand started the agricultural land reform program to redistribute land to landless farmers and to provide title deeds to squatters in public lands. The Agricultural Land Reform Office (ALRO) is the responsible agency for implementing the land reform program. Beside land allocation and land titling, ALRO also provides domestic water supplies to farm households, village roads, farm ponds and small-scale reservoirs including

26

related irrigation facilities (ALRO, 2006). Another responsibility of ALRO in the land reform program is to increase farmers’ income by improving agricultural production structure, establishing Agricultural Land Reform Cooperatives, providing agricultural credit and production inputs, developing and supporting on-farm and off-farm occupation as well as enabling farmers to participate in natural resources and environment conservation in communities. Since starting the land reform program until October 2005, about 8.2 m. ha of land were declared as reform area and about 49 per cent of the declared areas have been allocated to 1.52 million households in the 69 provinces all over the whole kingdom. The Northeast is the region which the highest area of land reform declaration. About a half of allocated land and beneficial households are in the Northeast (ALRO, 2006) (Table 1.3.3). This confirms the achievements of ALRO work in the Northeast region. Table 1.3.3: Land reform implementation classified by region from 1975 to 2005

Allocated area and household Region Declared

area1/

(m.ha)

Area (m. ha)

No. of households

North 4.2 0.94 402,398 Northeast 1.8 2.10 762,170 Central 1.3 0.62 189,584 South 0.9 0.43 169,680 Whole Country 8.2 4.06 1,523,832 Note: 1/ Information for the declared area is only on the public land but information for the allocated area is on both the public and private land. Source: calculated from ALRO, 2005 (cited from ALRO, 2006) Besides land allocation, land reform implementation includes also other activities, i.e. development activity and access to credit. In 2003, the Thai government has implemented the “Asset Capitalization Program” (ACP) to facilitate more equitable access to institutional credit for small scale farmers. According to the ACP, small scale farmers can use the ALRO land certificate (Sor Por Kor) as collateral for individually loan application to the Bank of Agriculture and Agricultural Cooperative (BAAC). Those activities under the land reform program aim to enhance equitable access to resources for the poor farmers, with expecting that it will strengthen the process of agricultural development through agricultural intensification and specialization in commercial crops. According to ALRO, in 2005, 176,909 farmers got credit (2,050 million baht) under asset capitalization project incorporate with BAAC. Some achievements of land reform implementation can be seen in Table 1.3.4.

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Table 1.3.4 Summary of ALRO project implementation and land reform progress, as of the end of fiscal year 2005 Type of activities Performances 1. Land allocation 1.43 m. farmers 2. Development Activities - Construction of transportation roads 7,177.14 kms - Construction of digging canals 460.03 kms - Water resources for agriculture 3,145 units - Water resources for consumption 13,172 units - Road rehabilitation 18,696.52 kms - Setting up Agricultural Cooperatives namely Agricultural Land Reform Cooperatives

158 cooperatives 71,995 members

3. Access to credit - Under asset capitalization project (incorporate with BAAC) (As of September 2005, one year operation)

176,909 farmers or 2,050.63 m. baht

Source: ALRO, 2005 (cited from ALRO, 2006)

With regard to land titling, Burns (2004) stated that before the Fifth National Social and Economic Development Plan (1981-85), only about 12 per cent of the 23.7 million ha of occupied agricultural land was held by title deeds, a further 49 per cent was held by lesser documents, 18 per cent was occupied by person who may have a claim but lacked documentation, and 21 per cent was illegally occupied forest land. In addition to the agricultural land reform program, there is another government land allocation program called land titling program (LTP) started in late 1984 under the responsibility of the Department of Land (DOL) with the support from World Bank and Australian government. The LTP was set mainly to grant secure land tenure to eligible landholders, expecting that secure tenure would enhance access to institutional credit and provide farmers an incentive for long-term investment to improve their productivity (Burns, 2004). The LTP was planned for 20 years and broken into four discrete five-year phases. Data from the Thailand case study (cited in Burns, 2004) showed that since starting the program until 2001, the LTP had already issued about 8.5 million titles over about 4.87 million ha.

The impacts of the LTP in the northeast region in particular have not been well documented. There have been a number of studies of the socio-economic impact of the LTP for the whole country, both cross-sectional studies prior to the project (Feder et al., 1988) and a series of longitudinal studies during project implementation carried out by the center for applied economic research, Kasetsart University in Bangkok These studies found a positive impact of the LTP on the land price (increase of 127%), access to institutional credit with cheaper interest rates (increased by 132%), and amount of credit received (between 75% and 123% more credit than those without). There was also more intensive use of external farm inputs for titled land. Both the value of production and the yield per unit area were higher for titled land and the LTP led to an increase in cultivated areas (Burns, 2004 and Leonard and Kingkorn, 2003).

Given the above studies and land reform work in the Northeast, one can conclude that land tenure security and land reform associated measures to improve land productivity are undeniably important drivers to competitive commercial agriculture as exhibited in Northeast Thailand.

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1.3.2.7 Water resource development

Although the Northeast is not known for its irrigated land in comparison for its upland, massive efforts to develop water resource have been underway in the Northeast in the past 40 years. Systematic development of irrigation system in the Northeast region began in the First Economic Development Plan (1961-1966) and was also continued in the later plans. The Thai government by the Royal Irrigation Department (RID) began the construction of irrigation and multi-purpose dams, with the aid of international agencies, during the 1960s. Presently there are six large dams building across the tributaries of the Mun River, the region’s major river, in operation in the Northeast (EGAT, 2006). An example of a multi-purpose dam is given to show how a hydroelectric power and irrigation project contributed to the development of the Northeast. Nam Pong dam (renamed the Ubolrattana) in Khon Kaen province is the first hydroelectric power project developed in the Northeast region supplying the electricity, 65 million kwh, for 8 provinces in the region (Petr, 1985 and Sneddon, 1998). For irrigation purposes, the dam converted 50,000 ha of rainfed agricultural land to the irrigated land, producing an additional 5,000 tons per year of paddy rice (Sneddon, 1998). Besides, the dam has been used for reducing flooding in formerly flood-prone areas and controlling flow rates in the river throughout the year. An unexpected benefit from the dam is the advantage of a highly productive reservoir fishery. Many rice farmers have become fishermen and earn substantial income from fishing (Petr, 1985). EGAT (2006) stated that the benefits from all hydroelectric or multi-purpose dams for nearly four decades in the Northeast region were to significantly relieve the plights of northeastern people by providing greater and reliable water supply for agriculture and other consumption, better flood control, fishery promotion, recreation, and reliable electricity supply. All benefits have greatly supported the agriculture based economy of northeastern provinces and thus improving the well being of the local people (EGAT 2006, Sneddon, 1998) Beside the multi-purpose dams, in 1977 the RID started the small scale water resource development project in the Northeast by constructing the irrigation systems such as weirs and small reservoirs or tanks and turning over to the sub-district council for operation and maintenance of the system. During 1977-1985, the number of small irrigation projects in the Northeast constituted about half of total small projects in the country (Than, 1990). Than (1990) found that more than eleven government agencies were involved in the implementation and development of water resources in the Northeast. For example, the Department of Land Development (DLD) provided small farm ponds and designed canal systems connecting the fields to the ponds as well as helped farmers develop intensive cropping systems for maximum use of the water resource from the pond. The office of the Accelerated Rural Development (ARD) under the Ministry of Interior also allocated about 20 per cent of annual budget for the construction of small scale water resources projects, particularly reservoirs and ponds. The Department of Local Admistration (DOLA) administered the Drought Relief program which allocated a budget to the Northeast to alleviate the effects of severe droughts by digging small reservoirs, canals and village ponds or deepening existing one. The National Energy Authority (NEA) introduced irrigation development program in 1968 by pumping water from three main and reliable rivers, the Mekong, Mun and Chi Rivers in the Northeast. The most comprehensive

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irrigation scheme ever implemented in the Northeast was “the Greening of the Northeast” Project which would bring water from three major rivers, the Mekong, Mun and Chi for distribution throughout the region. Many large and medium sizes of reservoirs and concrete lined canals in many appropriate sites were constructed by the Army engineering units. In 2006, The Bank of Thailand reported on the situation of water resource development in the Northeast indicating that there were already 182 large, medium, and small water resources in operation in the Northeast, distributing water to approximately 0.5 m ha of agricultural area. Additionally, there is another 0.4 m. ha of farmland receiving water from small-scale irrigation projects and power pumping projects. A project to develop the 0.3 m. ha of Thung Kula Rong Hai is also underway, along with Khong-Chi-Mun project which is a long-term development project of 42 years but expecting to complete it in 20 years. This project, when completed, will be irrigating about 0.8 m. ha of farmland. A total of 0.88 m. ha was irrigated in 2000 as compared to some 0.18 m. ha in 1970 (OAE, 1973-2005). Nongluck et al (2005) reported that farm ponds and small water resources for Northeast farmers enabled farmers to diversify their production and produce more food for the households through gardening, fishing and rice farming. Some were able to diversify their farms away from major cash crops such as cassava and sugar cane. While private investment in deep water wells have been reported, its use for irrigation purposes has not been reported as common. They are mainly for household uses. From this review of water resource development of Northeast farmers, it seems that the irrigation and water resource facilities are more important to rice farmers than cassava, sugar cane and maize farmers. Nevertheless, as rice farming is still the back bone of the Northeast economy occupying 5.3 m. ha in the region in 2003 as compared to 0.9 m. ha for maize, 0.55 m. ha for cassava and 0.33 m. ha for sugar cane, the development efforts in water resources seem justified, both politically and economically. Water resource development enables Northeast farmers to invest in agriculture, both for food and for commercial purposes. More rice productivity and output for the family enabled farm households to diversify and devote areas to other cash crops. Rice productivity growth improved from 0.935 ton per ha for non-glutinuous rice and 1.62 ton per ha for glutinuous rice in 1970 (Donner, 1978), to an average of 1.3 ton per ha in 1975, to 2.1 ton per ha for all rice varieties in 2005 (Office of Agricultural Economics, 2006). Rice production in the region doubled from 5.3 m. ton in 1975 to 10.4 m. ton in 2005 even though rice areas increased only 25 per cent from 4 m. ha in 1975 to 5.2 m. ha in 2005 (see Table 2.1.1). Besides, more stable output from year to year can be obtained by farmers as a result of these increased irrigation facilities despite the varability in climatic conditions in the region.

1.3.2.8 Research and extension Before the 1960s, public research and extension had focused on rice because of the sizable potential benefit from rice research as rice was the major export of Thailand (TDRI, 1995). Almost a half of the total agricultural budget from the government allocated to the Department of Rice during 1959-1967 (Falvey, 2000). Type of crop gained an interest for conducting research has been changed over time. During the 1970s to 1980s, the research investment was shifted towards some important field crops, especially cotton and oil crop

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such as soybean. In the late 1980s, horticultural research has gained more attention but the absolute investment in rice research had not been reduced. At the beginning of the 1980s, the crop production level in the Northeast was unstable and low compared to other regions due to poor environmental conditions such as unstable weather, impoverished soil and insufficiency of irrigation facilities. Agricultural research in Thailand is supported by a number of government agencies. The Ministry of Agriculture and Agricultural Cooperatives (MOAC) is the largest agency of agricultural research for crops, livestock, forestry, and fisheries but crop research got the largest share of the research budget (Fuglie, 2000). Some research funds are for staff in public universities through the Ministry of University Affairs and the Thailand Research Fund (TRF) and the National Research Council (NRC). In 1992, there were still reports of insufficient of government budget allocated for agricultural research and development (Agricultural Development Research Center for the Northeast (ADRC), 1992). Many research programs and projects were thus funded by foreign aid agencies during 1980s-1990s. For example, the Agricultural Development Research Center (ADRC) in the Northeast was implemented under the long term collaboration between Thai and Japanese government for the period of 1982-1993. Some other projects were funded by the European Commission, the government of Netherlands, New Zealand, and USAID. These research and technical assistance projects provided much support to agricultural research and development through regional universities and government departments in the critical period of development in the Northeast especially in 1980s. A major component of such projects was to strengthen human resource capacity in agricultural sector. During the 1980s to 1990s, a number of government agencies in the MOAC had implemented several agricultural research and development programs with the support from international organizations.

Over the years and over all regions of Thailand, one can say that the Thai government agencies have invested much in research of the major crops even though more should have been invested. While more research has been on rice, the research efforts, especially dealing with new varieties of maize, cassava and sugar cane have not been negligible. For rice, Ammar and Viroj (1990) reported that research to adapt modern rice varieties to Thai conditions had been under way before World War II focusing mainly on producing of high yielding varieties. By 2006, the Thai Rice Research Institute has 75 registered and recommended Thai rice varieties. This Rice Research Institute of the Department of Agriculture is directly involved in rice research, primarily in increasing productivity through varietal improvement and crop, soil, and water management. Related divisions have mandates for research and extension activities for crop protection and machinery development. Rice research has constituted the largest share in agricultural research in the Ministry of Agriculture and Agricultural Cooperatives. Also, Thai universities have engaged actively in rice research in various ways especially dealing with agronomic practices.

For maize, although the private sector now dominates the maize industry both in research and extension, the early role of the government agencies was particularly critical. Staff from Kasetsart University, a well-known agricultural university in Thailand, was pioneers in the breeding lines and varieties in the 1970s and Kasetsart University’s well-known Suwan 1 maize open-pollinated variety which took long years of research laid the foundation for maize varieties both in the public and private sector much until today.

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Afterward, the Ministry of Agriculture and Agricultural Cooperatives through collaboration with the international research organization like CIMMYT (International Maize and Wheat Improvement Center), provided good support in research, research personnel and facilitation roles for the private sector. (Yosaporn, Pichet and Chokechai, 1998, Vasal, 1998, Benchaphun, Phrek and Kuson, 1999). Dealing with maize extension, during 1994-98, the Thai Department of Agricultural Extension distributed hybrid seeds developed by the private sector to numerous locations throughout the country at subsidied prices. In this way, farmers were introduced the new seed and technology through the government support. Later, extension service is much done by private companies which have the interests of selling seeds.

Development of cassava production technology is mainly about cultivar development. Chanual, Narongsak and Preecha (2000) from the Department of Agriculture reported that Thailand has a collection of 348 cultivars that can be used for breeding. Out of these, 216 clones are from the Thai breeding program. The breeding program to enhance starch yield and adaptability to a wide range of growing conditions started with the release of Rayong 1 in 1975 and has became more important as the planted area and important of cassava increased. For many years, Rayong 1 occupied almost 100 percent of the country's cassava planted area. This began changing in the mid-1980s as many new hybrid cultivars, such as Rayong 3, Rayong 90, Kasetsart 50 gained popularity for industrial use due to providing higher starch content (FAO, 2000a). By 1999, new hybrid, Rayong 72, with the high yield at 32.5 ton per ha (experimental yield) from the national program and Kasetsart University extended over more almost half of the total area. For sugar cane, the Office of the Cane and Sugar Board under the Ministry of Industry reported that during the crop-year 1998-1999 the most common variety in the northeastern region was Phill 66-07 which was an imported variety occupying 40 per cent of total planted areas. The second most popular variety was U-Thong I (a hybrid variety) (Paitoon, Aroon and Decha, 2001). The government sector has played a major role in investing in sugarcane research. Sugarcane research is under the responsibility of three main organizations, namely research centers under the Department of Agriculture, regional sugarcane centers under the Ministry of Industry, and Kasetsart University. About 10 varieties have been certified and released by these three research organizations. However, only 3 varieties have been adopted by farmers namely K 84-200, U-thong 1 and K 176-4. The private sector – sugar millers in particular – also started to invest in research in 1993. The main research focus has been to improve productivity of sugarcane through various aspects such as developing pest- and drought-resistant and more productive varieties (TDRI, 2000). One of the successful pieces of agricultural research in the Northeast deals with the improvement of saline soil by the Soil Salinity Research Section of the Department of Land Development (DLD). The research contributed greatly to the success of changing saline soil of Thung Kula Rong Hai area covering 87,923 ha to be the biggest area of jasmine rice production in Thailand in which 14,280 farm households have benefited (Chatchai, 2003). In 1992, DLD initiated two new strategies called “Land Development Village” (LDV) and “Soil Doctor” (SD) to solve the aforesaid problems. Four hundred and thirty villages in the country were selected and established as LDV. For agricultural extension, the Department of Agricultural Extension (DOAE) established in 1967 is mainly responsible for extension of crop production whereas Department of

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Livestock Development (DLD) and Department of Fisheries are for livestock production and aquaculture, respectively. The DOAE is directly responsible for integrating the concepts and strategies of crop promotion and cooperating with research institutes, universities, agricultural credit, marketing organizations and other related agencies in order to provide extension services and technology transfer to farmers to help increase farm productivity, both qualitatively and quantitatively and to meet market demands and standards. The DOAE has established a regional office in the Northeast as well as in other regions and also provincial and district offices in all provinces and all districts for the whole country. In each district, there are extension officers to work closely with farmers. District and sub-district agricultural extension officers have a duty to convey knowledge and technologies which have already tested for local adaptability from research institutions to farmers and get feed back regarding the problems and constraints, either technical and biological, being faced by farmers and farmers’ attitudes, and proposed to researchers by extension officers. The DOAE acts as the linkage between researchers and extension staff. The seed development and distribution program implemented by the DOAE is one of the most successful improved seed programs found in any developing country since it can combined research and extension in a single organization (Bay-Peterson, 1985). In this program, the DOAE has implemented the concept of increasing yield by using good quality seed of improved varieties under the crop promotion project. Among various, technologies transferred, good quality seed of promising varieties is the basic strategy to introduce new varieties to farmers. The DOAE increases good seed accessibility and availability to farmers by using several approaches for seed distribution such as “Seed Exchange Method” which implemented during 1982-1998 for rice and during 1982-1989 for soybean by means of exchanging farmers’ seed with good seed, at a rate of 1:1 by weight whereas in certain poverty-stricken location, “Free Rice Seed” is subsidized to the farmers (Chavalvut, 1999). Also, the DOAE initiates community seed production center in 65 rice producing provinces in Thailand for producing good rice seed to increase total rice yield. In this way, subsistence farmers could have more access to good seed to start with, and the production cost could be minimized. However, in 1999, the DOAE established a new extension system which response to the new constitution law in 1997 and the 9th National Social and Economic Development Plan for giving priority to human development. The new extension system has a principle that farmers will determine the development pathway by themselves and extension officers will be facilitators and coordinators as well as learning partner of farmers. The Agricultural Technology Transfer and Service Center (ATSC) in each sub-district have been established throughout the whole country to be mechanisms for working with farmers as well as other related institutions such as local government, farmer associations, NGOs and private sector in the agricultural development process. The ATSC is formulated to develop one stop service centers for farmers and communities in the areas of agricultural development, agricultural production, market development and natural resources management. The ATSC implementation was carried out on the basis of community-based development by providing opportunity to farmers, enabling them to participate, and promoting their potential to plan and solve existing problems by themselves. Thus, the establishment of ATSC paved the way to decentralization and empowerment for community development (Panee and Surangsri, 2005).

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In terms of the role of the private sector in extension, NESDB and the World Bank (2005) and Benchaphun et al (2004) reported that private companies provided extension services for the farmers using their hybrid maize and vegetable seeds. In seeing the balance between research and extension and between regions, the Northeast Economic Development Report 2005 reported that extension budget constituted over 90 per cent of the expenditures on agricultural research and extension in Thailand but the Northeast received just over one seventh of the budget although the region is home to one in two farms, implying that insufficient budget on research has been allocated to the region (NESDB and the World Bank, 2005). Agricultural Development and Research Center (ADRC) for the Northeast also reported in 1982 confirming that the budget for agricultural research (excluding personnel, building and equipment costs) for the Northeast was too small—only 1 per cent of the budget for the Ministry of Agriculture and Agricultural Cooperatives. This was a real constraint to productivity growth in the region. Therefore, foreign aids and government priority programs were needed for such purposes (ADRC, 1982). Despite reports on insufficient funding in agricultural research, Fan, Somchai and Nuntaporn (2004) studied about the impacts of different types of government expenditure on agricultural growth and rural poverty in Thailand and it was found that public investment in agricultural research and development improved agricultural productivity the most and has the second largest impact on rural poverty reduction. While no studies have attempted to establish the quantitive evidence of the impact of research and extension especially in the Northeast as it is a product of activities in different organizations including universities, many not based in the Northeast itself, it is clear to many concerned, however, that research and extension in major crops in Thailand, whether done by the public or the private sector, is one of the key drivers for the Northeast to establish its stand in competitive commercial agriculture over the past 40 years.

1.3.2.9 The role of the private sector Over the last 40 years, the private sector in agricultural, industrial and service played an important role in the northeast development. The Northeast economy, as elsewhere in Thailand, has been benefiting from having competitive markets for agricultural and non-agricultural sectors. Traders and manufacturers, big and small, have been competing freely and actively. Farmers can find their merchants easily to sell their produce—oftentimes traders will come to their farms. With good infrastructure, market is easily accessible to farmers. The Board of Investment of Thailand (BOI) also has made a concentrated effort to de-localize industry that had grouped itself around Bangkok and the surrounding area (NESDB and the World Bank, 2005). This included incentives for foreign-owned industry to locate in the Northeast. From this decentralization, the private sectors help to develop and provide jobs, bring income to their employee, and strengthen the Northeast economy. Moreover the private sector facilitates the poverty reduction in the area by providing poor communities with access to employment opportunities. The private sector remains primarily focused on agro-business which makes forward and backward linkages for agricultural product. They help farmers to improve their production by delivery inputs and technology and the market for the agricultural sector. This involves

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all kinds of equipment for irrigation, soil preparation, seeding, harvesting, threshing, as well as fertilizers, pesticides, seeds, animal medicines etc. The three leading sectors are rice milling, cassava processing and jute processing, and rice mills alone account for over two thirds of all factories. Machinery development and use has been done in the private sector for rice farming. Ammar and Viroj (1990) reported that the promotion for the use of machineries and equipment in Thai rice farming system has been successful since 1980. There are increasing uses of machineries and equipments such as water pumps, walking tractors, sprayers, planters and seeders, and axial flow threshers. Machinery use is also extensive in other cash crop farming as well (see chapter 2). Besides, retailers, wholesalers, processors, assemblers and exporters have been all active in rice, maize, cassava and sugar cane industry and trade. In terms of other economic sectors, the Northeast is also expanding in the production of products like furniture, apparel and textile preparation; electronic parts, plastic products and auto parts. These industries provide further diversification of the Northeast economy so that it is not too much dependent on a few major cash crop produce for its growth. This section has outlined some important drivers to competitive commercial agriculture in the Northeast. In our opinion, the most important driver among these has been one on national plans and policies, plus the political commitment to follow through these plans and policies, setting the overall framework, providing budgets and overseeing implementation. Without good framework and commitment from the government, effective programs cannot come forward. Infrastructure, education, research, extension, credit, land reform and water resource development are each important driver that must also be present and they need long term commitment. Underlying these drivers are the catalyst roles of governmental bodies, and donor support. Good functioning of the private sector and competitiveness of market is also fundamental to competitive commercial markets in which agriculture operates. A good balance and complementary functioning of the public and private sector has been a key to successful transition to competitive commercial agriculture. The public sector provides general “enabling environment” while the private sector do the trading, processing and commerce. The next chapter will elaborate further details on each of the major crops of the Northeast, namely rice, maize, cassava and sugar cane.

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CHAPTER II THE RISE OF COMPETITIVE COMMERCIALIZATION OF MAJOR CROPS IN

THE REGION

2. The rise of competitive commercialization of major crops in the region We will examine in details the rise of competitive commercial agriculture in the Northeast in relation to four major crops, namely rice, maize, cassava and sugar cane.

2.1 Rice in the Northeast economy Rice is a dominant sub-sector of Thailand’s agriculture. It is not only a domestically vital food crop, but a major agricultural export commodity as well. Thailand is the world's largest rice exporter although since 1992 it has been ranked as the sixth largest producer after China, India, Indonesia, Bangladesh and Vietnam, respectively (FAO, 2006). Moreover Thai rice is renowned for its quality, especially, Kaow Dawk Mali or widely known as Thai fragrant rice which mainly produced in the Northeast. Rice contributed more than 11 percent of government revenues from 1955 to 1965, declining progressively to about two per cent by 1975, about $40 million per year (Ammar, 1975 referred in Falvey, 2000). In the post-World War II period, over two-thirds of the population lived in agricultural households, which produced rice, and a significant percentage of the remainder was involved in rice trading, transporting, and milling (Behrman, 1968). According to the 2001 census, 40 per cent of the Thai work force was employed in the agriculture, hunting and forestry sectors. The dominance of rice reflects both the natural environment of Thailand and the historical origins of its agriculture (Falvey, 2000).

2.1.1 Rice production

2.1.1.1 Planting season There are two main growing seasons for rice in Thailand classified by planting season, the wet season for major rice and the dry season for second rice. Since the plantation of major rice relies heavily on natural water supply, it is planted only in the rainy season in Thailand (May to October). Second rice, by contrast, can be planted all year round in those limited provinces where irrigation is sufficient. Most rice is rain-fed, as only one quarter of the rice areas are irrigated and most of those are located in the Central plains (NESDB and the World Bank, 2005).

The contrast between the dry and wet season is greater in Northeastern Thailand than in any other part of Southeast Asia (Heckman, 1979). A lack of rainfall greatly limits plant growth during the dry season in Northeast and during the rainy season rainfall is so frequent and heavy that local flooding often results. These floods and the occasional overflow of the Mekong and its major tributaries bring about renewal of the upper soil layers, maintaining continual fertility of the land without the need for fertilizers (Heckman, 1979).

2.1.1.2 Production, area and yield

Rice is widely planted in Thailand especially in the Northeast, North, Central and South. Falvey (2000) reported that the Central Plain represents some 45 percent of the area under rice and more than half of total production and the bulk of rice exports, producing less than four percent of glutinous rice. While the Northeast, with about 43 percent of total acreage,

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produces less than 30 percent of all rice (see Table 2.1.1) from its poorer overall water and soil regimes, and a dietary preference for the lower yielding glutinous varieties. The North represents about six percent of the national rice area with contribution of more than ten percent of national rice production and the South produces some nine percent of production from about seven percent of the rice area (Falvey, 2000).

Table 2.1.1 Wet season rice: area, production and yield

Planted area (m. ha) Production (m.ton) Yield per ha (ton/ha) Years Whole

Kingdom Northeastern

Region Whole

Kingdom Northeastern

Region Whole

Kingdom Northeastern

Region 1975 8.5 4.0 14.09 5.32 1.656 1.331 1980 9.1 4.5 15.40 5.75 1.694 1.275 1985 9.50 4.75 17.93 7.39 1.950 1.619 1990 9.31 5.06 14.90 7.74 1.813 1.644 1995 9.18 5.12 17.72 8.43 2.169 1.756 2000 9.10 5.17 19.55 9.04 2.338 1.938 2005 9.24 5.28 23.54 10.44 2.725 2.125

Source : Office of Agricultural Economics (1976-2005)

According to Office of Agriculture Economics (1976-2005), the larger national planting area accounts for the higher production of major rice than second rice. The first ten provinces which have the highest planted area for major rice in 2005 are Nakhon Ratchasima and Ubon Rachathani (with 0.5 m. ha each); Buri Ram, Surin, Roi Et (0.42-0.44 m.ha), Khon Kaen and Nakhon Sawan (0.37-0.38 m. ha), Sakon Nakhon and Udon Thani (0.3 m. ha), and Maha Sarkham (0.28 m. ha). Only one province in this list, Nakhon Sawan, locate in the lower northern plain. Therefore The Northeast region is the main area of production for major rice in Thailand. In contradiction with the planted area, yield per rai of rice in Northeast are the lowest yield compared to another regions because Northeast farmers particularly focus on low-yielding traditional and high-quality varieties. For second rice, the first ten provinces that have the highest planted area in 2005 are Suphan Buri (0.18 m.ha), Phichit and Nakhon Sawan (0.1 m.ha), Chai Nat and Phitsanulok (0.088 m.ha), Ayutthaya (0.079 m.ha), Kamphaeng Phet (0.072 m.ha), Nakhon Pathom, Sing Buri and Chachoengsao (0.056 m.ha or less). None of this provinces locates in Northeast but most of them locate in the Central Plain or lower Northern within the irrigated area.

Within Thailand, the Northeast stands out for both a large share of rice producers among households and a particular focus on low-yielding traditional and high-quality (and hence high-price) varieties. In 2002, more than 90 percent of all rural households produced some rice. About two thirds of Northeast farmers produce glutinous rice and two-fifths cultivate both glutinous and non-glutinous varieties. Almost half of the glutinous rice produced is consumed by the household, compared to no more than 20 percent of non-glutinous rice (NESDB and the World Bank, 2005).

The Northeast contributed approximately 10.8 m. ton (major rice 10.4 m. ton and 0.4 m.ton from second rice) of Thailand’s 29 million ton (major rice 23.5 million ton and second rice 5.8 m. ton) in 2005 (Table 2.1.1. and 2.1.2). Over the period from 1983 to 2004, the

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national growth rate of rice production was an average of 1.7 percent per year, driven by increases in yield (1.5 percent per year) and by the extension of harvested area (0.1 percent per year) (OAE, 1976-2005). The national yield of major rice increase from 1.5 ton per ha in 1975 to 2.7 ton per ha in 2005 resulted from increased use of fertilizers, agricultural chemicals and other modern inputs (Kajonwan, 1999). During the same period the output in the Northeast increased only on average 0.9 percent per year, driven by yield improvements (1.0 percent per year) but obstructed by decreases in harvesting area (0.1 percent per year) (OAE, 1976-2005). Yield increase for major rice was slower than for the whole kingdom being 1.3 ton per ha in 1975 increasing to 2.1 ton per ha in 2005 (Table 2.1.1). The tendency of reduced utilization of land for major rice was due to competitiveness in using land for other crops.

Table 2.1.2 Dry-season rice : area, production and yield , Thailand, 1980-2005

Planted area (m. ha) Production (m.ton) Yield per ha (ton/ha) Years Whole

Kingdom Northeastern

Region Whole

Kingdom Northeastern

Region Whole

Kingdom Northeastern

Region 1980 0.33 0.011 1.11 0.026 3.800 2.219 1985 0.70 0.034 2.63 0.084 3.725 2.488 1990 0.83 0.068 2.12 0.196 2.906 3.013 1995 0.68 0.025 2.95 0.068 4.338 2.688 2000 1.25 0.102 5.15 0.301 4.244 3.138 2005 1.42 0.115 5.88 0.358 4.219 3.175

Source : Office of Agricultural Economics (1980-2005)

The pattern of production growth varies between regions. Over the period from 1997 to 2003 Production growth was highest in the Center (4.3 percent per year) and negative in the Southern region (-3.1 percent per year) (NESDB and the World Bank, 2005). Despite these improvements, Thailand’s yields remain low compared with other rice producers. It averages 2.6 tonnes per ha compared to the 4 - 6 tonnes per ha achieved by major producer countries in 2004 (FAO, 2006). NESDB and the World Bank (2005) reported that differences in rice varieties are perhaps the most important explanation for low yields.

2.1.1.3 Production systems

There are four main rice types widely used in Thailand: wetland rice, glutinous rice, upland rice, and floating rice. Wetland rice is produced in controlled flood fields during the entire growing period and therefore is restricted to the areas with developed irrigation systems for second rice in dry season. Most of Thailand’s export rice was produced from this area. Glutinous rice varies in grain color and cooking characteristics from non glutinous. Around 10 percent of production is exported to neighboring like Laos from the Northeastern and Northern production areas. Upland rice which is entirely dependent on rainfall is grown under shifting and permanent cultivation in the mountainous areas of the North and poorer upland regions of the Northeast. Floating rice is a type of wet rice which can be grown in rising floodwaters up to two meters in depth by nutrient-uptake from water rather than from soil-based roots (Falvey, 2000).

In temperate areas, temperature is one of the limiting factors for rice culture. However in tropical areas like in Thailand the temperature imposes no serious problem in rice culture (University of Philippines, 1970). The suitable temperature for growing rice is range from

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20 to 35 degree celsius which is also the average temperature in Northeast (Rice Department, 2006 and OAE, 1975-2005).

The natural day-length or photoperiod which consists of the length of daylight and the duration of the civil twilight affects growth of the rice and also affects on the rice variety planted in each region. In the Northeast which is mostly rainfed lowland, some of the photoperiod- sensitive varieties like the glutinous Kor-Khor 6 and Sanpatong rice and the non-glutinous Kor-Khor 15 and Kaow Dawk Mali (KDML) 105 rice can be planted. It is also a region of the high quality KDML 105. In Thailand, the area suitable for planting KDML 105 is limited and the productivity of this rice is much lower than that of other non-glutinous rice varieties (Rabobank, 2003). It has a long grain and provides the special fragrant scent.

Rice production in the Northeast is mainly rainfed and rice farmers in the northeast generally subsistence farmers, selling only excess production. They have small farms with an average size of less than 4 ha (IRRI, 2006a). The Northeast rice production is characterized by a dual production system. First, a large group of subsistence rice farmers exist alongside a small group of commercial farmers. The first group (60 percent of household) produces rainfed glutinous rice for home consumption and localized sales, while the second group, with some irrigation facilities, produce non-glutinous varieties destined for urban and export markets. Poor households are more probable to be found amongst the glutinous rice producing households than those involved in non-glutinous rice production (Agrifood Consulting International (2005).

Box 2.1 Role of production of rice for consumption in the Northeast Most of glutinous rice comes from Northeast and it is also the majority rice for home consumption in Northeast. Those households who are engaged in dual production systems (glutinous and non-glutinous rice) are more likely to be commercialized; producing glutinous rice for own consumption and surplus sale during the main wet season and producing non-glutinous rice during the second crop for commercial sale (Agrifood Consulting International, 2005). The improved glutinous variety RD6 which was released in 1978 could give the higher yield. There was a high adoption rate for this variety. Agricultural statistics shows that the RD6 variety of glutinous rice was sown in 83 percent of the total glutinous rice area in the Northeast in the year 1995 (about 40 percent of the total area of main season rice) (Agrifood Consulting International, 2005). The higher yield, the less land is needed for rice production for the same production volume. Moreover when farmers in Northeast have enough rice for consumption from the small area, they might have free land for planting commercialized rice and other cash crop.

2.1.1.4 Production technology

Steps for producing rainfed lowland rice consist of land preparation, seed preparation, plowing, casting, resting, draining, and harvesting. Normally seed preparation and land preparation are done at the same time. Farmers could plow the rice field either by using traditional animal-powered wooden ploughs or two or four wheeled tractors. Plowing is necessary to eliminate weed that could grow overnight in the flooded field, without using

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chemicals. Immediately after plowing, rice seedlings which are prepared in a separate field are transferred to the plowed field. This transferring method is called casting. In Thailand, hand casting by an experienced farmer is preferred, in order to produce even rows of casting. After casting, rice sprouts will mature to young plants in a few days. Water is then drained into the field until its level reaches that of the lowest leaves on the rice plant; however, the water level must not exceed 2-3 cm high. For the next 3-4 months, rice plants will be left to grow into paddy and turn light brown in color. In the mean time, the rice field remains constantly flooded. Once the rice paddy turns light brown, water is drained, and the field is left to dry. After the drained field is completely dry, and the plant turns to hay color, the paddy is harvested either by a sickle or a machine.

Research to adapt modern rice varieties to Thai conditions has been under way before World War II focusing mainly on producing of high yielding varieties (Ammar and Viroj, 1990). At present, Thai Rice Research Institute has 75 registered and recommended Thai rice varieties (Rice Research Institute, 2006).

According to Good Agricultural Practices (GAP) for rainfed lowland rice, a Northeast farm with clay soil which is planted to the photoperiod- sensitive varieties need fertilizing twice. The first time is for 125 kg. per ha of fertilizer (16-20-0 or 18-22-0 or 20-20-0) one day before casting or 15-20 day after casting. The second time is for 30 kg per ha of 46-0-0 fertilizer or 62 kg. per ha of 21-0-0 fertilizer at the beginning of flowering or 30 days before flowering. Combination of chemical fertilizer and manure is good for rice growing. Using 3 ton per ha of manure before planting rice 15-20 days is recommended by GAP.

Thai farmers now also use machineries and equipments instead of human or animal labor in rice production. Ammar and Viroj (1990) reported that the promotion for the use of machineries and equipment in Thai rice farming system has been successful since 1980. There are increasing uses of machineries and equipments such as water pumps, walking tractors, sprayers, planters and seeders, and axial flow threshers. The number of axial flow threshers in Thai rice farming system increased five folds around 1980s from 4 thousand units in 1977 to 21 thousand units in 1982, while the number of walking tractor increased more than 4 folds from 13 thousand units in 1977 to 50 thousand units in 1982 (Ammar and Viroj, 1990). However, each region has had different rates in using machineries and equipments. The Northeast had the lowest rate in using machineries in land preparation and threshing (Ammar and Viroj, 1990). Both household labor and hired labor are still used in other rice production processes like casting and harvesting.

2.1.2 Rice production cost and profit

The national average production cost of major season rice per hectare increased from 4,000 baht in 1978 to 11,876 baht in 2004, while the national average production cost of second season rice per hectare increased from 6,777 Baht in 1978 to 15,132 Baht in 2004 (Office of Agricultural Economics, 1976-2005). In 2004, for major season and second season rice, approximately 85 percent of the total cost was variable costs. Labor cost accounted for approximately 67 percent of the total cost for major season rice but only 43 percent for second season rice. Other important costs are on materials which include seed, fertilizer and pesticide. These costs were higher for second season rice (around 38 percent of total cost) than major rice (around 18 percent of total cost) due to the higher cost in seed, fertilizer, pesticide and fuel.

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In the Northeast, the average production cost of major season rice per hectare increased from 3,505 baht in 1978 to 11,018 baht in 2004. The cost of major season KDML 105 rice at national level was 12,109 baht per hectare while this cost in Northeast was 11,782 baht per hectare in 2004 (Office of Agricultural Economics, 1976-2005) (Table 2.1.3)

According to Office of Agriculture Economics, profit per ha of the Northeast farmers fluctuated during the last seven years because of the variation in yields and prices. During 1998 to 2004 the highest profit was 5,454 baht per hectare in 2003 and the lowest loss was 899 baht per hectare in 2001. Table 2.1.3 Total cost, return, net profit, yield and farm gate price for KDML 105 rice in the Northeast.

Year Total cost (baht / ha)

Return per

hectare (baht/ha)

Net profit (baht/ha)

Yield (kg. / ha)

Farm Gate price (baht/ton)

1998 9,809 10,488 679 1,575 6,659 1999 9,176 12,075 2,899 1,681 7,182 2000 10,612 11,037 425 1,762 6,262 2001 10,763 9,865 -899 1,912 5,158 2002 10,922 15,224 4,301 1,837 8,285 2003 11,617 17,071 5,454 1,968 8,671 2004 11,782 12,280 498 1,581 7,766

Source: Centre for Agricultural Information, 2006

2.1.3 Rice processing Milling is the most important value added process for rice. The basic objective of a rice milling system is to remove the husk and the bran layers, and produce an edible, white rice kernel that is sufficiently milled and free of impurities. A rice milling system can be a simple one or two step process, or a multi stage process. In a one step milling process, husk and bran removal is done in one pass and milled or white rice is produced directly. In a two step process, removing husk and removing bran are done separately, and brown rice is produced as an intermediate product. In a multistage milling, rice will undergo a number of different processing steps (IRRI, 2006b). Most rice varieties are composed of roughly 20 per cent of rice hull, 11 per cent of bran layers, and 69 per cent of starchy endosperm, also referred to as the total milled rice (IRRI, 2006b). Total milled rice contains whole grains or head rice, and brokens. The by-products in rice milling are rice hull, rice germ and bran layers, and fine brokens. The grading of rice is usually performed at the mills and uses a minimum of broken kernels as a major grading standard (Ammar and Viroj, 1990).

NESDB and the World Bank (2005) reported that there are more than 24,000 milling plants in the Northeast region in 2003. About 98 percent of millers are small-scale or village custom mills (less than 5 ton per day). The remaining 2 per cent are medium to large scale private or cooperative mills. Only about one percent of rice mills have a production capacity of more than 50 ton per day; and two milling plants can operate at 1,000 ton per day.

Besides rice, there are a number of value-added, rice-based products which are used for domestic consumption and are also exported to the world market. In 2004, the exports of rice-based products reached a record 5,943 million baht, with a volume of 0.17 million ton

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(Office of Agricultural Economics, 2005). Products included in this category are non-glutinous flour, glutinous rice flour, rice noodles, rice cracker (crispbread) and rice paper.

Subsistence in the Northeast is related to glutinous rice production. Across all regions, the share of glutinous rice for home consumption is large compared to that of non-glutinous rice. According to NESDB and the World Bank ( 2005), 24 percent of milled rice production were sold in the Northeast regional market and only 10 percent were processed.

2.1.4 Rice marketing

2.1.4.1 Market intermediaries Rice marketing system involves a long route before it reaches consumers because rice-producing areas are situated at some distance from the main urban consumption centers. Rice marketing can be subdivided into two parts, i.e. paddy rice markets and milled rice markets. At a local level, intermediaries include local buyers or assemblers, cooperatives, farmers groups, central markets, millers, wholesalers and retailers. At the regional level, large assembling market centers and large millers are major intermediaries. The country level includes commission agents, wholesalers and exporters.

Collectors of paddy in the Northeast are usually divided into two groups - village collectors without their own storage facilities and collectors at the district and provincial levels who are larger and generally have their own storage facilities (NESDB and the World Bank, 2005). They are located close to the farmers in sub-provinces and facilitate the transaction by providing transport to collect paddy from farmers, either a pick-up truck or six-wheeled truck.

There are two types of farmers’ organizations: farmers’ groups and the agricultural cooperatives (Aree and Yaowares, 2001). A farmers’ group is composed of at least 30 farmers who form an operational unit. A farmers’ group may carry out marketing activities, hiring or acquiring facilities, raising bargaining power by acting together, performing financial transactions, purchasing and operating transport vehicles and equipment, and providing storage. In addition, they sell directly their paddy rice to rice mills. There were reportedly 899 farmers’ groups in the Northeast in 2001 (Department of Agricultural Promotion, 2006). Agricultural cooperatives are the other form of farmers’ organization. They have the same role like farmers’ groups but they have to be registered with the Cooperative Promotion Department.

Central paddy rice markets serve assemblers and millers as a meeting place to interface, negotiate and make transactions. Facilities provided can include labor, moisture gauges, drying yards, warehouses and loans, depending on the size of the market centers. A large central market owner usually refrains from trading to avoid price interference, preferring to earn fees, rent and interest from loans. The market owners are sometimes assemblers and/or millers. Central paddy rice markets are either set up by private entrepreneurs or by government agencies. Three market centers set up by the Bank for Agricultural Cooperatives (BAAC) are located in 3 major rice production areas in 3 regions (the North, Northeast and Central region). The others, 176 sub district paddy rice centers, belong to the Department of Agricultural Extension, Ministry of Agriculture and Cooperatives (Aree and Yaowares, 2001). In 2002, 71 central paddy rice markets (38 in the North, 14 in the

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Northeast and 18 in the Central region) set up by the private sector received the support of the Ministry of Commerce in their establishment and management (Pornsiri, 2004).

Until about a century ago, every Thai household milled their own rice in a hand mortar huller. This practice is now gradually disappearing. Due to the rise in the rice export trade, the rice milling industry has been developed at a fast rate. The industry now does processing not only for exports but also much of the rice consumed in the country as well. At first, the rice milling industry was concentrated along the Chao Praya River at the Port of Bangkok. Later on, the industry moved inland to various other parts of the country. More than 50 per cent of the rice mills are located in the northeastern region. The rice mills vary in size: daily milling capacity ranges from under 5 ton to over 100 ton. The medium- and high-capacity mills are located in the Central Plain where commercial rice production concentrates (Kasetsart University, 1997). Most of the low-capacity mills are located in the northeast. Agrifood Consulting International (2005) reported that there were around 23,958 millers (98 percent of total millers in Northeast) having milling capacity less than 10 ton per day, 240 millers having milling capacities between 10 to 50 ton per day, 203 millers having milling capacities between 51 to 500 ton per day and 2 miller which had milling capacities more than 1,000 ton per day.

The grading of rice is usually performed at the mills. A Rice Standard Regulation had been promulgated to enforce the grading system. Inspection is compulsory for exports. In keeping with rice standard regulations, rice must be graded and inspected before it can be exported. Inspection is carried out at mills or riverside warehouses before ship loading by the semi-official Rice Inspection Committee, Board of Trade.

The rice mills receive most of the income earned from providing milling services to customers. They also receive by-products such as small broken rice, husk and bran. Large rice mills with storage capacity usually stock pile their paddy rice during the harvesting period when there is excess supply and sell it when the price increases (Rabobank, 2003).

Millers also play important roles in price transmission. They are intermediaries who have good connections about rice prices gathering information from brokers, exporters and amongst themselves to calculate the purchase and sale prices for paddy rice. The price information from millers and other sources such as brokers and exporters also helps to set the prices for rice in the rice market.

Wholesalers in the provinces far from Bangkok normally contact millers directly. The wholesaler’s business size is measured by the monthly sales volume. Small wholesalers have a sale volume of less than 500 ton per month and medium sized wholesalers have a volume of 500 – 1,000 ton per month. Large wholesalers have a sale volume in excess of 1,000 ton per month (Kasetsart University, 1997). On the wholesale market, rice is traded in sacks and packages of 2 or 5 kg. The introduction of supermarkets in the Northeast has reduced the number of wholesalers considerably, They in turn have broadened the types of commodities they deal with in order to maintain their business operations. The major cost for wholesalers is the cost of rice, while operational costs only account for less than 5 percent of total costs (NESDB and the World Bank, 2005).

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The food retail distribution system is undergoing rapid changes in Thailand, which are likely to affect also rice retailing. There are two main food retail systems: the traditional food distribution system and the emerging modern distribution, comprising supermarkets, superstores, and convenience store chains. Available estimates indicate that 75 percent of the Thai food retail trade is still through traditional markets (NESDB and the World Bank, 2005). The modern distribution is mostly limited to major urban centers. Customers can request any particular quantity of rice they wish to purchase from a grocer, while supermarkets sell only fixed package sizes.

A broker’s main function is to build marketing connections between rice exporters or wholesalers and millers. The broker searches for certain types or qualities of rice and quantities to meet the demand of exporters. Except a few large ones, most millers sell rice to wholesalers and exporters through broker. The brokerage fee is 2-3% of the sale value.

The exporter collects rice from commission agents or directly from mills. Many exporters in Thailand have their own rice mills (NESDB and the World Bank, 2005). Exporters without milling plants depend greatly on the help of brokers who can guarantee an adequate supply of specified rice. According to the Ministry of Commerce’s rules, every exporter must be registered under the provision of the Rice Trading ACT B.E. 2489. The majority of exports are handled by the private sector, with only around 5 percent of exports being carried out by the government (NESDB and the World Bank, 2005). Most exporters are located in Bangkok and surrounding areas. Each exporter has a connection to an importer related to the quality and type of rice, for example, KDML 105 exporters have their main importers in Hong Kong, Singapore and countries in the Middle East. Even though there are not many requirements in order to become a rice exporter, the capital and the practical experience required can act as barriers to newcomers.

2.1.4.2 Marketing chain

NESDB and the World Bank (2005) reported that 9.5 million ton of paddy production in 2003 in Northeast moved along two major channels: subsistence and marketed production. Of the 8.5 million of paddy available after deducting losses, animal feed use and seed uses, about one fifth was retained by the farmers for own consumption and four fifths was marketed commercially. The farmer directly milled their on-farm paddy consumption from village mill or small commercial mills. Given an estimated recovery rate of 65 percent for village mills, approximately 1.1 million ton of milled rice was on-farm rice consumption. About 6.8 million ton of paddy rice was available for private and cooperative milling. Sales of paddy to primary collectors were 15 percent, while about 5 percent of paddy was sold through the central markets; direct sales of farmers to millers about 50 percent; and sales from cooperative farmers to their mills around 30 percent. Using a recovery rate of 65 percent, about 6.8 million ton of paddy rice amounted to 4.4 million ton of milled rice.

After milling, there are different channels for domestic market and export market. The milled rice for the domestic channel is marketed to traders, direct sales to retailers, and wholesalers. There are various markets for by-products. Of the 4.4 million ton of milled rice produced in the Northeast, about one quarter goes into the regional market for retail sales (90 percent) and for further processing (10 percent). The remainder goes through traders and wholesalers to markets outside the region. Approximately 10 percent is shipped to Southern retail markets (0.34 million ton), about one third is used for domestic consumption in Bangkok and surrounding areas and one third is exported (NESDB and the World Bank, 2005).

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2.1.4.3 Marketing costs and margins

The costs and margins of the parties in the rice production and marketing chain usually vary due to a number of factors such as climate change, drought, flood, quality of paddy, yield, national production and competition in the export market (Rabobank, 2003). NESDB and the World Bank (2005) reported that for KDML 105 market, millers, retailers and exporters obtained the largest value chain of marketing margin (defined as the percentage of the final selling price) in 2002 and 2003, while farmers accrued a large margin in 2003 but not 2002. When considering the total profit (calculated as the difference between total revenue and total costs) for KDML 105 export market, millers received the largest share of total profit, while exporters and collectors accrued approximately the same share. However the size of the benefits accruing to the millers, collector and exporters varies with changes in farmer shares. The picture is similar for domestic sales of KDML 105. The only difference is that retailers in the domestic market have higher profit shares than collectors. In 2002, farmers actually lost money due to adverse farm gate prices, while they made large profits in 2003. NESDB and the World Bank (2005) also reported about the marketing margins and total benefits in the glutinous rice value chain that millers and retailers received the largest marketing margins, and farmers obtained larger margins in 2003 than in 2002. Farmers accrued the largest share of total profit, followed by millers and retailers, with little change between 2002 and 2003. These results demonstrate that stakeholders further downstream tend to be better protected in their profit margins against changes in prices, whereas farmers absorb much of the price changes, and the relatively stable returns to glutinous rice for farmers could explain the popularity of glutinous rice production in the Northeast compared to KDML 105 and non-glutinous rice (NESDB and the World Bank, 2005).

2.1.5 Rice exports

Rice has been a major agricultural export commodity in Thailand for a long time. From 1951 to 1963 rice and products exports represented 43 percent of the total Thai export revenue (Behrman, 1968). However, with rapid economic progress in non-agriculture sectors over the past few decades, until the financial crisis in 1997, the importance of rice has been declining along with that of the agricultural sector as a whole. However, agriculture, particularly the rice sub-sector, remains the dominant economic activity in Thailand especially in the rural area. In the last five years rice and products export represented between 2 to 6 percent of the total Thai export value and between 11 to 26 percent of total agricultural product export value (Office of Agricultural Economics, 2005).

Thailand is the largest rice exporter in the world. Following behind were India, Vietnam and the United States in 2003 - 2005 (The Rice Exporters Association (Thailand), 2006). However, except for the latter these exporting countries are not competitors with Thailand because they export primarily lower quality grain, whereas Thailand exports higher quality to serve the world market. The two types of Thai rice with the largest exports are white rice and parboiled rice.

Thailand exports mostly to Asia and Africa. According to the customs department statistical figures, Africa has remained the biggest market for Thai rice exports since 2000, and in 2005 it accounted for 47 per cent of total Thai rice exports (3.4 million ton),

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followed by Asia and the Middle East importing 28 per cent (2.0 million ton) and 12 per cent (0.9 million ton), respectively. In fact, Asia imported more Thai rice than Africa until 2000. Other important regions include Europe, America and Oceania with 5 per cent (0.3 million ton), 6 per cent (0.4 million ton) and 2 per cent (0.1 million ton) respectively in 2005. Total imports in all these regions enabled Thailand to export a record 7.3 million ton of rice in 2005 (Department of Internal Trade, 2006). .

Rice for export consists of several types. Each type is divided into “whole” or “head” and “broken” rice. Both the “head” and “broken” labels are classified into different grades. The types of rice include white rice, glutinous rice, cargo rice, parboiled rice, and rice n.e.s. (not else-where specified). Market share for high quality rice- white non-glutinous rice 100 per cent, 5 per cent and 15 per cent made up over 52 per cent of the total rice export volume or 4.6 million ton in 2004 (The Rice Exporters Association (Thailand), 2006).

Considering import growth in these regions, Africa is the fastest-growing market, with increasing imports since 1998, while Asia has become weaker in buying Thai rice for the past few years. The Middle East and Europe have become other markets with steady import growth each year. The falling significance of the Asian market may be attributed to the increase in regional competition from other producers such as Vietnam and China. Meanwhile, Africa remains a very promising market for Thailand, given its enormous population, high consumption and restrictions on rice production. On the other hand, as rice production in the U.S.A. is increasing and prices are more competitive, U.S.A exports are thriving well in the region.

KDML 105 comprised about 22 percent of the total export volume in 2004 or 2.2 million ton with of 35.5 million baht (Office of Agricultural Economics. 2005). In 2003 glutinous rice amounted to only 4 percent of exports, providing only a small market for the 40 percent of Northeast farmers that are planting KDML 105 (NESDB and the World Bank, 2005).

Beside rice, the rice-based products also are exported. The leading rice-based product that accounts for 36 per cent of total exports in terms of value is the rice cracker (Office of Agricultural Economics, 2005). Rice cracker is obviously the most value-added product of them all. Japan is the biggest importer of rice crackers, accounting for 40 per cent of Thailand's rice cracker export value. This is due to the enormous Japanese snack market and Japanese consumption preferences. The other important importers are Australia, U.S.A and the Netherlands (Rabobank, 2003).

2.1.6 Rice prices

Price of rice is based primarily on the export trade situation, the domestic demand and the production situation, which altogether act initially in the Bangkok terminal market to set the Bangkok wholesale prices. Previous studies (Kasetsart University, 1997; Paiwalee, 1998; Kajonwan, 1999; Aree and Yaowares, 2001) showed significant price relationships between different pairs of market levels: there were significant transmissions from f.o.b. price to the farm gate price, wholesale to the farm gate price and f.o.b. to the wholesale price in the positive relationship. Moreover the trend of the f.o.b. price was similar to that of farm and wholesale prices and had increasing trends due to the increase in demand in the world market. This indicates that the price information from the higher market level is a good source of information that farmers can rely on for crop decision-making.

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In practice, the rice exporter and the domestic wholesaler negotiate a buying price in the presence of their broker who also functions as an agent of the miller too. The agent provides daily a price quotation to the mill operator by facsimile. However, the miller's buying price is usually not solely dependent on the quotation. Taking into account several factors including expertise in anticipating the future price of the head rice, broken and bran to be milled out, a selling price expected at the Bangkok market, and the buying/selling price of the neighboring mills, a conversion is then made into a price to be quoted for the paddy to be bought in a producing area after deducting his probable marketing cost (Kajonwan, 1999).

The average price received by farmers in 2005 was 6,607 baht per ton, which markedly increased from 3,820 baht per ton in 1992, or grew at a rate of 4.6 percent per year. The average Bangkok wholesale price for 5 per cent milled rice in 1992 was 6,228 baht per ton which increased to 10,847 baht in 2005 at a rate of 4.9 percent. The average f.o.b. price of 5 per cent milled rice in 1992 was 7,269 baht per ton which rose to 11,371 baht in 2005 or 4.1 percent increase per year (Office of Agricultural Economics, 1976-2005). However, the rice price in each market level varies year by year due to a number of factors such as climate change, drought, flood, quality of paddy, yield, country's production and competition in the export market.

Thai farm prices vary more than prices at other market levels, and the export seasonal price movements seem most modest. Since world rice supply and demand are derived from many countries at different times, they counteract the effects of seasonality to a certain extent. The Thai rice seasonal index starts to peak and then levels off in September. The highest point is in January and September. Regular movement due to growing periods and harvesting periods affects the commodity volume in the whole market (Pornsiri, 2004).

In the Northeast, almost half of the glutinous rice produced is consumed by the household, compared to no more than 20 percent of non-glutinous rice. This implies that changes in the benchmark market price of white rice (5 percent broken) will affect predominantly non-glutinous rice producers rather than glutinous rice producers both in terms of living standards as well as production decisions (NESDB and the World Bank, 2005).

2.1.7 Rice policies

2.1.7.1 Price support and trade policies

To Thailand, like many other countries, rice is a political crop that calls for a multiplicity in the policies. Rice policy has been a focus of the Thai government since the 1950s (Falvey, 2000).

Kajonwan (1999) noted that since the reign of King Rama IV Thailand's international trade of rice had been quite liberal. In 1939, a law was enacted to enforce regulation on the export of rice which required approval of the Minister of Commerce. Included in the package were export duties, export quantity control, rice reserve, and export subsidy. Export taxes in Thailand consist of statutory rates and applied rates. Statutory rates could be reintroduced up to the level of the statutory rates without the need for legislative approval while the applied rate is currently zero. However export taxation which had been quite successful in reducing export flow was abolished in 1976 (Agrifood Consulting International, 2005).

In order to ensuring domestic adequacy of milled rice at reasonable consumer prices, the policy objectives have also sought to maintain fair prices received by farmers for their rice

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crops and to assure a good turnover. Therefore, rice premium, market intervention, buffer stock, export goals and targets, export quota allotment and price support programs for paddy and milled rice are the measures launched to achieve the objectives.

Rice is seasonal crop. The producers usually get the low price in the rice harvest and sale periods because of huge supplies. Therefore, the government uses Public Warehouse Organization (PWO), rice buffer stock, paddy mortgage program, and consumer subsidy program to intervene the market.

Public Warehouse Organization (PWO) was established in 1955. Its objective was to collect farm paddy right after the harvesting period. Following further severe price fluctuation, the Market Organization for Farmers (MOF) was set up in 1974 as a center for farm commodity transactions. Until now, MOF is mandated with price support programs from year to year in place of PWO. Since 1976 MOF began to undertake the paddy price support program. In its purchase program, it paid local prices which could not exceed the prices set by the Farm Price Stabilization Committee, while a standard maximum price was determined. This price support program also failed and gave way to the rice buffer stock program (Kajonwan, 1999).

Kajonwan also reported that when the price support program was scaled down between 1979 and 1981, the milled rice buffer stock was set up in an effort to raise paddy prices. There stocks were set up both in the export market and in the central markets in the producing regions to assemble for the rice buffer stock as determined. Some part of the stock was released to the market effected the reduction of consumer price when the time of a short market supply and cause the production supply price remained stabilized over the year. Even if the operation failed to achieve a distinct paddy price rise, it managed to keep down the seasonal price swings, heading to greater stabilization. The Thai government has been letting the market determine rice price since the early 1980s (Kajisa and Akiyama, 2003). Nevertheless, this does not mean that both consumers and producers were exposed to the fluctuation of the world rice market. For producers, the government still provided the paddy price support program which was transformed to the paddy mortgage program in 1983. In the implementation of the mortgage program, BAAC was asked to defer farm debt payments in order to develop the farmers' ability to store their paddy for sale in a later period for a better price. For that reason, those producers who wanted to do so could haul their paddy for storing at the PWO storage where the charge was to be paid by the paddy owners in the course of mortgaging their harvests with BAAC. Another condition was attached that the paddy mortgages must, in any case, be redeemed on or before the deadline. If not, the mortgage ownership would fall to BAAC, which would be eligible to trade it out in order to pay for the outstanding debt. Because only few farmers were interested in this program, there was improvement in terms and conditions such as allowing farmers to store their paddy rice at their own farms in a bid to help reduce costs, reducing the interest charge on the mortgage loan, and a raise of the initial payment to 90% from 80% of the paddy price estimate, etc. After this improved program more and more farmers were attracted to the scheme.

The aggressive intervention program especially mortgage program in 2004 and 2005 which aimed to stabilize farm prices with less market price distortion entailed record carry-over stocks, following attractive high intervention price of around 20-30 percent above domestic market prices. In this past two years, prices under the intervention program raised Thai export prices U.S. $30-50/MT over major competitors, such as Vietnam (USDA, 2006). This policy intervention also impact on prices received by the farmer through the higher market price of the fragrant paddy. Table 2.1.4 shows that the market prices of fragrant

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paddy after intervention program were higher than before the program since crop year 2002/03 up until 2005/06. With the change in the government in 2006 and high carry-over stocks, the policy to maintain high rice prices was discontinued. Table 2.1.4 Comparison of intervention prices, market prices, and carry-over stocks

Items 2002/03

2003/04 2004/05 2005/06

Intervention Price (baht/ton) -Fragrant paddy -White rice paddy

6,500 - 6,800 4,760 - 5,330

6,700 - 7,000 4,760 - 5,330

9,700 - 10,000 6,200 - 6,600

9,700 - 10,000 6,700 - 7,100

Paddy Pledges (ton) -Main crop -Second crop -Carry-over stocks (milled equivalent)

3,542,429 2,040,265 2,613,040 1,437,172

2,838,141

118,392 1,716,364

944,000

5,295,237

797,778 5,883,233 3,235,778

5,291,831 2,173,727 6,754,888 3,715,172

Market price before the program (baht/ton) -Fragrant paddy -White rice paddy

6,340 4,688

7,980 4,434

7,738 5,932

7,683 6,800

Market prices after the program (baht/ton) -Fragrant paddy -White rice paddy

7,560 4,700

9,567 5,193

7,999 6,682

8,151 6,788

Source: Thai Ministry of Commerce sited in USDA, 2006

Another rice export support to help expanding export volume at low cost is the packing credit which begun in 1975 and provided as an export subsidy to rice exporters at a low interest charge. Until now this program remains as a good policy instrument for rice market expansion

2.1.7.2 Research and extension During earlier periods, the main emphasis of rice research in Thailand was on the improvement of rice quality, particularly the length of the grain and its cooking quality. The objective of rice research changed during the mid-1960s after the International Rice Research Institute (IRRI) released IR8, the miracle rice which captured the attention of the rice growers in tropical Asia. It increased the output of rice in most of the importing countries and reduced their demand for import (Suthad, 1996 ). IR8 was not popular rice variety in Thailand due to its short grain and big chalkiness size. However the breeding work which started in 1966 produced the first non-photo-period-sensitive rice variety in Thailand, RD1(RD = Rice Department) or in Thai “Kor Khor” 1, by breeding IR8 with local Thai variety Leuan Tawng and it be used in irrigation area. RD1 gave a 50% higher yield compared to the traditional varieties (Suthad, 1996). However, Kor Khor 1 was not adopted due to the eating quality and additional input requirement such as fertilizers. The subsequent varieties such as Kor Khor 7, Kor Khor 15 and Kor Khor 23 were developed and became dominant in the irrigated area in Thailand (Department of Agriculture, 2002). These high-yielding-varieties (HYVs) increase rice quantity to the market. However most of the outputs of these HYVs are not consumed domestically. They are either used to make parboil rice for export or exported as lower-quality rice when prices are not attractive. In

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the 1980s, the decline in the international rice price put pressure on the Thai rice export market, especially with the emergence of Vietnam as a major rice exporter. The decline in international market price was substantial for lower-quality rice. In contrast, the price of higher-quality rice shows and upward trend that time (Suthad, 1996). This fact had triggered the Rice Research Institute of the Department of Agricultural Extension (DOAE) which is directly involved in rice research to revive its research effort on the quality of rice. The subsequent quality varieties are such as Kor-Khor 6 and Kor-Khor15 which breeding from local variety namely Hom-dok-mali 105 and became the commercial rice varieties in Thailand including in the Northeast. There were low adoption rates of HYVs in the Northeast because they need good water control, fertilizers and chemicals. More importantly, HYVs did not taste as good as the traditional varieties like Kaow Dawk Mali 105. However farmers in the Northeast have been gradually changing to some HYVs such as Kor-Khor 6, Kor-Khor 8, Kor-Khor 15 and Kow-dok-mali 105 due to the government extension and promotion program. Moreover the market price condition is another significant factor that effects farmer decision to switch to these varieties (Bhundhit and Areewan, 2003). Apart from increasing productivity through varietals improvement, the DOAE also attempt to increase quality and productivity through crop, soil, and water management. Related divisions have mandates for research and extension activities for crop protection and machinery development. Rice research has constituted the largest share in agricultural research in the Ministry of Agriculture and Agricultural Cooperatives.

2.1.8 Conclusions: rice

Rice is the most important crop of the country and it is the staple food of the entire population regardless of income. Even in an area with poorer water and soil like in the Northeast, rice is widely planted for household consumption and for exports. Rice marketing also creates jobs and income for many intermediaries. All kinds of infrastructure like roads, information technology, and network communication pay crucial roles in rice industrial development. Thai government has also paid enormous efforts to assist farmers and consumers through various trade and price support policies. Stagnant yields and labor shortages during peak periods are some production constraints in the Northeast. The region still needs better production technology e.g. better cultivars, improved methods of cultivation and marketing through improved research and extension in order to keep its comparative advantage over its competitors, domestically and internationally.

2.2. Maize 2.2.1 Maize in the Northeast economy

Maize is a major crop in the uplands of Thailand. In 1961, maize areas were merely 0.3 m. ha with a production of 0.6 m. ton. After more than 2 decades of its development, in 1985, maize planted areas peaked to nearly 2.0 m. ha with a total production of nearly 5.0 m. ton. Exports of maize gradually increased from a small volume to a peak of 4.0 m. ton in 1986. After 1985, there was a gradual decline in area coverage due to competition from other crops and in 2004 covered an area of 1.1 m. ha with a production of 4.2 m. ton, most of which was used in the domestic market for the growing livestock industry (Table 2.1.1, Figure 1.3.7). Recently however, exports reemerged to a level of 10 per cent of total

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production in 2001 with an export value of 2,222 m. baht and 20 per cent of total production in 2004 with an export value of 5,121 m. baht as the exports of chicken slowed down due to avian flu epidemics (Table 2.2.2 and 2.2.3). This reestablishes export position of the Thai maize industry after its decline since 1990. Table 2.2.1 Planted areas, production, yield and prices of maize in Thailand and the Northeast, 1987-2004 Whole country Northeast

Year Planted area (m.ha)

Production (m. ton)

Yield (t/ha)

Price (baht/t)

Planted area (m.ha)

Production (m. ton)

Yield (t/ha)

1988/89 1.8 4.7 2.62 2,620 0.49 1.27 2.62

1992/93 1.4 3.7 2.97 2,720 0.40 1.03 2.85

1996/97 1.4 4.5 3.45 3,930 0.37 1.08 3.01

2000/01 1.2 4.4 3.68 3,790 0.34 1.07 3.28

2004/05 1.1 4.2 3.87 4,590 0.27 0.89 3.43

Source: Office of Agricultural Economics (1997-2004). Table 2.2.2 Domestic use, volume and value of exports and imports of maize in Thailand, 1980-2000.

Year Domestic

use Exports Imports

(m.ton) m.ton m.baht m.ton m.baht

1984 1.15 3.12 10,050

1985 1.2 2.75 7,609

1986 1.39 3.98 9,176

1990 3 1.22 3,809

1995 4.35 0.09 415 0.39 1,843

2000 4.3 0.02 338 0.34 1,521

2003 4.20 0.19 1,025 0.008 94

2004 3.4* 0.87 5,121 0.08 305

2005 4.2* 0.06 574 0.06 247

Source: 1984-1995: Office of Agricultural Economics (1984-1995) 2000-2004: Feedstuff Users Promotion Association (2006a, b) 2003-2004: Department of Customs (2006b) for values of exports and imports. 2000-2003: Office of Agricultural Economics (2006) for domestic use. * estimated

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Table 2.2.3 Exports of Thai chicken, 1985-2004

Exports of frozen chicken Exports of processed chicken

Year Quantity

(1,000 tons) Value

(m. baht) Quantity

(1,000 tons) Value

(m. baht) 1985 44.0 1,712 1990 141.6 7,754 1995 149.9 9,662 2000 240.9 15,689 2001 309.3 23,919 89.1 11,546 2002 330.2 22,952 103.1 13,152 2003 370.2 24,752 126.9 15,703 2004 26.5 1,749 174.3 20,852 2005 1.9 243 233.5 27,338

Source: Department of Livestock (2006) and Department of Customs (2006c) Maize was originally a foreign crop introduced to Thailand more than four hundred years ago by Portuguese traders (Falvey, 2000). In the 1950, it was planted in the uplands and highlands used only for home consumption and household animal feed (Benchaphun, et al, 2004). Serious research on maize started around 1965 when researchers from Kasetsart University, together with international donor and research agencies, namely the Rockefeller Foundation and the International Center for Maize and Wheat Research (CIMMYT) started long-term breeding programs and were successful in 1975 to release an improved open-pollinated maize variety called Suwan 1. This Suwan 1 was developed from 36 maize varieties from efforts of international germplasm collection and was resistant to downy mildew. Since then Suwan 1 spreaded rapidly in the Thai uplands. It was popular in northeast uplands, being easily grown, tolerant to drought and dry climate. (Benchaphun, Phrek and Kuson, 1999). For the Northeast, maize was one of the first two cash crops planted in the region on a massive scale, apart from kenaf, started since early 1960s. Other major cash crops such as cassava and sugar cane came to the region much later on. Nevertheless, the center of production of maize in Thailand has been the North and the Central region. The provinces of the Northeast in which maize is planted on a major scale are Nakorn Ratchaseema and Loei, with areas adjacent to the North and the Central region. Maize areas and production in the Northeast have been about one fourth of the total maize areas and production in the country. About 0.27 m. ha was planted to maize in the Northeast yielding about 0.9 m. ton in 2004 (Table 2.1). This is still not large compared to 5.0 m. of rice, 0.56 m. ha of cassava and 0.42 m. ha of sugar cane in the same period in the region. Still, it is among the four largest crops in terms of areas and value in the region. Nakorn Ratchaseema is a province well known in its maize production and it is a center of maize agro-industry in the country. Its planted areas were 0.15 m. ha in the past 10 years. Loei is the second largest planted areas in maize with 0.11 m. ha planted during 1993-1998 and decreasing to 0.07-0.08 m. ha in 1999-2001, and 0.055 m. ha in 2003. The planted areas in the two provinces constituted 72 per cent of all maize planted areas in the Northeast in 2001 with 50 per cent in Nakorn Ratchaseema and 22 per cent in Loei (Office of Agricultural Economics, 2002). Chayaphum, Sri Saket and Nong Bua Lamphu constituted about 11, 6 and 5 per cent of planted areas in the Northeast respectively.

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Starting around 1975-1980, there was a growing business of the private companies which were investing in research on maize. By 1988, private hybrid maize varieties were released and sold in the market. The most popular hybrid maize varieties during the 1990s were the CP-DK 888 varieties which were first released in 1991. Since then, hybrid maize varieties, with their high yielding, have been popular among farmers (Benchaphun, Phrek and Kuson, 1999). Farmers were switching to hybrid maize varieties, mostly produced and sold by private companies and by 1997, only 4.7 per cent of all maize areas was under public sector hybrids and OPV (Office of Agricultural economics, 1997). Such development has been facilitated by government programs of research, extension and credit as well as private sector promotion and growth (Benchaphun and Kuson, 2004). Although maize areas are not expanding but yield per ha continues to improve. National yield per ha doubled from 1.8 t in the 1960s to 3.6 t in the 2000s. Yield per ha in Nakorn Ratchaseema is among the highest in the country reaching an average of 4.5 ton per ha. Although much of the 4.0 m. ton of exports in 1986 disappeared and most production is consumed domestically in livestock sector, maize still holds significance to the national economy. Maize remains a crop that is well adapted to the biophysical conditions of rural Thailand. In 2000, an estimated 37 per cent or 740,000 upland farm households cultivated maize. The growing livestock industry depends heavily on the supply of domestically produced maize for animal feed.

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2.2.2 Maize production

2.2.2.1 Planting season Maize farmers in the Northeast are diverse in their production systems. The two provinces where there are largest maize planting areas are Nakorn Ratchaseema and Loei. Both provinces are adjacent to the North and the Central regions where maize areas concentrate. All maize cropping systems in the Northeast were rainfed. The amount of rain in these growing areas is around 966 to 1298 mm. per year depending on year and location.

2.2.2.2 Production technology

After more than four decades of commercialization in the Northeast, Northeast farmers are now well acquainted with it. Maize farmers in the Northeast are now commercialized although their modes of production are quite varied if they are large or small farmers. The so-called green revolution technologies as products of research were seen to be welcome by farmers who were willing to invest in fertilizers and high yielding technologies. The Northeast farmers have switched from open pollinated (OPV) maize to hybrid maize for the last 15 years. Farmers in the Northeast by 2000 were reporting that the hybrid varieties gave higher yields, big pods, small cobs, large grain, disease and drought tolerant. Good grain color for better marketability was also reported. The C919, C717 and C949 hybrids from the Pioneer Hi-Bred company were the popular varieties in Pakchong district, Nakorn Ratchaseema province. C919 was reported to be early maturing suitable for double cropping of maize popular in the areas. C717 was reported to be cheaper in its seed prices relative to other hybrids (Benchaphun, Phrek and Kuson, 2003). In Loei, CPDK 888 hybrid variety was popular and the reason for the adoption of this variety being that it gave good weight grain although similar other reasons were given as in Pakchong areas. For farmers in Loei, maize only or maize-rice beans were dominant cropping systems. All over the country, there were more than 10 popular hybrid varieties from different companies and each hybrid variety had different advantages and disadvantages in which farmers can choose from. Most are yellow, flint hybrid varieties used mostly for animal feeds. OPV are hardly found these days even in remote areas. Some farmers in the North and the Central region were found to plant F2 hybrid with a cheaper seed price but this was not evident for the Northeast farmers. Seed prices were high for farmers and in 1999, an average of 75.8 baht per kg was noted for in Pak Chong district, Nakorn Ratchaseema and 85 baht per kg for Loei. Output prices were relatively stable at 3.7-4.1 baht per kg for Nakorn Ratchaseema and 3.7 baht per kg for Loei in 2000. With the use of hybrid seeds, farmers recognize well that the use of fertilizers are necessary in order to ensure good yields. More commercialized farmers used around 300-375 kg ha-1 of 16-20-0 and 46-0-0 fertilizers—first time when planting was done and the second time when the crop was 60 days old. Medium sized farmers used around 175-225 kg ha-1 of 16-20-0 also in twice application. Small farmers used around 125-150 kg ha-1 of the 16-20-0 fertilizers in one time application within 20 days of planting. In large and medium farms, big tractors were used for land preparation and seeding. Two rounds of tillage were common. For small farmers, slash and burn technique for land preparation was used and planting was done manually. Seed rate was around 16-22 kg ha-1. Harvesting method was done by hired labor for large and medium farms and by exchange labor for small farmers (Benchaphun, Phrek and Kuson, 2003).

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Maize yield (at 14% moisture content) for farmers in Pak Chong district, Nakorn Ratchaseema Province, was recorded at an average of 4.46 ton ha-1 while it was 3.1-3.8 ton ha-1 for farmers in Muang Loei District, Loei province and only 2.1-2.2 ton ha-1 for Dan Sai district, Loei province in 1999. For large farmers, yield in the late season rain was higher at 5.1 ton ha-1. The national average for the same year was at 3.66 ton ha-1 (Benchaphun, Phrek and Kuson, 2003).

2.2.3 Farm size

The Northeast farmers enjoy relatively larger farms than the farmers in other regions. Maize farmers in Dan Sai District, Loei province farm in relatively high sloping areas had an average of 6-8 ha of maize per household with 63-100 per cent of the land being their owned land, the rest was rented land. Farmers in more moderate sloping areas (in Loei and Nakorn Ratchaseema) had an average of 6 ha with 50-100 per cent of the land being owned land. Large farmers in Pak Chong, Nakorn Ratchaseema had an average of 26 ha. per farm, only 24 per cent being owned land and 76 per cent being rented land (Benchaphun, Phrek and Kuson, 2003). The large farmers operated with high level of mechanization.

2.2.4 Maize costs and profits

Benchaphun, Phrek and Kuson (2003) reported costs for farmers in Pak Chong, Nakorn Ratchaseema in 1999 were lower at 2.62 baht per kg. as compared to 3.1-3.6 baht per kg for Dan Khun Tood district in the same province and in Loei province. Production costs for farmers in Dan Sai district, Loei province were estimated to be as high as 4.5 baht per kg in the same year. Cash cost was around 75 per cent of total cost for large and medium farms and was 50 per cent for small farmers with high use of family and exchange labor. With a maize grain price at 3.7 baht per kg in Nakorn Ratchaseema and 4.24-4.58 baht per kg, farmers were getting an estimated margin of 1.1 baht per kg of maize for large farmers in Pak Chong, Nakorn Ratchaseema province, 0.2-0.8 baht per kg for Dan Khun Tood, Nakorn Ratchaseema province and Muang Loei, Loei province and 0.1 baht per kg for those in Dan Sai district, Loei province although accounting only for cash cost, they would all get around 1.7-2.0 baht per kg. of margin for that year. Profit per ha was 6,010 baht for farmers in Pak Chong, Nakorn Ratchaseema, 1,933-3,030 baht for Dan Khun Tood and Muang Loei and 932 baht for Dan Sai. Profit per household was 152,000 baht for large commercial farmers in Pak Chong who farmed on average 26 ha with good yields, 19,000 baht for Dan Khun Tood and Muang Loei and 9,000 baht for Dan Sai who farmed on average 6-8 ha with lower yields. This very much shows much differentiation among the different sized households in the same region. Farmers borrowed heavily for maize production. Average cash costs per ha were around 7,600-8,000 baht and with an average of 7-8 ha per household, the cash requirement would be around 60,000 baht per household. It was estimated that farmers borrowed around 70 per cent of its credit needs from either BAAC, cooperatives, merchants and relatives for all farm types. These loans would be refinanced annually (Benchaphun, Phrek and Kuson, 2003). Maize income as a ratio to total household income for farmers was as high as 80 per cent if farmers specialized in maize production while for diversified farmers, it would be lower at 65 per cent of total income as the farmers were more diversified. Most of the maize was for sale with less than 5 per cent of the output was kept for seed or for home use for all farm types.

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2.2.5 Maize marketing and processing

Commercial farmers sold their maize immediately after harvest while upland farmers in Loei kept their maize dry in the field for 2 months before selling it due to high moisture, low prices, and difficult (high slope) terrain in the rainy season. At selling time, maize would be threshed by a motored thresher and only maize grain was sold by weighting it before bagging. This reduces the time of storage and the chance of alfatoxin contamination. Maize merchants were many in number and farmers can choose the merchants who offered the best deals and prices. Upland farmers were more constrained in their choice of merchants due to their relatively remote location but also because they were also obliged to sell their output to the merchants who provided them with production credit, mostly through advance supply of inputs early in the production season. Only large farmers transported their output by themselves to merchants, small and medium farmers sold their output to the merchants who came to their farms. Pick-up trucks would be used to transport the output. Owned trucks were usually used for medium and large farmers while hired vehicles were used by poorer farmers. After farmers’ sale of maize, the grain would be then transported sold to the nearby mills or companies where maize would be dried and kept in a silo. Final buyers of maize grain are animal feed mills operated in the main provinces of each region. Animal feed meal would be then processed at the feed mill factory according to requirements of the livestock companies. Different formulas are required for each animal. The largest consumers of maize are broilers, followed by pigs and then layers. Poultry exports from Thailand had been on the rise since 1992 and in 2000, exports of frozen chicken peaked at 240,000 ton per year. In later years, the bird flu edipemic has dampened poultry exports and the demand for maize has somewhat slowed down. Although there were reports of hundred of feed manufacturers and feed mills in the country, the feed industry is effectively dominated by 5-6 extremely large firms. Charoen Pokapand (CP) multi-national company is the largest firm, being vertical coordinated business covering from seed, feed and livestock lines of production. Price competition among these large firms does not appear to be very strong (Benchaphun and Kuson, 2004). Nakorn Ratchaseema (Korat) is a major center for both maize and feed mills. Road transport to and from this province to Bangkok is very convenient by the Mitraphap highways. Output prices are higher than in other provinces in the Northeast while input prices are lower. Loei on the other hand is rather far from the center of maize activities. Transportation pose major problems making costs of production higher for maize farmers, thus lower profits. Nevertheless, maize is still more competitive to them compared to other crops. In summary, the nature of marketing of maize at the farm level is from individual farmers selling to individual assemblers, who would sell it to feed factories or exporters. As for maize seeds, fertilizers, and other inputs, they are supplied by companies through competitive marketing chains. Processing of maize as animal feed is done by feed companies who would either sell it to their vertical integrated livestock companies or other livestock companies. About 5-6 large vertically integrated livestock companies operate in Thailand, one of the largest being the CP multi-national company.

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2.2.6 Domestic use of maize in livestock industry

As mentioned earlier, the 4 m. ton of maize has been increasingly absorbed by the domestic market with growing livestock industry. Figure 2.2.1 shows the trend in domestic use, exports and imports during the last two decades (1980-2000) in Thailand. Table 2.2.3 shows that the exports of frozen chicken increased 6 folds from 44,000 tons in 1985 to 240,000 tons in 2000. Apart from the poultry industry (broilers and layers), other livestock industry such as pork, dairy, beef cattle are also expanding in the last two decades in the country. Increasingly, rice, maize, soybean, cassava, groundnut, oil palm as well as fishmeal are being used as feed in the domestic market for domestic and export supply of livestock products (Saroj, 2004). In 1983, domestic animal feed production registered at 1.6 m. ton but increased more than four folds to a level of 7.0 m. ton in 1998

(Table 2.2.4). In 2006, the Thai Ministry of Agriculture and Cooperatives estimated domestic maize demand to be 4.2 m. ton, 44 per cent for broilers, 18 per cent for layers, 36 per cent for pigs and 2 per cent for cattle (Table 2.2.5). The Office of the Agricultural Economics (1997) estimated that given the projected 4.85 per cent annual growth of livestock during 1997-2001, the demand for maize by the domestic livestock industry would be 5 m. ton by 2001.

.While the demand for maize in domestic industry is increasing, the actual supply is not keeping up as the areas of maize decreased continuously due to competition in other cash crops e.g. cassava and sugar cane (Office of the Agricultural Economics, , 1995,1997). At the same time, research on feed ingredients had introduced more feed substitutes e.g. cassava, soybean meal in feed in place of maize which is continually in short supply and higher priced (Center for

Applied Economics, 2000). The actual exports and imports of maize are variable from year to year but continued to be at a low level due to fluctuations in livestock demand during 1992-2000. Starting from 2001, however, maize exports have expanded especially in the wake of the avian flu epidemic in 2004-2005 when Thai chicken exports were refused by many countries. During 2004-5, fresh and frozen chicken exports from Thailand were drastically reduced although exports of chicken were done in the form of proceed meat and were expanding at a rate of 30 per cent annually. It should be noted that a major player in both the maize and livestock industry is the Thai owned multi-national company called Charaen Polkaparn (CP) company. CP is the biggest vertical coordinated agribusiness company in the country. It owns the most popular maize hybrid (CP 888) and is the biggest buyer of maize for its feedmills and it is a major

Table 2.2.4 Domestic production of animal feed in Thailand, 1992-2003.

Year

Estimates of domestic production of animal feed

(1,000 tons) 1992 5,287 1995 8,516 1998 7,339 2000 8,193 2002 9,169 2003 9,376 Source: Adapted from Saroj (2004)

Table 2.2.5 Use of maize in animal feed in Thailand, 2006 Quantity Use of maize in animal feed m.ton % Broiler feed 1.858 44.2 Layer feed 0.755 17.9 Pig feed 1.501 35.7 Cattle feed 0.088 2.1 Total 4.202 100 Source: Animal Feed Users’ Association. Maize Situations in Thailand 2006. http://www.feedusers.com/ th/viewnews.php?ArtID=517 [Sept 14, 2006]

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producer and exporter of poultry products. CP is divided into many subsidiary firms, each is connected to the CP group. While there are many other feedmills operated and a couple of major companies apart from the CP mills, they reported that CP feedmills play major roles in maize price setting. Nevertheless, the fact that exporting and importing of maize are always a possibility, domestic prices of maize cannot be independent from its world prices.

2.2.7 Sources of maize input supplies Apart from land, inputs for maize productions constitute seed, chemical fertilizers, herbicide, pesticide, tractors, threshers, driers, fuel, and labor. Most inputs for maize production except seeds, threshers and labor were imported. These inputs were sold by local merchants who usually were owners of agricultural input supply stores and who operated often times as maize assemblers as well. Maize seeds were supplied by seed companies who would sell them to local merchants as well. Access to the necessary inputs was good although farmers complained of high prices and difficulty in obtaining good quality seeds.

2.2.8 Maize-related policies

The government of Thailand has always been supportive of maize farmers and of others who use maize as an inputs, notably livestock producers and feed millers. It has supported maize research in both the public and private sectors, and it has implemented enabling policies that have increased the profitability of private companies active in the maize and livestock sectors.

2.2.8.1 Research and extension Although the private sector now dominates in the maize industry in Thailand, the role of the government agencies in the early days of development should not be overlooked. The famous variety Suwan 1 was released by Kasetsart University’s Suwan Farm in 1975. Suwan 2 was released in 1979, Suwan 3 in 1987 and Suwan 5 in 1993. All four of these OPVs were developed at Suwan Farm. NS 1 (released in 1989) was the only OPV released by the Department of Agriculture. In addition to producing finished cultivars, Suwan Farm produced up to 46 inbred lines over a period of 20 years (1978-98). These inbred lines were sold to the private sector for the development of hybrids. Single cross hybrids are more preferable in later years because of their yield advantage. Experimental plots can give as high as 8 t/ha for a good single-cross hybrid (Yosaporn et al, 1998). Different hybrids have relative advantage in yields, prices and agroecozones.

The 1990s have been the decade of the private sector. A survey conducted in 1998 (Benchaphun, Phrek and Kuson, 1999) revealed that some of the hybrids being sold in 1997 were released as far back as 1988 (e.g., the three-way cross Hercules 31 sold by Novartis Seeds). In 1990, Pacific Seeds released its double cross hybrid PAC11, which was still in use in 1998. In 1991, when the famous single cross CP-DK888 was released by Charaen Seeds (C.P. Group), a three way cross (Uniseeds 38) and a double cross (CP-DK818) were also released in the same year. During 1991-93, hybrids were released at the rate of about three new hybrids/year by different companies. During 1994-96, the rate of releases accelerated to about five new varieties a year. In 1997, there was a record

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release of seven private sector new hybrid varieties, five of which were single crosses. During 1988-1997, there were altogether not fewer than 34 private sector hybrids released and sold in Thailand. Five of these were baby corns or sweet corns. These hybrids were suitable for different ecozones. The government policies to promote the use of hybrid maize seed were implemented through the Department of Agricultural Extension (DOAE). During 1994-98, DOAE distributed hybrid seed to numerous locations throughout the country at subsidied prices. The seed subsidies were reduced or withdrawn after a few years and farmers later need to pay the full seed cost at market prices. In this way, farmers were introduced the new seed and technology through the government support. Later, extension service is much done by private companies which have the interests of selling seeds. As a result of such collaboration, the adoption of hybrid seeds has been rapid. Most Thai maize farmers are more of less active users of hybrids. They are segmented in their preferences of hybrid varieties by their relative association with different private companies. A few of the more advanced farmers have become hybrid maize seed producers themselves. To see the extent of research in breeding in the public sector which laid a good foundation of breeding work in the private sector, Table 2.2.6 shows the breeding lines and varieties introduced by the public sector during 1975-97 and hybrid varieties introduced by different companies in 1997/98. Each variety needed long years of commitment on the part of personnel involved.

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Table 2.2.6 Public-sector maize OPV and hybrids developed during 1975-1997 and private-sector maize hybrids in the market in Thailand, 1997-98.

Field Corn Seed Company OPV SC MSC DC TWC

Baby Corn Sweet Corn

Public Sector Suwan Farm Suwan 1

Suwan 2Suwan 3Suwan 5

Suwan 2301 Suwan 3501 Suwan 3502 Suwan 3503 Suwan 3504 Suwan 3601 Suwan 3851

Suwan 2602 Suwan 3101 Suwan 3602

Suwan 2 TSC1 DMR Kasetsart 1

TSC1 DMR HSX 27127HSX 11476Insee 1

DOA NS-1 Private Sector Charoen Seeds

CP-DK888 CP-DK999

CP-DK818 CP-DK822

Cargill Seeds C 922 BIG 919 BIG 929

BIG 717BIG 727

C 501

Pacific Seeds Pacific 328 Pacific 700 Pacific 626 Pacific 848

Pacific 11 Pacific 421 Pacific 116* Pacific 129*

Hibrix 5 Hibrix 10

Novartis Seeds

Red Iron 45 Venbus 49

Hercules 31 Convoy 93 G 5384

G 5414

Pioneer Seeds

3011 3012 3013

3248 3006 30A10 3014

Uniseeds Uniseeds 89 Uniseeds 90

Uniseeds 38 Uniseeds B50 Uniseeds SW-1

Royal Seeds Royal I Royal III

Note: OPV=Open-pollinated varieties, SC= Single-cross hybrid, MSC= Modified single-cross hybrid, DC= Double-cross hybrid, TWC= Three-way cross hybrid, DOA= Department of Agriculture. *Released in 1998 The public sector, including international research organization like CIMMYT (International Maize and Wheat Improvement Center), has provided good support in research, research personnel and facilitation roles for the private sector over the four decades of development in Thailand. For example, the varietal testing and evaluation program, supported by CIMMYT and the Thai Department of Agriculture and public universities in Thailand provided a mechanism for comparing and contrasting materials produced by the private and public sector. The Tropical Asian Maize Network (TAMNET), established with the support of CIMMYT and FAO, stimulated progress in hybrid maize research and a potential yield of 7-8 ton per ha was reported by 1998 (Yosaporn, Pichet and Chokechai, 1998, Vasal, 1998, Benchaphun, Phrek and Kuson, 1999). In 1996/97, the maize area planted to hybrid varieties were 85 per cent of all maize cultivated areas in the country with an average yield of 3.42 ton per ha as against 2.33 ton per ha for improved OPV and 1.98 ton per ha for traditional varieties (Benchaphun, Phrek

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and Kuson, 1999) (see Table 2.2.7). The use of hybrid maize varieties expanded to almost all maize areas in all regions by 2003 (Benchaphun, et al, 2004).

Table 2.2.7. Area planted, yield, and seed prices of hybrids vs. improved OPVs, 1996/97 for all regions, Thailand.

Traditional varieties

Improved OPV

Hybrid varieties

Total

Area planted (1,000 ha)

4.3 192.3 1,189.8 1,386.4

-(%) 0.3 13.9 85.8 100 Yield (t/ha) 1.98 2.33 3.42 3.27 (index) 85 100 146 Seed prices small 10-20 35-55 DC 50-75 TWC 75-90 SC Grain prices - 4.0 4.0 Seed:grain price 2.6-5.3 9.2-23.7

Sources: cited in Benchaphun et al (1999) Area and yield: Office of Agricultural Economics, 1997, prices from interviews. DC (double-cross varieties), SC (single cross varieties) and TWC (three-way cross varieties)

Benjawan (1996) studied maize production in North Thailand showed that hybrid maize farmers enjoy more than 100% increase in income as compared to those growing OPV. The most important reason she found for farmers selecting hybrids was the yield advantage. A smaller proportion of farmers cited drought tolerance as the reason for their adoption. Those farmers who were still using OPV were concerned about seed prices and pest resistance quality. She also found that a large amount of information about hybrid maize came from the public sector -- as much information as came from the seed companies. The situation in the Northeast was not expected to be different. Benchaphun, Phrek and Kuson (1999) concluded that the success achieved in promoting adoption of hybrid maize could be attributed to effective collaboration between the public and private sectors. The private sector does research and sells hybrid seed, while the public sector deals with back-up research, promotion, and extension activities.

Currently, the public sector still engages in research in maize covering a variety of topics: breeding, tillage, fertilizer applications, pest and disease control, soil conservation, post harvest practices, etc although it is done under the context of farmers’ adoption of the private sector’s hybrid varieties. The private sector’s advances in commercial hybrid seed technology have resulted in its current dominance over the public sector both in research and extension. Field staff from private companies are those in close contact with farmers selling seed as well as introducing planting methods and cultivation practices. As the differences in requirements for each hybrid variety are great, farmers learn to grow them from the staff of private companies while the government extension officers deal with other matters and other crops.

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2.2.8.2 Credit Government support of farmers’ production credit needs through BAAC has been fundamental to expansion in maize in Thailand and the Northeast. Because of the needs to invest in seed, fertilizer, machinery, fuel and hired labor, farmers need cash in the beginning of the year. These needs are felt annually. BAAC has been responsive to farmers allowing them to borrow without collaterals but with their groups’ guarantee to pay for their fellow members in case of default.

2.2.8.3 Price policies

There have been many price policies relating to maize since the First Social and Economic Development Plan. They are two main areas where they can be classified: one set of policies are those related to trade policies dealing with exports and imports of maize and another set dealing with price support program.

2.2.8.4 Trade related price policies

The government of Thailand regulates maize prices through its export and import policies. In the early years—namely before 1981, it imposed export quota on maize until farmers’ complaints were evident and the export restrictions were lifted in 1981. This led to a surge in exports which peaked in 1985 to 3.5 m. ton of exports at maximum f.o.b price of 3.68 baht per kg. In 1986-87, however, f.o.b. price of maize was as low as 2.5 baht per kg due to depressed world prices. Such events were coupled with a growing feed demand and the occurrence of competing crops like sugar cane and cassava. In the years that followed, there were shortages of maize which again triggered the government to announce a renewal of export restrictions in 1992. While maize exports were 0.8 m. tons in 1991 reducing to 0.18 m. ton in 1992 and 0.13 m. ton in 1993. Currently, the Ministry of Commerce reports that maize exports can be done without any tariff restrictions but due to the fact that Thai maize was when harvested in the main production season with high moisture content and not of good export quality with higher prices than the world market, all resulting in lower export volume and value in recent years (Feedstuff Users Promotion Association, 2006b). On the import side, significant quantities of maize were imported for the first time in 1991 following a reduction of the import tariff from 6 per cent to 0.6 per cent. Some 0.25 m. tons of maize were imported in 1991. In 1995, imports climbed to 0.39 m. ton. In 1997, the government removed all import duties on maize imports and maize imports were liberalized for a brief period of 1997-1998. With Thailand joining WTO in 1995, it reinstalled a “reduced” tariff structure with a minimum access quota subject to a 20 per cent import tariff and 76-80 per cent import tariff for quantity beyond the quota. Such structure of tariff reversed the liberalization trend introduced during the no tariff period of 1997-1998 (Benchaphun and Kuson, 2004) As a combined effects of export and import policies during the last few decades in Thailand, maize grain prices stabilized around 3.0-3.5 baht per kg during 1985-1994 and around 4.3-4.8 during 1995-2004. During 2003-2005, the Thai government was negotiating free trade agreement (FTA) with Japan in order to reduce tariff for many exports and imports. This will have substantial impacts on the poultry and maize sector in Thailand.

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2.2.8.5 Price support program As with all major crops, the Government of Thailand attempted to stabilize maize prices through its minimum price support program. Following rice price support program, maize minimum price support program was introduced in (when) through government and state enterprise agencies such as the Marketing Board and the Bank of Agricultural and Agricultural Cooperatives (BAAC). Under such program, a “mortgage” price was announced at the beginning of the main season and farmers were asked to mortgage their crop to the implementing agency at the announced price. They had four months to redeem their mortgage and retrieve their maize after which time the output would be sold to the market and the proceeds paid back to the agencies in the name of the relevant farmers. Most farmers who participated in this program would find it more convenient not to redeem their output because the difference in prices were not so high in the four months. It was found however that the coverage of this program was limited and only 10-12 per cent of the national maize output were handled this way (Benchaphun and Kuson, 2004). It has had little effect of influencing maize prices in a significant way. Well-to-do and well-connected farmers found more access to this program as compared to small farmers in remote areas.

2.2.9 Maize farmers’ institutions

As related to maize cultivation and marketing, farmers’ institutions like cooperatives and farmers’ groups are found weak. The working relationships are between farmers and companies, farmers and merchants or traders. In field maize production, farmers do not operate in contract farming mode of operations but still the relationships were market-based and need-based. In maize hybrid seed production and sweet corn production, the relationships between farmers and companies are more formal and on contract farming basis. Only farmers’ credit groups as they deal with BAAC loans are seen as working effectively.

2.2.10 Conclusions: maize

The development of maize industry in Thailand is a good example of effective public-private partnership. The public research and extension institutions started and promoted the work which was then followed and further developed by the private sector. Farmers have been receptive to new technology in seed, mechanization and other modern inputs such as fertilizers and chemical inputs. The industry is well coordinated in the input-output value chain. Some differences are seen still in the performances of different groups of farmers. Maize is a crop which is both suitable for large commercial farmers, emergent commercial farmers as well as small family farmers. Good infrastructure e.g. road networks is seen as essential for such development whereby input and output supply can be accessed by the farmers. Credit is also essential part to the production of maize by all groups of farmers due to its cash requirements. The small family farmers however have been disadvantaged due to their remoteness. High transportation costs have made their input prices higher and output prices lower thereby squeezing their profit margin. Yet for them, maize is still often the best option although one sees in some years, losses are also inevitable. This will be reflected in their competitiveness in the domestic and world market.

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2.3. Cassava

Cassava or tapioca is a tropical root crop which has played an important role for the Thai economy. It contributed about 7,000 million baht in Gross Domestic Product and ranks sixth following rice, rubber, vegetables and fruits, sugarcane and maize (FAO, 2003). Cassava originated in Brazil and Paraguay and was introduced into the southern part of Thailand from Indonesia since a long time ago. Its commercial production started in the East of Thailand and it was gradually distributed throughout the country, especially in the Northeast region since 1974, due to increasing demand from aboard and need of less attention of cassava production. Thailand is the Asia’s largest producers of cassava, shared 37 percent of the total cassava products in Asia and the world’s third largest producer, after Nigeria and Brazil (FAO, 2000b).

2.3.1 Cassava production

2.3.1.1 Planted area The cassava planted area for the whole country was 0.17 million ha in 1968. Over the two decades of development, it rose at the average rate of 13.2 percent per year and reached its peak at about 1.6 million ha in 1989 due to its drought tolerance property, low investment

needed and the ability to grow in almost all types of soil. The planted area expanded rapidly in response to the growing demand for animal feed in Europe as the main market of Thai cassava pellets. But when the Common Agricultural Policy (CAP) in the EU changed in 1993, cassava became less competitive with locally produced barley, and exports of cassava pellets decreased rapidly and caused the reduction in planted area from 1993 to 2005 at the average annual rate of 2.52 percent. In 2005, the planted area was about 1.0 million ha. The most concentrated areas of this crop were found in the Northeast followed by the Central and North regions, respectively (see Figure 2.3.1). The proportion of the planted area in the Northeast has been decreasing from about 62 percent in 1995 to 53 percent in 2005. Cassava is grown in all 19 Northeast

provinces and Nakhon Ratchasima is the biggest planting cassava province with the proportion of 23 percent of total planted area in 2005. Chaiyaphum (6 percent) and Kalasin (5 percent) are the second and third biggest planting cassava provinces in the

Northeast (OAE, 1995-2005)

2.3.1.2 Production and yield According to the statistical data from the Office of Agricultural Economics (OAE, 1980-2005), total production of cassava increased from 2.6 million ton in 1968 to its peak at 24

Figure 2.3.1: Distribution of cassava growing areas in Thailand in 1995/96. Remark: each dot represents 1000 ha of cassava. Source: Department of Agricultural Extension (1998). (Figure is taken from Chanual, Naronsak and Preecha, 2000).

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million ton in 1989 before falling to 17 m. ton in 2005 due to the decrease of planted area. Contribution of the cassava production from the Northeast has been decreasing from about 63 percent in 1979 to 51 percent in 2005. Cassava yields vary with cultivars, season of planting, soil type and fertility. In 1965, cassava yield was at 14.5 ton per ha and the average yield over the following two decades (1966-1985) had not been changed from 14.5 ton per ha. During 1986-1995, the average yield had been decreased to 13.9 ton per ha and for the last decade (1996-2005), it has been increased to 16.7 ton per ha with the lowest record at 14.2 ton per ha in 1996. For the Northeast region, the average yield at the same period was a little bit lower (16.1 ton per ha) than that of the whole country. The highest yield was in the Central region (17.8 ton per ha) (Table 2.3.1) Table 2.3.1 Cassava: planted area, total production and yield for the whole kingdom and the Northeastern region, 1973-2005

Planted area (m.ha) Total production (m.ton) Yield (ton/ha) Years

Whole Kingdom

Northeastern

Region Whole

Kingdom

Northeastern

Region Whole

Kingdom

Northeastern

Region 1975 0.594 0.253 8.10 3.478 13.63 14.30 1980 1.159 0.725 16.54 10.008 14.26 13.36 1985 1.476 0.885 19.26 10.613 13.99 13.22 1990 1.529 0.951 20.70 12.407 13.92 13.56 1995 1.294 0.808 16.21 9.920 13.03 12.75 2000 1.184 0.675 19.06 10.472 16.86 16.21 2005 1.043 0.558 16.93 8.719 17.18 16.71

Source: Office of Agricultural Economis (1975-2005) 2.3.1.3 Production system and technology

In commercialized production, cassava is grown as sole cropping system in upland under rain-fed condition. Intercropping of cassava is practiced to a very limited extent even in experimental systems it has been successfully intercropped with peanut and mungbean (Chanual, Narongsak and Preecha, 2000). To grow cassava, stems from 10 to 12 month old plants destined for planting are usually cut into long lengths, tied in bundles and stored in shady conditions. Just before planting, they are cut to the normal planting lengths of 15-20 cm. Land is usually prepared by using an owned hand tractor or a hired four-wheel tractor. Farmers usually plow 15-20 cm deep once or twice to bury residues of the previous crop. Cassava is high flexibility with respect to the timing of planting and harvesting. Chanual, Narongsak and Preecha (2000) reported that in Thailand, about 23-31 per cent of cassava was planted in May, followed by 10-20 per cent in April and 11-17 per cent in June and another 10-20 per cent in October or November, at the end of the rainy season. In the Northeast, typically most of the farmers plant it in the beginning of the rainy season (May to June) which provide the best yield but it also depend on the soil types. To decide which season to plant both quantity of rain and type of soil are important factors.

The most popular cultivar grown in the Northeast is Kasetsart 50 hybrid cultivar (65 per cent of Nakhon Ratchasima planting area) followed by Rayong 5 (20 per cent) (Nakhon Ratchasima Provincial Agricultural Office Extension, no date). Most of the cassava farmers applied chemical fertilizers in the crop but the rate of application is still lower than the recommended rate. The Northeast farmers tried to keep costs low with the high risk of

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root prices and unpredictable rainfall which causes low yield even with the use of fertilizer. They usually applied two times of 15-15-15 fertilizer per crop. The first fertilizer was applied when the crop was 30 days old and the second one was when the crop was 90 days old with the rate of 150-300 kilograms per ha depending upon soil types. The general recommendation is in the higher rate of 430 kg per ha for loamy or sandy loam soils and 630 kg per ha for sandy or poor soils. Beside chemical fertilizer, some farmers also applied animal manures by putting them in a planting hole before planting. Weed is one of important factors affecting yield, especially within the first four months after planting. Failure of timely weeding can cause a total loss of harvest (Chanual, Narongsak and Preecha, 2000). In the Northeast, farmers weed about 2-3 times during the crop cycle by using a hoe or a hand tractor. The use of herbicides is recently increasing. A survey of 100 cassava farmers conducted in 2003/04 in Nakhon Ratchasima indicated that about 60 percent of the farmers applied some herbicides but all of them used a hoe and 90 percent of them also used hand tractors for weeding (Montira, 2004). The first weeding is usually done at 30-45 days after planting, followed by the second and third weeding at 60 and 90 days after planting. The cassava root can be harvested 8 to 10 months after planting. The time of harvest is also related to quality of root which measure from the starch yield. Good harvesting time is in the dry season. However, the availability of roots supplied is all year round. Private industry (mainly starch factories) plays an important role in promotion and distribution of new technology. Mechanized land preparation, fertilizer application, and mechanical or chemical weed control are becoming more common (FAO, 2000a). Besides, biotechnology progress has been achieved in the control of pests and diseases and in improving the characteristics of the final cassava products (FAO, 2000b).

2.3.2 Farm size, farm price and value

Cassava is grown by a large number of small scale farmers (3 million households) (Klanarong et al, 2000). Most cassava farmers (68 per cent) plant cassava in areas ranging from 1.0 to 5.75 ha (Chanual, Naronsak and Preecha, 2000). No organized large-scale plantations have been established in Thailand, this is prohibited by the accumulation of land act (Klanarong et al., 2000). The farm prices are commonly fluctuating depending on total production and the starch content in the roots. A low price is usually received in February and March when bulk quantities of the roots are marketed, also in July and August of the rainy season when the starch content becomes low. However, farmers who are able to produce cassava with high starch content could sell roots for native starch processing, while those producing roots of low starch content could sell roots for chips and pellets for animal feed (FAO, 2004a). The export capability also contributes to the price instability (FAO, 2003). According to statistical data from OAE, since 1990 the average farm price of the whole country had fluctuated within the range of 0.58- 0.98 baht per kg, except in 1995, 1998, 2002 and 2005 that the farm price was higher than 1 baht per kg due to higher export demand. In 2005, the farm gate price in the Northeast is about 6 percent higher than that of the whole country. The farm price increased to the highest record at 1.41 baht per kg (1.33, for the whole country) due to decrease of production as the result of drought in Northeast as well as the higher export demand for chip and starch. The farm value has been increased from 12,834 million baht in 1990 to 22,528 million baht in 2005 with the average annual rate of 7.3 percent (Table 2.3.2).

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Table 2.3.2 Cassava : farm gate price and farm value

Farm gate price Farm value Years (Baht per kg) (Million baht) 1975 0.41 2,908 1980 0.75 12,405 1985 0.40 7,705 1990 0.62 12,834 1995 1.15 18,650 2000 0.63 12,010 2005 1.33 22,528

Source : Office of Agricultural Economics (1975-2005)

2.3.3 Cassava costs and profit Production cost is mainly depended on time of planting and environmental conditions during growth which need different weed control regimes and inputs and it is reflected in the variable cost (Klanarong et al., 2000). According to information from the Centre of Agricultural Information, total production cost of cassava in the Northeast in 2005 was about 2,526 baht per rai (15,790 baht per ha). About 87 percent of total cost is variable cost which includes labor (50 percent), material costs (28 per cent) and interest (8 percent) and the rest is fixed cost (13 percent). Most of cassava farmers use family labor with temporary hired labor. Yangmood (1994) reported that the average labor requirement for cassava production was about 96 man-days per hectare, of which family labor accounted for 50 man-days and the rest was hired labor. Labor demand peaks occur during planting, weeding and harvesting periods. There was no significant difference of production cost between the whole kingdom and the Northeast. But the profit per hectare of the Northeast farmers was 1,070 baht (16 percent) higher than that of the whole kingdom farmers since the farm gate price in the Northeast was higher (Table 2.3.3)

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Table 2.3.3 Variable and fixed cost of cassava production in 2005

Whole Kingdom Northeastern Region Baht % Baht %

Variable cost 2,248.4 87.03 2,194.3 86.8 1. Labor cost 1,324.9 51.28 1,275.1 50.4 Land preparation 325.1 12.58 304.3 12.0 Planting 162.2 6.28 156.5 6.2 Weed control 403.7 15.63 404.8 16.0 Harvesting 433.8 16.79 409.4 16.2 1.2 Material cost 717.4 27.77 716.6 28.5 Seedling 224.8 8.70 220.3 8.7 Fertilizer 321.7 12.45 338.6 13.4 Pesticides 159.5 6.18 143.9 5.7 Fuel 6.7 0.26 10.9 0.4 Others 4.6 0.18 2.7 0.1 1.3 Miscellaneous 206.1 7.98 202.5 8.0 Reparation 1.6 0.06 3.0 0.12 Interest 204.4 7.91 199.5 7.9 Fixed cost 335.1 12.97 332.1 13.1 Land rent 324.3 12.55 319.5 12.6 Depreciation 9.6 0.37 11.2 0.4 Interest for machinery and 1.14 0.04 1.36 0.05 Total production cost Baht / Rai 2,583.5 100 2,526.5 100 Total production cost Baht / kg 0.94 0.94 Yield Kg / Rai 2,749 2,674 Price Baht / kg 1.33 1.41 Income Baht / Rai 3,656.1 3,770.3 Profit Baht / Rai 1,072.6 1,243.8

Source: Centre for Agricultural Information, OAE (2006) 1 rai = 0.16 ha

2.3.4 Sources of raw material

There is virtually no commercial trade in cassava planting material in Thailand. It is usually obtained from the farmers’ own fields at the previous harvest. Farmers who purchase cassava stakes are those who are new cassava farmers or wish to change varieties or increase the planting area. Hired labor are usually from the local or neighbor areas. Other inputs such as chemical fertilizers, herbicide, pesticide, fuel and tractor are imported.

2.3.5 Cassava processing

Cassava in Thailand has been mainly produced for export in the form of chips and pellets for animal feeds and starch. In 1982, 88 percent of the total cassava root production was utilized for chips and pellets. This share declined to 70 percent by 1992, while the share of root utilization for starch increased from 12 to 18 percent. By 1996, root utilization was about equally divided between starch and pellet production (FAO, 2000 a). Currently, about 55 percent of 18 million ton of the cassava root production in each year is converted to starch and another 45 percent is for chip and pellet.

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Cassava starch industry had been developed from a cottage scale. Demand for cassava starch increased dramatically, and led to development of the starch manufacturing process in 1970. According to FAO (2004 a ), the recorded numbers of cassava starch factories increased from 50 in 1970 to 146 factories in 1978. But in 1989, only 47 factories, with annual production capacity of 1.3 million ton, were registered as members of the Thai Tapioca Flour Industries Trade Association (TTFITA). By 1995, the registered number of factories increased to 54 factories before decreasing to 49 factories in 1998 but the production capacity was increased to 1.8 million ton per year. During this time span, the location of starch factories had shifted from the Central region to the Northeast. Morakot (2004) reported that in 2004, there were 62 starch factories with the production about 2 million ton per year, or 5 percent of the global total (35 million ton) for all starches. For the cassava chip processing, Klanarong et al (2000) reported that cassava chip factories are small-scale enterprises and most of them have no formal company registration. The factories typically located close to plantations, with simple equipment, mainly a chopper. Roots are transferred to the chopper by tractor. After chopping into small pieces, the chips are sun-dried on a cement floor for 2 to 3 days. As a rule of thumb, 2-2.5 kg of fresh root (with 25 percent starch content) is required to produce 1 kg of chip. The standard of cassava chip, when sun-dried, must have a moisture content of less than 14 percent and sand content not more than 3 percent. Cassava chip production can be found mainly in the Northeast. Nakhon Ratchasima has the highest chip and pellet production in both the Northeast and Thailand. Cassava chip can be used as raw material for animal feed, alcohol, and ethanol. As for ethanol, it has received much attention lately from both the public and private sector due to rising fuel prices.

The cassava pellet industry began in 1967, a few years after the start of cassava exports to the EU. According to Klanarong et al (2000), development of this product was stimulated by a need to improve the uniformity in shape and size of cassava chips required by compound feed producers/users. In addition, during transportation, loading and unloading of chips, the dust generated caused serious air pollution, placing pressure on European importers to improve the nature of cassava products handled by the ports. Production of pellets involves pressing chips, in an extruder, through a large die. The heat and moisture in chips helps in the formation of a pellet-shaped product, known as a soft pellet. Later processes involved steam grinding extrusion to create strong pellets on cooling – these were known as hard pellets. Exports of hard pellets began in 1981, by 1987 hard pellets dominated pellet production in Thailand, and by 1989 were virtually the only pellet product exported to Europe. Raw materials for pellet manufacture (cassava chips) are purchased from chip factories - pellet factories do not produce chips. Purchase price is directly dependent on the export price of pellets in Bangkok. The quality of the chips is also an important consideration. Moisture content should not exceed 16 percent. Exceeding of moisture content will attract a price penalty, but no reward is given if the moisture is less than 16 per cent. The sand content should not exceed 4 per cent. There are approximately 200 pelleting factories in Thailand, with a total capacity of about 10 million ton per year. However, the EU quota is only 5 million ton, and this is the sole market for this product. Factories are therefore working at only 50 per cent of their capacity (3-4 months in year).

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2.3.6 Cassava marketing

2.3.6.1 Marketing channels As a perishable crop, fresh cassava roots must be processed within a few days. Therefore, after rooting up, most of the fresh roots are quickly sold and processed to be cassava products. The main traders buying the fresh roots comprise of the local vendors and traders who forward the produce for chip and pellet (45 per cent) and processing to starch (55 per cent). However, some farmers directly sell the fresh roots to the local factories around the production area. Cassava chips from small-scale enterprises are sold to pellet industries who either directly export the chips or pellets or sell to traders (Klanarong et al, 2000). In most cases, the small chip factories sell their products to large factories that in turn sell a consolidated consignment to pellet companies (Klanarong et al, 2000). Time from purchases of chips to their sale is rapid, factories in Thailand do not have silo facilities for storage, and all transactions are direct, middlemen or brokers are not involved. For cassava starch production, about 60 percent of cassava starch produced is exported and the rest is domestically used as the native and modified starch.

2.3.6.2 Domestic markets

Domestic consumption of cassava products has been considered as very low compared to its production. Most of cassava chips and pellets are exported and about 40 percent of cassava starch is used in the country. In Thailand, cassava starch is used as a prime raw material in making monosodium glutamate and lysine. Klanarong et al. (2000) reported that the highest local consumption of starch (24 percent of starch in 1998) was by these two industries. Beside household consumption, cassava starch is also used as raw material in various industries in Thailand such as sweetener (glucose, fructose and sorbitiol), textiles, paper, plywood, medicine and food (instant noodle, tapioca pearl and seasoning sauce) as well as bio-degradable products (packing material). For Thailand’s domestic cassava chips, the quantity of chips used locally for animal feed, in 1996, was around 100,000 ton (2.5 percent of the export chips). But with the promotion of the government, domestic use of cassava chips as animal feed has been increasing. Klanarong, et al 2000 reported that local consumption of chips for animal feed was estimated at 800,000 ton in 1998.

2.3.6.3 Export markets

Thailand has been very successful in the development of cassava product export industry. Cassava was developed into an important export item of Thailand in the 1950s (LePoer, 1987) and now Thailand is the world’s largest exporter of cassava products accounting for about 90 percent of world trade in 2004 (The Agricultural Futures Exchange of Thailand, 2006). From near zero in 1960 (FAO, 2000a), Thailand's exports of chips and pellets grew to the average of seven million ton annually in 1984–93. Cassava pellets had been the main cassava export products of Thailand with the highest record of export value at 23.7 billion baht (86 percent of total cassava products export value) with the quantity of 8.1 million ton in 1992, according to statistical data from the Department of Customs. The EU had been the main export market for this product followed by South Korea and Japan. But the CAP reform of the EU in 1993 caused the falling quotations of cassava pellets in the EU resulting in the dramatic decrease of the cassava pellets export quantity from 6.6 million ton in 1993 to 1.53 million ton in 2002. This put a pressure on Thai exporters to seek additional markets, especially in Asia (FAO, 2000a). China has become an important export market of Thai cassava products, replacing the EU market, after the implementation

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of a free trade area between Thailand and China in 2003 which resulted in the abolition of a 6 percent tariff on Thai cassava products (FAO, 2004b). China is interested in Thai cassava chips for alcohol and animal feed industries, not the pellets. Hence, the export market has been shifted from pellets to chips since 2003. The export quantity and value for cassava chips has dramatically increased from 0.03 million ton with the value of 94 million baht in 2000 to 2.77 million ton with the value of 12 billion baht in 2005 (Table 2.3.4). China is the sole export market for Thai cassava chips in 2005, according to statistical data from the Department of Foreign Trade. Akarapong (no date) reported that about 40 – 50 percent of China's imports of cassava products are from Thailand. A further increase of cassava chips export to China is expected as the Chinese government promotes the use of cassava and corn instead of molasses in alcohol producing industry together with the expected use of gasohol in 2008. China is also promoting the use of cassava pellets in animal feed industry to Chinese producers (Akarapong, no date). This would be a market opportunity for cassava pellets export. Whereas cassava pellets export market decreased, exports of cassava starch increased during 1993 to 2005. Its export quantity and value increased from 0.46 million ton with the value of 2.34 billion baht in 1993 to 1.01 million ton with the value of 9.36 billion baht in 2005, according to statistical data from the Department of Customs. The average export price of cassava starch decreased from 357 US$ per ton in 1995 to 172 US$ per ton in 2003 before increased again to be 251 US$ per ton in 2005 (The Thai Tapioca Trade Association, 2006). Taiwan is Thailand’s largest importer of starch, among a group of 10 major importing countries (Table 2.3.5). The export market to Taiwan increased from 0.18 million ton (39 per cent of the total exports) in 1993 to 0.63 million ton (46 per cent) in 2005. Second largest market is China with the share of 11 percent of the total export quantity, followed by Indonesia (10 percent), Malaysia (7 per cent) and Japan (6 per cent) in 2005. China’s demand for starch is expected to rise to 1 million ton in 2013 (Akarapong, no date).

Table 2.3.4 : Quantity and value of cassava products exports

Quantity : 1000 metric tonne Value : m. baht

Cassava chips Cassava pellets Cassava starch Years Quantity Value Quantity Value Quantity Value

1970 8.1 7.3 1,163.9 999.3 148.6 211.2 1975 70.5 120.4 2,168.7 4,027.9 144.7 445.8 1980 159.1 404.9 4,811.2 13,140.2 246.2 1,335.4 1985 123.7 284.9 6,474.5 12,723.4 482.3 1,918.0 1990 210.8 359.4 7,318.3 19,856.4 531.3 2,863.0 1995 184.9 637.3 3,039.2 9,629.1 630.2 5,001.1 2000 34.0 94.2 3,212.8 7,605.1 1,048.2 6,172.3 2005 2,772.9 11,938.5 258.2 837.9 1,012.6 9,395.9

Source : Department of Customs (2006a)

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Table 2.3.5 Cassava starch export, 2005

Year 2005 Country

Quantity (m.tons) Value (baht) %Export Taiwan 628.4 2,088.8 46.45 China 153.3 1,403.5 11.34 Indonesia 135.9 1,228.5 10.05 Malaysia 93.4 836.5 6.91 Japan 77.6 751.4 5.74 Hong Kong 30.6 273.1 2.27 Singapore 40.4 378.1 2.99 America 21.8 282.8 1.62 The Philippines 33.9 304.1 2.51 South Africa 23.3 270.0 1.73 Others 113.9 1,065.0 8.42 Total 1,353.0 8,882.4 100.00

Note: %Export based on quantity Source: Department of Customs (2006a)

2.3.7 Farmers’ institutions

The Thai Tapioca Trade Association (TTTA) and the Thai Tapioca Flour Industries Trade Association (TTFITA), which changed to be Thai Tapioca Starch Association (TTSA) on 29 May 2002, are the two most active private institutions involved in policy, research and development of starch industry. They have explored new market opportunities through trade missions assisted by concerned government agencies. They have been involved in the formulation of cassava policies and in setting up cassava research and development agendas, through their participation in ad hoc committees set up by the government (FAO, 2004a).

The Thai Tapioca Development Institute (TTDI) was founded in 1992 with an endowed fund of 600 million baht, collected from the auction of EU export quota in 1991. The TTDI is an independent non-profit organization with the support of the Ministry of Commerce and the Thai Government. TTDI established a 300 ha Research and Development Center at Huay Bong, Nakhon Ratchasima, in 1993 to expand the production of new high yield varieties for distribution to farmers and to do research and experiment activities as well as to train cassava farmers in the use of new cost-saving technologies (Thai Tapioca Development Institute, 2006). Every year about 7,000 cassava farmers receive a two-three days training at the Research and Development Centre (Chanual, Narongsak and Preecha, 2000). Beside research and development activities, TTDI has also encouraged and provided financial support to TTTA to promote export of cassava products to new markets in Asia, particularly to China, which in recent years has become an important market of cassava chip for alcohol production (Thai Tapioca Development Institute, 2006). The TTTA and TTFITA have, to a certain degree, determined the research and development agenda of the TTDI.

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2.3.8 Government policies concerning cassava

Due to the limited cassava products export to the EU market, Thai government has been using several production and market policies to adjust the cassava production corresponding to the demand from the EU and accelerate the expansion of cassava products market to non-EU countries.

2.3.8.1 Production-related policies

a. Research and extension In 1956, the Rayong Field Crops Research Center (RYFCRC) was assigned by Department of Agriculture (DOA) to take responsibility for the national cassava breeding program. Hybridization, clonal selection and evaluation trial have been conducted annually at RYFCRC. Narongsak and Preecha (2000) reported that Thailand has a collection of 348 cultivars, including 3 local cultivars, 5 from Indonesia, 21 from the Virgin Islands, 14 from CIAT and 305 clones from open pollinated and hybridized seeds. Out of these 305 clones, 216 clones are from the Thai breeding program. The breeding program to enhance starch yield and adaptability to a wide range of growing conditions started with the release of Rayong 1 in 1975 and has became more important as the planted area and important of cassava increased. For many years, Rayong 1 occupied almost 100 percent of the country's cassava planted area. This began changing in the mid-1980s as many new hybrid cultivars, such as Rayong 3, Rayong 90, Kasetsart 50 gained popularity for industrial use due to providing higher starch content (FAO, 2000a). By 1999, new hybrid, Rayong 72, with the high yield at 32.5 ton per ha (experimental yield) from the national program and Kasetsart University extended over more almost half of the total area. Rayong 72 was especially recommended for growing in the Northeast region (see Table 2.3.6).

These released cultivars are usually distributed through the Department of Agricultural Extension (DOAE). To increase the adoption of improved cultivars, during 1992-1997 DOAE and DOA have cooperated in the rapid multiplication and distribution of the recommended cultivars to farmers with the help of the Thai Tapioca Development Institute (TTDI). The planting of these new cassava varieties resulted in an increase of the fresh root yield by 24% (Watana, 2006).

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Table 2.3.6 Development of cassava cultivars in Thailand Cultivar Year

released Parents Average

yield (t/ha)

Main feature

Rayong 1 1975 From local cultivars 25.94

High yield Good adaptability

Rayong 3 1983 Mmex 55 x Mven 307 24.37 High starch content Low cyanide

Rayong 60 1987 Rayong 1 x Mcol 1684 26.40 Early harvest High yield

Rayong 90 1991 CMC 76 xV43 23.81 High yield and starch content

Kasetsart 50 1992 Rayong 1 x Rayong 90 27.50 High yield and starch content, Good adaptability

Rayong 5 1994 27-22-10 x Rayong 3 27.63 High yield and starch content, Good adaptability

Rayong 72 1999 Rayong 1 x Rayong 5 32.50 High yield and starch content, Good adaptability, Suitable for the Northeast

Sources: the Field Crops Research Institute, Department of Agriculture, http://www.doa.go.th/fieldcrops/cas/var/index.HTM and adapted from Klanarong et al. (2000). Research on cassava production practice has been conducted mainly by the DOA or in cooperation between the DOA and other agricultural research institutes. The research started with the aim of producing general recommendations for all cassava growing areas. Notwithstanding, after the continuous cultivation, the problem of soil infertility has created more problems and caused the yield reduction. Since 1987 the production research has emphasized on soil fertility maintenance, erosion control, intercropping, crop rotation and soil preparation to develop production technologies leading to high and stable production (Watana, 2006). During 1994 to 2003, CIAT, DOAE, DOA and TTDI had carried out farmer participatory research on cassava-cropping system. Through this research, farmer became more aware of the importance of soil conservation. The most appropriate soil conservation method were selected and tested by farmers on their own fields to develop the most suitable practices for their conditions. The results showed that farmers are able to make their own decisions and willing to adopt and disseminate new technologies to neighboring farmers (Watana, 2006).

b. Zoning and registration of cassava growers Since 1983, the Ministry of Agriculture announced economic agricultural zones for cassava planting in 17 provinces in the Northeast and 6 provinces in the East in order to control the cassava planting in the certain areas where cassava production provides more advantage compared to other crops and to enhance the production efficiency as well. In 1986, the Office of Agricultural Economics started the cassava grower registration program. But this policy was not monitored, thus the registration of all the cassava growers has not been realized. Only about 330,000 ha were registered accounting for 30 percent of the total area in cassava Agricultural Economic Zones (OAE, 1988). After a

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year or two, price increases in cassava resulted in questionable effectiveness of the zoning and registration policies as they were not enforced nor followed by farmers.

c. Crop substitution In the crop year 1984/85, Thai government started the cassava planting reduction plan by introducing other high value crops such as hybrid maize, mungbean, peanut, jute, sesame and castor bean in 23 provinces of the cassava planting area with the target area of 52,800 hectares in the first two year and 160,000 ha per year in later years (OAE, 1988). Other government agencies supported this policy by providing low price of fertilizer, short and long term loans, borrowing seeds, cheaper prices of chemical use and intervening the market if needed. In later years, rubber plantation was also introduced to cassava growers in 3 provinces in the Northeast where are the main cassava planting area under financial support from EU (1990-1997).

2.3.8.2 Marketing-related policies

a. Standards of cassava products To control the quality of export cassava products, Thai government set the first standard of cassava pellet and chip in 1962 and has continued improving the standard in order to maintain the export market.

b. Special export quota to EU

Due to limited import quota of the EU, there was an oversupply problem for cassava products. To solve this problem, the Ministry of Commerce Thailand allocated the special export quota to the EU for exporters who can export the cassava products to non-EU markets with the ratio 1:1 in 1984 and increase to be 1.25: 1 in 1985 (OAE, 1988). This incentive measure resulted in increase of the export quantity to non-EU market from 0.77 million ton in 1984 to 1.99 million ton in 1985 (OAE, 1988) and expansion of the cassava products export to new markets in Asia such as Taiwan, Japan and South Korea which are now important markets of Thai cassava products.

c. Price support

In 1997, there was an oversupply of cassava root depressing root price to go down to 0.69 Baht per kg. To protect the farmers, the Thai government by the Ministry of Commerce intervened in the purchasing cycle by providing soft loans to starch factories to encourage them to purchase roots at 1.00 baht per kg. This situation was short term, as in a few months later, environmental conditions being affected by El-nino climatic conditions led to a reduction in cassava production and subsequent increase in root price (Klanarong et al., 2000).

d. Futures market

To enhance the efficiency of the agricultural market system, the Department of Trade, Ministry of Commerce, has established the Agricultural Futures Exchange of Thailand (AFET) as a tool allowing those who involved in agricultural trade both domestic and foreign countries to use future contracts to reduce price risk. AFET started its operation on 28th May 2004 with Natural Rubber Ribbed Smoked Sheets No. 3 as the first underlying product, followed by White rice 5 per cent broken in the same year (Nitus, no date). Cassava starch premium grade have been traded since March 2005 and recently (August 2006) cassava chips also entered into the AFET.

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2.3.8.3 Processing-related policies

a. Controlled expansion of cassava processing factory To control the processing of cassava products and enhance their quality to reach the setting standard, the Ministry of Industry has issued the cassava product policy to temporarily suppress new establishments or an expansion of cassava chip factories, except if done by registered farmer groups or agricultural cooperatives. The establishment of a starch factory is only allowed under the conditions of high technology use and within existing cassava planting areas. Nevertheless, new establishments or an expansion of a hard pellet factory is allowed due to the high export demand.

2.3.9 Conclusions: cassava

Thai cassava products mainly have depended on export market. The large scale exports to EU was a driving force behind the growth of the cassava chip and pellet industry and also have encouraged farmers to grow cassava rather than other cash crops. The high export demand has increased domestic prices and prevented the use of cassava products in the country. The changes of EU policy in 1993 led to decrease of cassava pellet demand as well as its price which affected the entire cassava production industry. A shift of cassava processing from pellet to starch due to the free trade environment contributed to the development of native starch industry which resulted in the development of the basic material for further processing into high value-added products and modified starch. The domestic use of cassava products as animal feed needs to be encouraged, especially by the government, to reduce export dependency and to free up the use of maize for other domestic or export purposes.

There are still some limitations concerning the Northeast production of cassava. There, cassava production is still presently done mainly by hired labor, especially in the Northeast. High competition for labor during its peak demand will increase the wage and lead to increase of total production cost. To reduce production cost, it is necessary to reduce labor requirements for production, through the development of effective labor-saving technology such as mechanical and chemical weed control, planting and harvesting tools suitable for Thai cassava farmers.

As cassava is well adapted to low fertile soils, most of farmers in the past had not applied fertilizer in their farms for cassava production which has resulted in nutrient depletion and a decline in soil fertility and finally resulted in lower yields and income. There has been several research on fertilizer use and yield response as well as on returns on different rates of fertilizer application. Such research provided basis for recommendations on use of fertilizers to get the best returns of cassava production. However, most of cassava farmers still apply fertilizer at the lower rate. To find out the reasons of low rate of fertilizer application by cassava farmers, a study on farmers’ adoption of fertilizers should be carried out. Beside the use of chemical fertilizer, some cassava farmers apply animal manure or compost with good results, but little research has been conducted to determine optimum rates of application and methods of application. Even though animal manure tend to have low nutrient contents, they may improve the physical conditions of the soil but this has not been well documented.

The success of cassava production and trade in Thailand can be attributed to the fact that its final products are quite diversified with different clients and users. This enables the

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export markets to be more differentiated and exports earnings more stable. Still, further progress in production technology is yet needed.

Box 2.3 How could cassava become so dynamic in Thailand, especially in the Northeast Thailand?

Cassava is not a staple food for Thai people, but Thailand is the world’s third largest producer. It was produced as a cash crop mostly by small farmers. About 80% of the production is exported. The cassava production in Thailand increased steadily during the 1970s and 80s in respond to a growing demand for cassava products to be used in the animal feed industry of the European Union, as well as a favorable tariff structure. As cassava have excellent properties in drought tolerance and ability to grow in poor soil which are the characteristics of the Northeast upland, cassava production with low investment expanded rapidly into upland areas of the Northeast. Moreover, Northeast farmers easily adopted the cassava as an alternative cash crop because it is also well adapted to the local socio-economic conditions as it has more flexible labor requirements compared to kenaf, thus allowing farmers to work off-farm during slack seasons. Apart from high demand of the EU and suitable properties of cassava for the Northeast resources, active research is also important factors contributing to the dynamic of cassava. Thailand has always been striving for better development of cassava cultivars. The breeding program to enhance starch yield and adaptability to a wide range of growing conditions was started in 1975 by the department of agriculture in cooperation with Kasetsart University and CIAT. Several hybrid cultivars were released and distributed through the department of agricultural extension. These new hybrid cultivars have been well adopted by farmers and resulted in the higher average yield at 16.2 t/ha in the Northeast which was higher than the World average at 10.2 t/ha in 2000. In addition, agronomic researches, such as land preparation, planting method, fertilization and weed control, have been also studied aiming to develop production technology that lead to high and stable production using the best available cultivars. The technology has been developed to be suitable and affordable for the small farmers as the major beneficiary. More emphasis is now being given to soil fertility maintenance, erosion control and labor-saving technologies. In respond to the decreasing demand of cassava chip and pellet from EU market, cassava products have been improved to be more diversifying in the form of starch as well as other transforms to obtain higher added value. The Thai Tapioca Trade Association and the Thai Tapioca Starch Association are actively private institutions involved research and development of starch industry as well as explored new market opportunity. Also, Thai government has encouraged and provided financial support through the Thai Tapioca Development Institute to promote export of cassava products to new markets, especially in Asia. In summary, high export demand to EU with favorable tariff structure, distinctive feature of cassava which is suitable for Northeast uplands, and active research and development of Thai government agencies with cooperation of private sector and foreign institution as well as supporting policy from Thai government are the important factors contributed to the dynamic of cassava.

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2.4. Sugarcane

2.4.1 Sugarcane production 2.4.1.1 Planted area

Sugarcane is one of the major field crops grown in Thailand. In the North and Northeast, where sugarcane is mainly cultivated under rain-fed conditions, the planting time is at the end of the rainy season, October-November. The remaining moisture in the soil supports the germination of cane and guarantees its survival through the dry season. In the central region, sugarcane is planted between February and April under irrigated conditions, and from April to May under rainfed conditions. (Food Market Exchange, 2006). The average cultivation period is about 10 to 14 months depending on the variety of the cane. Farmers generally grow only one or two ratoon crops, and as a result they can change area planted relatively quickly in response to world price changes (FAO, 1997). Sugarcane grows well in deep, well drained soils of medium fertility with loamy to loamy-sand soil textures with a pH ranging between 6.1-7.7 and an organic matter content of at least 1.5 percent (Food Market Exchange, 2006). Until recently, the central region was the main sugarcane planted area. In 1996/97, the planted area in this region was about 43.9 percent of the total sugarcane planted area in the country, while the northeast accounted for about 32.7 percent. According to data from the Ministry of Agriculture and Cooperatives, a significant area expansion was observed from 1996/97 to 2002/03 in the northeast region, while the central region showed a declining trend. In 2004/05, the sugarcane planted area in the Northeast accounted for 36.9 per cent or about 393,684 hectares, and 35.8 per cent or about 382,159 hectares in the central region, followed by 27.3 per cent or about 291,006 ha in the North. From 2003/04 to 2004/05 there was a tendency of declining in planted area in all regions due to the weather conditions (see Table 2.4.1). The sugarcane planted area in the Northeast region covers the provinces of Nakhon Phanom, Sakol Nakhon, Nong Khai, Udon Thani, Nong Bua Lam Phu, Loei, Mukdahan, Yasothon, Amnat Charoen, Kalasin, Khon Kaen, Maha Sarakam, Roi Et, Buri Ram, Chaiyaphum and Nakhon Ratchasima. The largest producing province in the region is Udon Thani with a production of 5.23 million ton of sugarcane. Table 2.4.1: Planted area of sugarcane by region Unit:m.ha

Year Northeast North Central South Country

Total 1996/97 0.32 0.24 0.44 - 1.01 1998/99 0.33 0.21 0.37 - 0.91

2000/01 0.32 0.19 0.37 - 0.87 2002/03 0.46 0.23 0.43 - 1.13 2004/05 0.39 0.29 0.38 1.06

Source: Office of Agricultural Economics, Ministry of Agriculture and Cooperatives (cited in Pornnarong, 2006)

2.4.1.2 Production and yield The regional share of sugarcane production shows a similar pattern as the planted area. The northeast region constituted the highest percentage of the sugarcane production of the country in 2004/05 (see Table 2.4.2). During the period of 1996/97-2003/04, a continuous increase in production was observed in this region, while the central region’s production decreased. This increase was largely due to the expansion of area. The fast expansion of sugarcane in this region is due to the fact that sugarcane can grow well under poor soil conditions without irrigation in the upland area (Nongluck, 2002). Throughout the period

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of 1996/97-2002/03, increasing yields were observed from all regions. The average yield in the Northeast region, for instance, increased from 54.5 to 66.1 ton per ha in this period. However, there is a dramatically drop of yield in 2004/05 in all regions. This may come from the problem of drought in this year (see Table 2.4.3). According to forecasts of Pornarong (2006), total production in the northeast is expected to decline by 16 percent to around 15-16 million ton in the next three years (2007-2009) due to drier weather conditions.

Table 2.4.2: Sugarcane production by region Unit: m. ton

Northeast North Central South Country Total

1996/97 17.8 13.4 25.2 - 56.4 1998/99 18.9 11.4 20.1 - 50.3 2000/01 18.2 10.4 21.0 - 49.6 2002/03 31.0 15.0 28.3 - 74.3 2004/05 18.4 13.8 17.4 - 49.6

Source: Office of Agricultural Economics, Ministry of Agriculture and Cooperatives (cited in Pornarong, 2006) Table 2.4.3: Sugarcane yield by region

ton/ha

Northeast North Central South Country Total

1996/97 54.5 55.9 56.8 - 55.8 1998/99 57.0 53.9 53.5 - 54.9 2000/01 56.9 55.0 57.1 - 56.6 2002/03 66.1 63.8 64.9 - 65.2 2004/05 46.7 47.4 45.5 - 46.5

Source: Office of Agricultural Economics, Ministry of Agriculture and Cooperatives (cited in Pornarong, 2006)

2.4.1.3 Farm size, technology and management According to TDRI (2000), sugarcane farms in the Northeast are mostly classified as small to medium with land areas of 1-20 rai (or about 0.16-3.2 ha) and 21-50 rai (or about 3.36 -8 ha) respectively. Unlike other regions, sugarcane production in the Northeast is particularly labor intensive owing to two main factors: first, abundance of labor and low wages in this region leads to lower costs of production as compared to the rest of the country. Second, sugarcane is cultivated primarily in the upland areas of the Northeast, which prevents farmers from using heavy machinery such as planting and harvesting machines. Hired labor is common practice especially for planting, harvesting and transporting. In sugarcane farming, cane varieties used by farmers vary according to location, availability of water, and pest and disease infestation. Sugarcane research centers under the Ministry of Agriculture and the Ministry of Industry have continuously released hybrid varieties of cane to farmers. Main characteristics of cane hybrid varieties are increased weight, higher sugar content, and resistance to pests, diseases, and drought. In the Northeast, drought tolerance is the major desired characteristic, followed by increased weight, and resistance to diseases. In general, farmers reproduced their own propagation material for the next planting season which caused the problem of pest and disease accumulation, resulting in low productivity. The desire to cope with this problem is one of

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the major driving forces to adopt new cane varieties (TDRI, 2000). The Office of the Cane and Sugar Board under the Ministry of Industry reported that during the crop-year 1998-1999 the most common variety in the northeastern region was Phill 66-07 (an imported variety), occupying more than 40 per cent of the total planted area. The second most popular variety was U-Thong I (a hybrid variety), which accounted for 13 percent, while other varieties combined were planted on the remaining 47 per cent (Paitoon, Aroon and Decha, 2001). The main input used for sugarcane production is chemical fertilizer (N-P-K) in various formula such as (15-15-15), (46-0-0), (21-0-0), and (16-20-0). On average, the farmers applied chemical fertilizer at the rate of 70-74 kg per rai (or about 440-460 kg per ha). No strong differences in the level of fertilizer application were observed among farms with a land area below 300 rai (or 48 ha). In the large-scale farms with a size above 300 rai or above 48 ha increases of application rates to almost 100 kg per rai (or about 630 kg per hectare) were reported (TDRI, 2000).

2.4.1.4 Production cost According to information from Paitoon et al. (2001), total production cost of sugarcane production in the Northeast in 1999/2000 was about 3,293 baht per rai. Variable costs including labor and materials is accounted for more than 80 per cent of total cost, while fixed cost, such as depreciation and land rental, is accounted for less than 20 per cent. This production cost structure reflects that sugarcane production in this region relies primarily on labor intensive technologies as the major cost share at 44.7 per cent is attributed to labor costs. Investment in capital intensive technology such as farm machinery or other equipment is not the case in this region reflecting in the depreciation of agricultural tools contributing to only 6 percent of the total cost (see Table 2.4.4). Apart from the production cost, farmers face two more major cost factors which are cutting/loading and transportation costs. Cutting and loading represent the highest share of the variable costs. Since the transport of the raw material requires bulk carriage, growers often lack family labor and need to hire extra workers for cutting and loading. The labor cost for cutting and loading is estimated at an average of 85 baht per ton, which is about 13-14 percent of the total costs. In addition, farmers have to pay at least 180-220 baht per ton for transportation costs, independent from the distance between farm and processing facility. Hence, total costs for cutting, loading and transportation are in the range of 265-305 baht per ton. With 43-48 percent of the total costs, these costs represent a significant cost factor for smallholder families (Paitoon, Aroon and Decha, 2001). Nongluck (2002) argued that other crops, such as mungbean and groundnut, are more profitable than sugarcane, but they require good soil and water conditions and farmers have to find a market by themselves. Notwithstanding farmers find sugarcane more attractive as it can grow well even under poor soil and water conditions. Marketing is relatively secure under the contract farming system with sugar mills. These advantages are the major reasons why sugarcane has been widely extended in the Northeast.

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Table 2.4.4: Average costs of sugar cane production in the north-east region, 1999/2000

Items

Average cost of cane production over three-

year period (baht per rai)

Percentage of total production

costs

1. Total labour costs 1,472 44.7 2. Materials 1,015 30.8 3. Other variable costs 246 7.5

Total variable costs 2,734 83.0 1. Depreciation of agricultural tools 193 5.8 2. Land rental 365 11.1

Total fixed costs 559 16.9 Production costs 3,293 100

Average output (ton per rai): 7.75 Average cutting and loading costs (baht/ton) 85.00 13-14

Average other costs 340 53-56 Cost of production (baht/ton) 425 66-70 Transportation costs (baht/ton) 180-220 30-34 Total costs (baht/ton) 606-646 100

Source: Office of the Cane and Sugar Board, Ministry of Industry, Thailand, survey carried out in 1999/2000-2001.(cited in Paitoon, Aroon and Decha, 2001)

2.4.2 Sugarcane price and profit The price of sugarcane is based on a provisional price announced by the Government and the quality and sweetness as measured by Commercial Cane Sugar (CCS) units.

Cane with

a higher CCS will fetch a higher price. The farm gate price of sugarcane has fluctuated since 1991, according to statistical data from the Office of Agricultural Economics (OAE). The lowest level of Thai sugarcane price was recorded in 1991/1992, with 336 baht per ton as a result of weak demand and oversupply in the market. Due to strong demand during the period of 1997/98, the price of sugarcane increased dramatically with 507 baht per ton. To solve the problem of price fluctuation, the system of zonal pricing was introduced in 1996/97. Under this system, prices are announced by the government. In 1996/97 the price of sugarcane in the northeast region was at 575 baht per ton and the farm price increased to 668 baht per ton in 2004/05 (see Table 2.4.5). Under the control pricing system, farmers can expect a stable and secure income which is an important explanatory factor for the expansion of sugarcane production in the Northeast. Margin or profit the Northeastern farmers received was about 1,259 baht per rai (or about 7,868 baht per hectare) or about 168 baht per ton in 2004/05.

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Table 2.4.5: Average final price of sugarcane by zone

Zone Number of Sugar

Mills Sugarcane Prices (Baht/Ton) at 10 C.C.

1996/97 1998/99 2000/01 2002/03 2004/05 North 1 4 572.12 495.15 678.10 539.14 672.78 North 2 3 535.57 449.2 678.10 518.30 647.77 North 3 1 526.47 459.43 678.10 518.30 647.77 North 4 1 541.77 483.43 678.10 531.76 655.83 North 5 1 526.25 454.78 678.10 531.76 655.83 Central 1 1 514.65 478.49 678.10 531.76 655.83 Central 2 1 551.82 499.91 678.10 531.76 655.83 Central 3 2 564.93 464.7 706.85 532.63 646.16 Central 4 14 567.05 493.44 633.00 507.25 635.37 Central 5 1 538.81 478.44 680.00 547.17 666.59 East 5 556.66 488.28 697.38 544.82 655.31 Northeast 12 575.29 488.37 685.04 529.16 668.17

Note: Average Final Prices of Sugarcane by Zone was firstly applied in 1996/97.

Source: Office of The Cane and Sugar Board, Ministry of Industry (cited in Paitoon, Aroon and Decha, 2001)

2.4.3 History of sugar production and processing

Sugar production in Thailand has a long-standing tradition. It was first established as a cottage industry during the Sukhothai era (A.D. 1257-1350). Since then the production has been gradually expanded and only shifted to commercial scales in the past century. From 1930-1935, total sugar output was only 40,000 ton per year, while about 25,000 ton of sugar was imported from Java, Indonesia. A new era began in 1937 when the first modern sugar mill with a milling capacity of 800 ton of cane per day was launched. The initial objective was to develop an import substitution industry. Since then, sugar production has been increased as a consequence of technological innovations, productivity growth and general economic development. In 1960, Thailand became a net sugar exporter and the industry was found exporting white sugar for the first time in the following year (Pichai, 1997, and FAO, 1997).

In Thailand, sugar mills include both refineries and cane crushing mills. As a result, the raw material goes directly for refining. By using power from the mill the refining costs are reduced. Currently there are 46 mills in operation with an estimated daily crushing capacity of 571,190 tons. This compares with 42 mills at the beginning of the 1980s and a capacity of 196,561 tons. During the 1980s, the significant increase in mill capacity met the crushing requirements for expanding cane output, including harvesting peaks. In the northeast region, a total of 13 sugar mills are located in seven provinces of the northeast namely Buri Ram, Udon Thani, Mukdahan, Kalasin, Khon Kaen, Chaiyaphum, and Nakhon Ratchasima. In 1999/2000, the annual total processing capacity of these 13 mills was about 21.51 m. ton of sugarcane which turns into 0.65 million tons of raw sugar, 10.98 m. ton of refined sugar, 2.84 million tons of white refined sugar, and 0.92 m. ton of molasses (Paitoon, Aroon and Decha, 2001).

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2.4.4 Sugar cane marketing

2.4.4.1 Marketing channels The marketing channels of sugarcane are characterized by a relatively simple structure. Sugarcane farmers sell the raw material to the sugar mills either directly or through the quota of the so-called quota-men (who can be both farmers or non-farmers) as shown in Figure 2.4.1. After the sugarcane is processed, the sugar mills can sell their product to two different markets; market for domestic consumption and market for export. The issue of marketing channels will be discussed more in section “Quota for domestic consumption and export”.

2.4.4.2 Domestic consumption Thailand's domestic sugar consumption has increased from 0.88 million tons in 1987 to 1.85 million tons in 2002 (FAO, 1997, and Food Market Exchange, 2006). This dramatic rise is due to population growth and the rapid economic development which has increased the demand for processed foods and beverages containing sugar. Notwithstanding this increase of domestic consumption, its share in the total production has not changed throughout the period of 1987 to 2002. The domestic consumption accounts for about 30 per cent of the total sugar production, while about 70 per cent is exported. Apart from white and raw sugar, molasses – a by-product of sugar production – has recently gained a higher value due to the government policy to promote ethanol for gasoline substitution. This policy has triggered strong demand for molasses within the country. To date, there are 24 ethanol plants registered under the Ministry of Energy. Four of these plants now supply molasses-based ethanol (capacity of around 400,000 liters/day) to domestic oil refineries for gasohol production, which is a mixture of 10 percent ethanol and 90 per cent regular petrol. Ethanol is used to replace imported Methyl Tertiary Butyl Ether (MTBE) in gasoline (Pornarong, 2006).

Sugarcane farmers Quota-men (famers)

Quota-men (non-farmers)

Sugar Mills

Figure 2.4.1 Marketing channels of sugarcane

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2.4.5 Sugar export

2.4.5.1 Composition and growth

Sugar products for export are in three forms, raw sugar, white sugar, and molasses. During 1983-1989, raw sugar accounted for more than 85 percent of total exports. From 1993-2002, a decline in raw sugar for export could be observed, while white sugar for export increased dramatically over the same period. The share of exported white sugar in the total sugar export value increased from 24 to 51 percent from 1993 to 2002. The share of export value of molasses rose from 4 to 8 percent, whereas the share of exported raw sugar in the total export value of sugar declined from 70.8 to 40.3 percent during the same period. The total sugar export value nearly tripled from 12,741 m. baht in 1993 to 32,044 m. baht in 2002 (see Table 2.4.6). Notwithstanding this overall trend of increasing exports, the main reason is from changes in exchange rate. According to Viroj (2000), Thailand's sugar export had been growing in the past two decades and the country has become one of the top five of the world's largest exporter. The confidence was strengthened when the Thai Baht was floated in mid-1997 and it looked like the industry stood to gain from a weaker Baht because of its strong export orientation. From late 1997 until early 1998 the value of the Baht depreciated by as much as 50 percent. All of a sudden, the export price, which had been substantially below the domestic price for almost 20 years, rose drastically, resulting in a shortage of sugar in the domestic market.

Table 2.4.6: Export Value of Sugar Products Unit: million baht

Year Molasses % Raw

Sugar %

White Sugar % Total

1993 556 4.3 9,031 70.9 3,152 24.7 12,741 1996 1,976 5.8 19,959 58.6 12,122 35.6 34,058 1999 781 3.6 11,354 52.3 9,541 44.0 21,677 2002 2,668 8.3 12,935 40.3 16,440 51.3 32,044

Source: Department of Customs (2005)

2.4.5.2 Export market

Thailand has been one of the top five-sugar exporter for several years. Main destinations for Thai sugar exports are the USA, the Philippines, Cambodia, Lao PDR, Japan, Myanmar and Germany. In 2000 and 2001, the USA continued to be the biggest market for Thai sugar. The Thai Customs Department reported that Thailand’s sugar export industry gained about 430 million Baht in 2001, compared with 460 million Baht in 2000 showing a 6.6 percent decrease. The total value of sugar exports from Thailand to foreign markets during January - October in 2002 was around 358 million baht. The values of Thai sugar export to some markets in 2001 such as Japan, China, Cambodia, Vietnam and Singapore has increased by 24, 1,038, 621, 6,714 and 122 per cent, respectively. The high export value to China is explained by the fact that total sugar production in this country does not match domestic demand. A further increase of sugar exports from Thailand to China is expected when it becomes a member of the WTO, as control over sugar import will be released (Food Market Exchange, 2006 and FAO, 1997).

2.4.6 Farmers’ institutions Contract farming is popular in Thailand’s sugar sector, since mills do not produce their own cane, but contract from growers. The sugarcane market in Thailand was a buyer’s

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market before the establishment of the Sugarcane Farmers Association. The cane price was set by sugar mill managers while sugarcane farmers had no bargaining power as sugar mills are the only buyers of raw material. In addition, farmers had to agree with the price set by sugar millers, since sugarcane rapidly loses its sugar content and thus should be processed immediately after harvesting. Some cane sellers had earlier received a production credit from their contracted managers and were obliged to sell their product to them in order to pay back the debts. After the establishment of the Sugarcane Farmers Association, the sugarcane price was determined through negotiations between representatives of the Sugarcane Farmers Association and the representatives of private mills, while a government official played the mediating role. There are three groups of sugarcane farmers: members of the Sugarcane Farmers Association, members of the Farmers Agricultural Cooperative and independent cane farmers who are not members of either body. These groups can be further differentiated into farmers with or without quotas from sugar millers (Food Market Exchange, 2006). According to Nongluck (2002), sugar growers in the Northeast region can be divided into four groups; 1) independent growers, mostly small-scale farmers who sell sugarcane as a ‘green crop’ to quota growers so they do not have to handle the harvesting costs, 2) cane growers with production quota; the smallest quota level is 100 tons or the equivalent of 10 rai (1.6 ha), thus many farmers who have their fields in close proximity of the factory are quota growers, 3) large-scale growers are farmers with a high production quota from the factory. They usually buy from small-scale growers to expand their production. They are well equipped with farm machinery, have a good market network and can hire labor, 4) factory-managed farms. Most sugarcane growers in the northeast region are classified as small-scale farmers selling their products to quota-men (Paitoon, Aroon and Decha, 2001).

2.4.7 Milling and refining sector Structurally the milling and refining sector comprises a mix of state and private ownership groups. At present, among the total of 46 mills, 3 mills belong to the government, and the rest are under private own. 13 of the total of 46 mills are located in the northeast region. The milling and refining sector in Thailand can be described as technologically advanced. The wave of mill expansion and modernization started in the late 1960s and early 1970s and continued in the late 1980s and 1990s as a consequence of rising world sugar prices and the special incentives of Thailand’s quota system. Since the domestic retail price of sugar is fixed, usually above the world market price, and the system allocates domestic sugar quotas based on actual mill production, a race by mill owners has set in to expand capacity. To ensure that the supply of raw material met their expanded capacity, millers have subsidized the expansion of cane planting. The adverse effect of this subsidization was that sugarcane supply has increased without improvements in quality. Notwithstanding their endowment with the technology, the overall efficiency of the mills have remained low (Doner and Ramsey, 2004). Regarding the issue of competitiveness, the Thai sugar industry emerged in the 1950s as an oligopoly with four family-based firms, but it rapidly became quite competitive among themselves in the market. At present, the 46 sugar mills in Thailand are organized into three millers’ associations, catering to the interests of the three largest milling groups. The three associations cooperate exclusively on issues where they see clear economic benefits:

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lower sugarcane prices, higher domestic sugar prices, and lower taxes (IIED et al., 2004 and Viroj, 2000). Mitr Phol Sugar Groups have held the top position in the Thailand sugar industry in terms of market share of sugar products for several years in a row. Their five large mills are located in the Central Region and Northeastern Region. The Groups also own and operate warehouses and transportation facilities to serve the groups’ mills and other sugar exporters. It is estimated that one quarter of all sugar manufacturers in Thailand utilize Mitr Phol Groups’ services (Iwade et al., undated).

2.4.8 Sugarcane and sugar policies The sugarcane production and sugar industry has been heavily controlled in many aspects by the Thai government in order to achieve various objectives, namely improving farmers’ livelihoods through revenue sharing policies, ensuring consumer’s welfare through quota policy, and enhancing economic growth through sugar export promotion.

2.4.8.1 The 70/30 revenue sharing system and CCS system In order to solve the problem of price bargaining between millers and growers, the Sugar Act of 1984 introduced a 70/30 revenue-sharing scheme. Under the scheme, growers receive 70 percent of the revenue from domestic and export sales of sugar and molasses, less costs and taxes, while the mills earn the remaining 30 percent. Upon delivery of cane to mills, growers receive an initial payment calculated on a base price negotiated by the government. This advance payment is not to be less than 80 percent of the share expected at the end of the season. If the actual “season-average price” is lower than the base price, the difference is adjusted in the following season. The Sugar Act of 1984 also makes provisions for a 21-member Cane and Sugar Board composed of nine growers, seven government, and five mill representatives, which controls cane production levels, enhances quality improvements, and proposes measures to reduce production costs to make exports more competitive. One recent target set by the Board was to limit cane production to zones within 100 kilometers of a mill to reduce transportation costs

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Box 2.4 Sugar Pricing: negotiation for revenue-sharing

A revenue-sharing system was established in 1982, shortly before the promulgation of the 1984 Cane and Sugar Act which empowered the government to act as both the regulator and mediator in the Thai sugar market. Rules for negotiation between cane growers and sugar mills are set up by government agencies. From 1984-1999 the government maintained a high domestic price of refined sugar—at 13 Baht/kg—, which was substantially higher than the export prices, except for a brief period in late 1997 and early 1998, during the peak period of the Asian crisis. The fixed domestic price stabilized growers’ and millers’ income at a relatively high level. During this time, the revenue-sharing system helped solving conflicts between growers and millers and has contributed to the industry’s expansion in the 1990s.

Though both growers and millers have benefited from the system, neither side was entirely satisfied with it, demanding a higher share in the revenues. Occasionally, negotiations between growers and millers or even within each group got rather intense, which included different sorts of strategies, such as walkouts during negotiation meetings, mass resignations, or even closing down the mills.

Two related problems make the existing revenue system ineffective at certain times. First, the system loses its effectiveness when the export price is higher than the domestic wholesale price, because sugar is withdrawn from the domestic market. Second, the growing Thai sugar industry increases the share of production that needs to be exported, which enhances the volatility of the revenues from the system and decreases the average sugar cane price. This is due to the fact that under the revenue-sharing system the cane price is derived from a weighted-average of the domestic sugar price and the export price, being lower than the domestic one.

Another conflict of interest exists within the revenue-sharing system. Cane growers’ most important objective is certainly to get the highest possible cane price. Under the existing revenue-sharing scheme, however, this is best achieved by limiting the supply of cane, as producing an extra ton of cane would result in more sugar to be exported at a lower price. The millers, on the other hand, are interested in making use of the full capacity of their mills, therefore calling for a higher cane production.

Source: Viroj NaRanong (2000)

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2.4.8.2 Pricing policy: commercial cane sugar (CCS)

In 1992, under The Sugar Act of 1984, the pricing system based on the quality and sweetness as measured by Commercial Cane Sugar (CCS) units was introduced. This system aims at stimulate productivity improvement. The standard price based on CCS is announced by the government. This price refers to the price paid to cane with a sugar content of 10 CCS units. Every additional CCS unit will receive an extra payment at the rate of 6 percent of the standard price. Cane with a sugar content of less than 10 CCS units is penalized at the same rate. In practice, growers are always paid the standard cane price as a minimum, regardless of their cane quality. In addition, the purity of the cane juice is also taken into account in setting the price. Freshly cut sugarcane has higher purity and produces more sugar than older sugarcane. Deterioration in the quality of sugarcane can be caused by improper harvesting and delays during handling and transportation. These factors influence the price and thus the income of the sugarcane farmers.

2.4.8.3 Capacity expansion and relocation of sugar mills During 1982/83-1985/86 the Central region had excess milling capacities. As a response, the Government sought ways to achieve a better balance between the milling capacity and the production of sugarcane. The changes in the government policy regarding the sugar industries are outlined as follows:

1) Building new sugar factories was prohibited. 2) Encouragement of the relocation of the existing factories from the region where

sugarcane production was insufficient to new production region where sugarcane production was abundant. The relocated factory was allowed to expand its production capacity to meet the local sugarcane production level.

3) Existing factories located in abundant sugarcane production area were authorized to expand their production to meet sugarcane supply.

4) Implementation of 2) and 3) should not enhance the expansion of sugarcane planting areas.

The revision of this policy in 1993 involved a zoning of sugarcane production. Relocation of sugar factories was confined to the delineated zones, such as the Northeast. As a result of this policy, relocation of sugar refineries to the Northeast, especially the Korat basin, has experienced a boom (Nongluck, 2002). Table 2.4.7 depicts the changes of number of sugar mills located in each region from 1982-1999. Although the government policy suggested that relocation of factories should not cause excess production of sugarcane beyond the production limit and must not encroach in forest reserves, the relocation went in fact along with an expansion of the capacity of relocated mills. To ensure supply and to take advantage of the attractive domestic quota, the mills encouraged area expansion through financial support for growers in various forms, such as free credits or loans with very low interest. As a result of the sugar mill relocation and capacity expansion policy, the Northeast has become a region with a rapidly rising cane and sugar production from the 1990/91 season onwards (FAO, 1997). In addition to the relocation policy, the government’s role in infrastructure provision in this region, roads in particular, is considered an important factor facilitating the sugarcane production and sugar industry in the Northeast.

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Table 2.4.7: Number of Sugar Mills by Region

Year North Central East Northeast Total 1982 8 21 9 5 43 1990 10 21 8 7 46 1999 10 18 5 13 46

Source: Office of the Cane and Sugar Board, Ministry of Industry (cited in Nongluck, 2002)

2.4.8.4 Quota for domestic consumption and export

In order to regulate domestic and export markets of sugar, the so-called “Quota Policy” is employed by the Thai government. Each season, the Government estimates production, domestic demand, and export commitments and then allocates sugar supplies to three quotas; Quota A, Quota B and Quota C. Under the Cane and Sugar Act (1984), annual export quota is determined by the Cane and Sugar Board. The export quota is obtained by deducting the estimated domestic consumption from the total production. The objective is to ensure that domestic demand is served, while the surplus can be exported.

a. Quota A for domestic consumption The Cane and Sugar Board is responsible for assigning the annual Quota A sugar for domestic sales. The marketing channel of Quota A is shown in Figure 2.4.2. This quota, referring exclusively to refined sugar, is allocated to mills by the Government at the start of each season on the basis of production capacity. In 1996, the Quota A was set at 1.6 million tons, and 1.75 million tons in 2001. Quota A sugar is sold under strict supervision of the Sugar Committee to ensure adequate supply around the year. The consumer welfare is further protected by a maximum price control for domestic sugar sales.

A year-to-year comparison of the sugar consumption shows a strong fluctuation of increase from as low as 0.3 per cent to more than 20 per cent. The average growth rate was about 8.5 percent per year for the 1982-1996 period. Sugar consumption is determined by two important factors, namely population growth and national income. The most stable period at a continuously high consumption increase of 9.25 per cent on average was from 1988-1995. This was due to strong demands from the export-oriented processing industry such as processed foods and beverages (FAO, 1997 and Pichai, 1997).

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Figure 2.4.2: Domestic Marketing Channel (Quota A) Source: Ammar (1993) cited in Supatra and Puangphet (1999)

b. Quota B and C for export

After Quota A is fulfilled, the remainder of the sugar production is allocated under Quota B and Quota C. The marketing channels of Quota B and C are shown in Figure 2.4.3. Quota B is divided into two parts; half of the amount is allocated to international sugar brokers and the other half is sold to local millers for export. The product is sold on behalf of the Thailand Cane and Sugar Corporation (TCSC) which has the overall responsibility for pricing and selling raw sugar under this quota. Quota C is for exportable surplus. The mills set their own prices of this sugar, but must pay growers at least the Quota B sales price assigned by the TCSC. These sales must be made by licensed exporting companies. Mills must meet production targets for Quotas A and B, before they are allowed to export under Quota C. Quota C (export) sales are usually concluded 6 months prior to the start of the crushing season in November by seven authorized exporting companies: The Thai Sugar Trading Corp., Ltd. (TSTC), Thailand Sugar Corp., Ltd. (TSC), Siam Sugar Export Corp., Ltd. (SSEC), the Sugar Industry Trading Co., Ltd. (SITCO), K.S.L. Export Trading (KSL), Pacific Sugar Corp., Ltd. (PSC) and TISS Co., Ltd. belonging to the Thai Identity Sugar Group of Companies which started its sugar exports in 1995 (FAO, 1997). .

Quota A (White Sugar and Refined Sugar)

Sugar Mill

Office of the Cane and Sugar Board

Big Industry Agent (Wholesaler)

Small Industry Retailer

Consumer

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Figure 2.4.3: Marketing Channel of Quota B and Quota C Source: Ammar (1993) cited in Supatra and Puangphet (1999)

2.4.8.5 Credit policy

Under the credit support schemes, sugar mills had easy access to credit from commercial banks which they used to provide the growers with credit prior to the sugarcane season. In early 1998, during Thailand’s economic crisis, the commercial banks abandoned loan provision to the mills, which, in turn, had to stop extending pre-season credits to farmers. As a response, the government ordered the Bank for Agriculture and Agricultural Cooperatives (BAAC) to provide pre-season credit to the growers for the 1998/99 season, a practice that continued throughout the 1999/2000 and 2000/01 seasons. Moreover, the Cane and Sugar Fund borrowed an additional amount of 10,300 million baht from the BAAC to pay growers an extra premium of 100 baht per ton cane for the 1998/99 and 1999/2000 crop years to comply with the government's promise (Viroj, 2000).

2.4.8.6 Sugarcane research

The government sector has played a major role in investing in sugarcane research. The total research budget in sugarcane had increased substantially from 4.07 million baht (or about 0.163 million US dollar with the exchange rate at 25 baht per dollar) during 1973-1977 to 48.32 million baht (or about 1.85 million US dollar with the exchange rate at 26 baht per dollar) during 1993-1997. Sugarcane research is under the responsibility of three main organizations, namely research centers under the Department of Agriculture, regional sugarcane centers under the Ministry of Industry, and Kasetsart University. About 10 varieties have been certified and released by these three research organizations. However, only 3 varieties have been adopted by farmers namely K 84-200, U-thong 1 and K 176-4. The private sector – sugar millers in particular – also started to invest in research in 1993. The main research focus has been to improve productivity of sugarcane through various

Sugar

Raw Sugar Quota B

White Sugar Quota A

White Sugar & Raw Sugar Quota C

Department of Industrial

Office of the cane and sugar board

Domestic Market

Thailand Cane and Sugar Corporation (TCSC)

Export Companies

Foreign Market

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aspects such as developing pest- and drought-resistant and more productive varieties (TDRI, 2000).

However, one can say that progress in sugarcane research and development in Thailand is lagging behind other crops. This shortcoming is due to several factors, identified by Doner and Ramsay (2004) and TDRI (2000):

Low and further declining R&D investment as compared to other crops; Low ratio of the sugarcane research budget to the value of output; Shortage of researchers: almost 30 percent of current researchers will be retiring

within the next five to 10 years, without the prospect of new researchers replacing them;

Lack of success in breeding programs due to (1) a lack of cultivars, (2) poor database on the history of each cultivar or hybrid, (3) lack of a photo-period laboratory, (4) limited cultivar/variety information exchange with researchers in other countries, and (5) lack of coordination or collaboration among researchers from different ministries.

As a consequence, only a few of about a dozen recently introduced varieties have actually been adopted to a significant extent by sugarcane growers. In principle, new varieties could also be developed by private firms, but the market failure problem is especially prevalent for sugarcane. Since sugarcane is propagated from vegetative material, the incentive to develop new varieties is limited as compared to crops propagated from seeds. Payoff from developing new strains of cane can take up to ten years or more from the start of the research to commercialization of the new variety. Research for new strains of sugarcane thus tends to be in the public domain (Doner and Ramsey, 2004). In conclusion, constraints from both public and private sectors with regard to sugarcane research are responsible for the failure to raise yields of sugarcane production.

2.4.8.7 Sugar industry under agricultural trade liberalization and rising demand for alternative energy sources

Since the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), agricultural trade liberalization has become a very significant issue globally. As a major exporting country of agricultural products, Thailand stands to benefit from agricultural liberalization, since most of the Thai agricultural products can compete in the world market with little or no subsidies. Even in the case of sugar where the two-price policy is considered a kind of subsidy scheme, the rate of subsidy is relatively low, when compared to the agricultural subsidies granted to farmers in the European Union (EU), the USA and Japan. Therefore, if all export subsidies and trade barriers were removed, the Thai sugar industry as a whole is likely to benefit from such a policy.

Although some interest groups in the sugar industry want to see trade liberalization postponed and retain the protection as long as possible, the Thai government will not be able to keep up subsidies or to protect the industry indefinitely due to its commitment to free trade. It is likely that after liberalization only the strongest and fittest in the industry will survive and benefit while non-competitive entities are likely to collapse and quit the market (TDRI, 2000).

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Finally, a major impact on the production of sugarcane is likely to arise from the growing demand for bio-fuel (e.g. ethanol) as alternative to expensive fossil fuel sources. The Thai government has recently started to promote gasohol (a mix of ethanol and conventional fuel) to reduce oil imports. Since sugar cane can be used as a raw material for ethanol production, the rising demand could further enhance the expansion of sugar cane production in the Northeast.

2.4.8.8 Impact of sugarcane and sugar policies Thai sugar has been protected since the early postwar period when Thailand was still a net-importer of sugar. The protection continued even after Thailand had become one of the world's major sugar exporters. The main policy objective is to stabilize domestic sugar markets, while allowing the respective governments to set relatively attractive producer prices to encourage sugar production (Ammar et al., 1991). The government also provides tax incentives to encourage exports and subsidized credit to millers and exporters. The tariff rate quota agreed upon under the WTO Agreement on Agriculture was 65 percent for ‘within quota’ imports in 1999 and 99 percent for ‘above quota’ imports. Despite high protection, Thailand’s costs of production are among the lowest in the world and comparable to those of Australia (Borrell and Pearce, 1999). High protection and low costs have led to rapid growth of production and more than a tripling of exports over the past two decades (Mitchell, 2004). Borell and Pearce (1999) stated that like other major exporters, Thai producers receive government subsidies at the expense of domestic consumers, but US American and especially Western European producers receive much higher government support in the form of significant export subsidies as shown by the relative wholesale prices of various countries to the world price in Table 2.4.8. Table 2.4.8 Wholesale domestic price and world price of sugar, 1997

Sugar Exporters Wholesale domestic price and world price (US dollars per ton)

Brazil 250 Australia 250 Thailand 300

Western Europe 600 USA 450

World price 300 Source: Borrell and Pearce (1999)

While global sugar prices have fluctuated over the past five years, the controlled domestic prices have remained unchanged. Sugar prices are currently around 5 baht/kg higher in neighboring countries. Sugar suppliers therefore lack the incentives to release the necessary weekly sales of 30,000 – 40,000 tons to the domestic market at the controlled price. White sugar is reportedly smuggled to Laos, Cambodia, and Burma, with legal border trade accounting for only about 10 percent of total sugar exports under license. Local consumers are inevitably adversely affected by the resulting sugar shortages, aggravated by retailers’ speculation on further official upward revisions of domestic sugar prices (Ponnarong, 2006).

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2.4.9 Conclusions: sugarcane

The success story of cane and sugar production in the Northeast is due to two major government policies; first, the relocation of sugar mills towards this region and their subsequent expansion of capacity. While this policy may have had adverse effects on income opportunities in other regions which had to cut back their sugarcane production, it makes sense in terms of supporting a marginal, poverty-stricken region that has been bypassed by green revolution technologies due to its difficult agro-ecological environment. Second, the cane pricing policy which also significantly enhanced the surge of sugarcane production in the Northeast as the relative price stability provides farmers in this region with a profitable alternative to other crops. A side effect of the quota system was the change of the institutional environment reflected in the establishment of farmers’ organizations which strengthened farmers’ bargaining power. As a consequence, cooperation between sugar millers and farmers has been enhanced. Improvements in infrastructure have also played an important role in the success of sugarcane production in the Northeast. Other supporting factors include relatively favorable climatic conditions and availability of land resources and labor. The abundance of labor, however, has also hampered the adoption of more capital-intensive, productivity-enhancing technologies in the Thai sugar sector, which has given a comparative advantage to other countries such as Brazil and Australia. Improving the production efficiency is therefore considered the first priority in the effort to maintain the competitiveness of sugar production in this region.

Finally, a major impact on the production of sugarcane is likely to arise from the growing demand for bio-fuel (e.g. ethanol) as alternative to expensive fossil fuel sources. The Thai government has recently started to promote gasohol (a mix of ethanol and conventional fuel) to reduce oil imports. Since sugar cane can be used as a raw material for ethanol production, the rising demand could further enhance the expansion of sugar cane production in the Northeast.

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CHAPTER III SUMMARY: DRIVERS FOR COMPETITIVE COMMERCIAL AGRICULTURE

IN THE REGION

3. Summary: drivers for competitive commercial agriculture in the region This chapter will summarize important drivers for changes for competitive commercial agriculture in Northeast Thailand dealing with the four major crops over the past four decades. Much of the details have been dealt with in Chapter 1 and 2. This chapter will sum up those drivers dividing between those relating to overall economy and those related to specific crops. While the relative importance of each driver is not easily established, it is in our opinion that the Thai government policies and their effective implementation were the most critical laying behind almost all drivers. They have enabled substantial public investment and facilitated foreign aid donors’ investment in infrastructure, education, agricultural research and extension, and also provided enabling environment for competitive commercialization in the agricultural sector. Next in its importance is perhaps the role of the private sector and how the private entrepeuneurs can operate in a competitive market environment. The latter is possible because the former as well. Both will be instrumental to other drivers e.g. technology generation and transfer, credit provision, marketing infrastructure, agroindustrial development, domestic and international competition, etc. The balance and collaboration between the public and private sector in needed support services, technology generation and business functioning is critical to the success of competitive commercial agriculture. 3.1 Drivers relating to overall economic framework The overall economic framework in Northeast Thailand has enabled stable and good growth in competitive commercial agriculture. This has been possible due to the following drivers. 3.1.1 Scope and directions in National Plans and policies The Thai governments have used National Plans as guidelines for development since 1961. They determine long term vision of the country and set priorities in terms of programs and projects. Examining these plans, there have been comprehensive in all sectors and they have been followed through especially in the 1980s onwards. There were periods where they were not much in use but they were exceptions. They laid good foundations on how the country should be developed. Most important for competitive commercial agriculture was in the Sixth Plan of 1987-1991 where many details were given on how the country should proceed if it wants to be successful in competitive commercial agriculture. Earlier plans were not as explicit on competitive commercial agriculture but emphasis was given to infrastructural development and productivity enhancement. Later Plans of 1990s and 2000s diverted emphasis on human development and sufficiency economy (UNDP, 2003) as the country diversified but exports and world competitiveness have always been promoted throughout. With the various governments and political parties in power during the last four decades, it is hard to attribute successes of Thailand as a free and competitive economy to any one government but in general, the country National Plans, policies has been well implemented

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through the ruling governments and their bureaucratic machineries. Many other drivers follow directly from these plans and policies. For National Plans and policies, the Northeast as a region is no different from other regions of Thailand (except Bangkok areas). It probably receives relatively more political attention (except Bangkok areas) from past governments as it is a biggest region, population-wise or area-wise with much more relative poverty and unrest. Being more lagged in development than other regions, to receive sufficiently adequate attention from the government has been a fundamentally important driver for regional development. A good and adequately strong political will is a necessary condition for development. In the case of Northeast Thailand, this driver has been satisfactorily accommodated within the national development plans and policies which have directed Thailand and its regions towards having a good enabling environment for productive and efficient economy. 3.1.2 Stable political and administrative institutions Political structure in Thailand over the last 40 years has been progressing for a more democratic system, although with ups and downs. The military involvement in Thai politics cannot be denied and sometimes imposes a set back to this democratic process. There were periods of political turmoils e.g. in the 1970s and again in 2006-2007 but otherwise the country has enjoyed relative political stability. The bureaucracy in Thailand has also served and ensured stability in the country’s administration despite the political upheavals. The administrative functioning of the country is relatively well performed over these years despite varying degrees of effectiveness. In times of full democratic process and elected civilian governments are in place, much attention is paid to poverty alleviation and agricultural development programs in the Northeast as the Northeast farmers constitutes the largest region in terms of the political votes, voices and representation. Northeast farmers’ rallies and protests always get good attention of the ruling democratic government for this reason. Nevertheless, urban-biased policies and budget allocation still exist at certain periods depending upon the composition of the ruling government, especially so when political representation cannot be instituted. 3.1.3 Adequate infrastructural development One can say that the Thai government, together with foreign assistance projects, has invested adequately in infrastructure since 1961. Rural roads and inter-provincial roads and highways have improved tremendously. They have enabled farmers to gain better access to market and information. While transportation and transaction costs have been reduced for the agricultural sector, the agricultural markets have expanded for both the output and input markets. Rural-urban transportation and migration has been facilitated enabling improved trade and services. The investment in basic public sector services e.g. electricity, postal services, schools, public administration, communication technology like radio, television, telephones is well distributed in all regions of Thailand and in the Northeast. Although irrigation projects in the Northeast region are lagging behind the Central Plain, there are improved facilities enabling dry season cropping in some areas. Much development in major crops in the Northeast does not however rely on such irrigation facilities. The national policy of infrastructure provision aiming at regional development has brought various benefits to the Northeast region. The expansion of the road network and

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improvements of road conditions throughout the region has facilitated sugarcane and cassava transportation from farms to millers. Benefits accrued are not only reflected in the reduction of transportation costs, but also in an increase of cane and cassava price obtained by farmers. For example, for sugar, after harvesting the sugar content and the weight of sugarcane start to drop quickly. Hence, the faster the raw material can be transferred to the mills, the higher the price farmers can get. 3.1.4 Freely functioning and export oriented markets The Thai governments have consistently supported free market orientation of the functioning of the economy. There were brief periods of trade protection in the 1970s but since 1980s, the governments have always promoted exports and not done substantial restriction to imports. With Thailand signing the GATT agreement and joining the World Trade Organization in 1995, the country is strongly into free trade competition paradigm. Exports are prime drivers of the economy. As such, the whole economy is geared towards competing in the world market. Farmers are used to common messages from the governments of “to be efficient” and “to be able to compete with the world market” and most would try to adjust themselves to such conditions although they also call for their members of parliament to help them in certain programs and projects. The private sector has been crucial to the free and export-oriented economy. The Thai governments have by and large supported the private sector functioning over the years since the First National Plan. 3.1.5 Active entrepreneurs The Thai economy, including the Northeast economy is much run by business entrepreneurs of all sizes. There are small entrepreneurs in the rural areas doing things like selling and buying of agricultural inputs and outputs, consumers’ items, milling, small-scale processing, hiring out of equipments, tractors, vehicles, etc. Medium-sized entrepreneurs in the district and provincial centers doing businesses with small entrepreneurs who dispose and buy products from them. There are large companies in provincial centers and Bangkok who operate their business nation-wide. The Thai economy has been relatively well run with its racial composition, the native Thai farmers doing production and the Chinese merchants doing the business. In the early days in the 1950s-1960s, there were some feelings that the Chinese merchants were taking advantage of the poor Thai farmers. Nowadays, intermarriage between Thai and Chinese makes the modern Thai more enterprising without being branded “Chinese” as opposed to “Thai”. 3.1.6 Well-run credit institutions The Thai governments, through the working of BAAC and other financial channels, have been able to provide adequate loans to rural farmers in the country and in the Northeast. Collaterals are not needed for small, annual loans as long as the farmers guarantee themselves in a group. The repayment rates for smaller loans have been good and farmers refinanced their loans from various credit channels available to them. For larger and more long-term loans, collaterals are needed. It seems that agricultural loans are necessary for modern-day agricultural production as farmers need to pay for many input items. Average debt per household nevertheless increased from 23,000 baht per household in 1993 to 45,000 baht per household in 2003 (Table 1.3.2). Share of informal credit to total credit decreased from some 90 per cent in 1960s to 14 per cent in 1990s. BAAC has been the

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most important source of institutional lending with the percentage of farmers’ borrowing from this source varies from 55-70 per cent in different years. Recently, village fund scheme initiated by the government in 2002 replaced some loans from BAAC (see Section 1.3.1.6) 3.1.7 Provision and support of both basic and advanced education, research and development Education among the Northeast population has improved at a fast rate as described in Chapter 1. While farmers are still mostly with low education but their sons and daughters are now better educated. They have better access to new information and technology. They are able to better participate in political process through better informed channels. Dealing with research, the Thai governments, through its research arms like Department of Agriculture and Universities, have given importance to agricultural research and development. Research in agricultural technology has been varied, diverse and substantial. The personnel in research are well trained and the governments place a good emphasis to personnel development with degree and non-degree training and scholarships—much with overseas training. Many foreign aid development programs deal much with personnel development. This has made the public research staff good caliber. Universities and research departments in the government have had good linkages. In the Northeast, Khon Kaen University staff have been leaders in agricultural research and development in the Northeast. Agricultural research in other universities in Thailand, also benefits the Northeast farmers as well. In many cases, the private sector has come strongly to invest in research in which the benefits can be accrued back to those invested. The case of maize hybrids is a good example. Much research has also been done by the private sector e.g. dealing with processing, machineries and marketing. 3.1.8 Progress of non-farm sector as supplementary sources of farm households’ income One positive driver to competitive commercial agriculture in Thailand and the Northeast is the growth of the non-farm sector. This has provided sources of income to farmers and they are able to offset some losses in the agricultural sector or able to some investment in their farms or can supplement farm income from non-farm jobs. The non-farm sector has provided cushions for farmers in time of risks and uncertainty induced by competitive world markets. Northeast farmers would seek non-farm jobs in urban centers in the dry months when agricultural activities are slack. Easy transportation between regions, availability of employment in urban areas as well as better telephone services in the rural areas make this possible. Northeast farmers with their close kin network help each other when they have to find jobs and be employed in big cities. 3.2 Drivers relating to specific commodities This section will highlight important drivers for competitive commercial agriculture in specific crop development as it reated to the four major crops in consideration.

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3.2.1 Good vertical coordination and domestic competition Growth and success in maize, cassava and sugar cane production and trade in Thailand and the Northeast have been very much development in vertical coordination of the industry involved. One sees in the case of maize, development of seed business, as well as of livestock industry is an example of backward and forward linkages where the development of a stage of industry creates demand for another stage of production. In the case of cassava, processing of cassava chips, pellet and starch has enabled the industry to add value to the raw materials and diversify products and markets. Sugar industry is very much vertical integrated. The differences in each commodity lie in the number of companies involved. In most cases, there are a few large companies involved in the final products although in none of the cases, there is a monopoly over production or markets of final or intermediate products. Good competition among the companies involved always exist. The relocation of sugar, cassava and maize feed mills in the Northeast and their subsequent expansion had enabled more growth of the production of such crops in the region. Table 3.2.1 summarizes the nature of marketing for each crop in each stage. In the rice market, many intermediaries are involved in marketing activities. Market intermediaries in each stage of value chain are important participants of the market. They play an important role in the rice market by providing buyers and sellers with good access to the market. At a local level, intermediaries include local buyers or assemblers, cooperatives, farmers’ organizations, central markets, millers, wholesalers and retailers. In many locations, farmers’ organizations carry out marketing activities, hiring or acquiring facilities, raising bargaining power by acting together, performing financial transactions, purchasing and operating transport vehicles and equipment, and providing storage. In addition, they sell directly their paddy rice to rice mills. At the regional level, large assembling market centers and large millers are major intermediaries. The country level includes commission agents, wholesalers and exporters. Contract farming does not play an important role in the rice market.

For cassava, seedling stocks are obtained from the farmers’ own fields from the previous-season harvest but it also can be bought from neighboring farms—to a lesser extent, they are obtained from commercial traders. The new improved varieties are usually freely distributed from government agencies and after that it will be distributed among farmers by local trade. For the cassava roots, most of the fresh roots are sold directly by farmers to chip, pellet and starch factories which are scattered around the production areas. In the areas where no processing factory is around, farmers generally sell the roots to local collectors who further sell the fresh roots to processing factories. Cassava chips from small-scale enterprises are sold to pellet factories which either directly export the chips or pellets or sell further to traders (Klanarong et al, 2000). In all levels of cassava value chain, markets are competitive.

In the case of maize, the input market is done by traders. Seeds are supplied by seed companies who usually produce it through contract farming with farmers. The sale of seeds is mostly competitive among different seed companies. Assembly is by local agents at sub-district, district, province or regional levels who buy maize from farmers and sell it to feedmill companies. Processing is done by feedmill factories which are oftentimes vertical integrated with livestock companies. Some livestock companies are vertically integrated with maize seed companies as well.

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Along the value chain of sugarcane production, the nature of the market system shows strong variations. The input supply is provided through competitive marketing channels, mainly by small-scale retailers. At the farm production stage contract farming is commonly practiced by small-scale farmers, while farmer organizations are put in place particularly for price negotiations. Assembling is done by quota-men who can be both farmers and non-farmers and also directly by millers. There are strong vertical linkages along the stages of production, assembling and processing. A quota system is applied to the final product for both domestic consumption and export. Milling companies have to fulfill first the quota for domestic consumption before they can sell their products abroad. The distribution of sugar products for domestic consumption is channeled directly to intermediate users (such as food and beverage companies) and to end users, such as consumers, via wholesalers and retailers. The domestic market is controlled through a price policy. Exports of sugar are in the hands of large-scale milling companies, export companies and Thailand Cane and Sugar Corporation. In summary, for these crops, input supply, farm production and assembly are done by competitive marketing channels mostly by individual farmers and traders. Only in the case of rice, farmers’ cooperatives are dealing with assembly and processing. Sugar farmers’ organizations deal mainly with price negotiation. In the case of sugarcane and maize seed production, contract farming exist at the farm and assembly level. In all crops considered, processing is an important stage of value chain with rice processing being smaller scale than maize and cassava processing. Sugar processing is done by large firms. For most crops, vertical integration exists for processing, wholesaling and exporting.

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Table 3.2.1 Nature of market in major crops by stage of value chain Stage of value chain Rice Maize Cassava Sugar Input market -Traders and

-Farmers’ cooperatives -Traders -Seed companies (production of seeds by contract with farmers) -Agrochemical companies

-Traders -Agrochemical companies -Neighboring farms for cassava stake

-Traders for agrochemicals, planting materials

Production -Small-scale farmers -Small-scale farmers 95% -Large-scale farmers (5%)

-Small-scale farmers -Small-scale farmers under contract farming -Farmer organizations for price negotiation

Assembly -Trader (village, district, provincial collectors) -Farmers’ cooperatives -Central paddy rice markets (which are either set up by private entrepreneurs or by government agencies

-Traders (village collectors, district collectors, provincial collectors

-Individual farmers sell directly to chips factories (40% of total fresh roots), pellets factories (5%), starch factories (26%) -Traders (village, district and provincial collectors/agents) (19%)

-Quota-men (non-farmers, farmers) -Milling companies

Processing -Private millers/companies -Farmers’ organization

-Feedmill companies -Livestock companies

-Private chip, pellet and starch factories

-Milling companies

Domestic consumption

Wholesalers/retailers/farmers’ organizations

-Livestock companies -Wholesalers/retailers -Livestock companies

-Food and beverage companies -Wholesalers/retailers

Export -Broker -Private companies (95 percent of export) -Government (5 percent of export)

-Private companies

-Pellet companies -Starch and modified starch companies -Brokers

-Milling companies/export companies for quota C -Thailand Cane and Sugar Corporation (TCSC) for quota B

Note: 1/ percent of total fresh roots in cassava assembling stage was cited from Kittika, 1996.

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3.2.2 Moving towards world market competitiveness The four crops discussed are all export-oriented crops. They are produced by small farmers but have been able to attain competitiveness in the world markets. The quality of exportable products has always been an issue of concern. Maize, for example, was one time suffering from the aflatoxin problem but was able to overcome it by having farmers and assemblers selling it to the big feed companies which had drying facilities. While much maize is now consumed domestically in livestock feed industry but when the chicken industry suffered a blow from the bird flu incidence, maize was then exported. Rice is always suffering from the high moisture content after harvest and this is overcome by having the produce dried in drying facilities belong to millers. Rice exports have been the biggest agricultural export item for Thailand for decades. Rice exports are also varied. KDML 105 rice is the main quality products although different grades of rice and prices are also available. Cassava was having problems to be exported to the EU countries after 1993 after the CAP reform, the ability to diversify the market to Taiwan, Japan and China enables the exporters to sustain and increase exports. The products were essentially changed from pellets to chips and starch. Diversification of products, markets and quality of exportable products are common threads in the four crops considered. 3.2.3 Supporting policies The Thai governments have always had specific commodity policies towards these major crops i.e. rice, maize, cassava and sugar cane. Some supporting policies were more successful than others. More common supporting policies have always been price support policies. Thai farmers and their organizations, in the country and in the Northeast region, always demand that the government assists them through price support programs. Many governments of the past had attempted price support programs, mostly without successes. The recent price support program deals with mortgaging the output at a guaranteed price. The mortgaged output would be kept in farmers’ storage barns until such time that the output would be sold to the market. Rice and maize have been subject to this program. It has had some successes to stabilize prices and ensure farmers’ access to cash without them selling the output at a low price. This program is more successful among rice farmers than maize farmers. This is because the coverage of the program for maize has been limited and the advantage of farmers joining the program has not been much. As for sugarcane, there is a set of tight regulations how price can be set at each level and in many ways is an example of best practices for farmers growing other crops as well. Sugar prices are negotiated prices among sugar factories, farmers’ organizations and the public agencies. Prices of the commodities are also managed indirectly through trade policies. Export and import duties and quota were instruments that the Thai governments have employed to control quantity and thus prices of the commodities. Maize import and export policies have been determined by the need for domestic supplies for livestock industry. Rice export policies were similar. Cassava support policies included at one time crop substitution and zoning so as to regulate supplies in the domestic and export markets although these policies were not so much successful. With the joining of the WTO and the entering into Free Trade Agreement with some countries like China, the Thai government has intervened less in the production and trade of these crops.

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A major policy for cane and sugar production in the Northeast is the stabilization of the price through the government’s market intervention. It has significantly supported the increase of sugarcane production in the Northeast by providing the farmers with a profitable alternative to crops with more volatile price schemes. As a by-product, the sugarcane quota system has triggered the establishment of farmers’ organizations which changed the institutional setup, strengthened farmers’ bargaining power and enhanced cooperation between sugar millers and farmers. Zoning of sugarcane production following the relocation of sugar mills in areas with abundant supply of sugarcane was also significant to boost sugarcane production in the Northeast. These supporting policies have facilitated better farmers’ adaptation to changing market situations for the cash crops. As the market is often volatile and farmers are quite vulnerable to market risks, these policies have helped easing farmers in times of difficulties. They have done less to distort the market. This conclusion is more valid for rice, maize and cassava but less so for sugarcane where government intervention was more pervasive. 3.2.4 Technology generation and transfer Keys to competitive commercial agriculture lie in advances in agricultural technology and its uses. One sees in Chapter 2 that many advances in technology have been available to farmers. New improved varieties, both hybrid and open-pollinated, have been available to farmers in all four crops. Some seed technology has been a product from the private sector research. With vertical integration, private sector has been quite active in research both in production and processing technology. Some technologies were developed from the public and international institutes through long years of research. Cassava varieties were developed as a joint effort of CIAT (International Center for Tropical Agriculture) and the Thai Department of Agriculture. Similarly, for maize and rice with CIMMYT (International Center for Wheat and Maize Improvement) and IRRI (International Rice Research Institute). These improved technologies are sometimes called “green revolution” technologies (Falvey, 2000) but they are instrumental to improvement in yields and income to farmers in Thailand and the Northeast. Moreover, technology transfer has been an active endeavour of the Department of Agricultural Extension-which has dispatched extension officers in all sub-districts of the country. The private sector has been particularly active when it comes to promotion of new commercial inputs e.g. hybrid seeds, fertilizer and chemical uses.

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3.2.5 Effective public-private sector collaboration Public-private sector collaboration in research, development and trade in the four crops, namely rice, maize, cassava and sugar cane, has been good. The government agencies are responsive to demands of the private sector, sometimes allegedly at the expense of farmers. The public sector fulfills roles which are not available from the private sector while the private sector is better off handling many things more efficiently than the public agencies. The public sector acts as a mediator between the private sugar companies and the farmers’ associations. It regulates what the private sector can or cannot do. Maize hybrid seed companies, for example, were more efficient in hybrid maize breeding research and were able to deliver and transfer the new technologies to farmers. They did need the governmental support and network in the beginning. This chapter has summarized important drivers to competitive commercial agriculture in Northeast Thailand. While there are many positive development and lessons which can be learnt, there are also points of cautions as well. Following many historical, demographical, and policy-related drivers, the Northeast agricultural economy has emerged as competitive smallholder based system. It is hard to pinpoint any one factor as more prominent than others in such a process. As said earlier, a major force came from governments’ supporting policies on public investment such as infrastructure, research, education, extension as well as policies on access to credit and land--some of these contributed by foreign aid projects. At the same time, the roles and functions of private entrepreneurs and merchants have been of crucial importance as they have provided for good marketing access, facilities together with needed private investment to achieve production and marketing potentials for the region. Nevertheless, the Northeast farmers themselves have been a fundamental factor of success in the whole process. They have been industrious, persevering, always well adapted to the changes in production and marketing situations of the region--often with hardships. They have been price- and technological- responsive, willing to adopt modern inputs and to accept the going market prices. They are able to produce cash crops under many technological and marketing contraints. Except for sugarcane, most other major crops have been produced by individual farm households without much influence of farmers’ cooperatives. After four decades of commercialization, the Northeast farmers are now diversified and world competitive despite their smallholder-based environment. The success of such situations is measured by the welfare of the agricultural and non-agricultural population involved and finally by the sustainability of the agricultural systems and livelihood systems which will be explored in Chapter V and VI dealing with social and environmental impact.

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CHAPTER IV VALUE CHAIN ANALYSIS OF RICE, MAIZE, CASSAVA AND SUGAR CANE IN

NORTHEAST THAILAND

4. Value chain analysis of rice, maize, cassava and sugar cane in the Northeast Thailand

This chapter will investigate value chain of the four major crops in the Northeast. Standard Microsoft excel templates were used for such analysis. A set of templates for this analysis for a crop consists of 7 sheets: 1) summary 2) inputs 3) farm production 4) assembly 5) processing 6) logistics and 7) policy analysis matrix. Values in each stage were analysed and linked to the next stage. Both baht and dollar value were reported. Finally, domestic resource cost (DRC), nominal protection coefficient (NPC) and effective protection coefficient (EPC) were reported. DRC is an indicator of comparative advantage, measuring the ratio of value added from domestic, non-traded activities to the foreign exchange earned or saved from domestic production (Sadoulet and de Janvry 1995). A DRC with a value greater than 1 implies that production is inefficient and that foreign exchange would be better saved by importing the product rather than producing the product domestically, while a DRC less than 1 suggests comparative advantage and efficiency in production (Tsakok 1990, Agrifood Consulting International, 2005 ). NPCs relate prices in the domestic market to a reference border, or world to examine the level of price distortion in the economy. An NPC that is greater than 1 means that positive protection is afforded to producers and, consequently, consumers are taxed. An NPC that is less than 1 implies that producers are taxed at the expense of consumers. An NPC exactly equal to 1 means that price policy is neutral and does not adversely impact producers or consumers. An effective projection rate (EPC) is an indicator of incentives, is the ratio of value added in private prices to value added in world prices. It measrues the degree of plicy transfer from product market-output and tradable –input-policies (Monke and Pearson, 1989). These ratios can be calculated from a policy analysis matrix as follows. Table 4a Policy analysis matrix

DRC= G/(E-F), NPC

=A/E, EPC=(A-B)/(E-F) The following sections highlight the value chain results. The data used for the analsis is 2004 for maize, 2005 for rice, cassava and sugar cane. For the two years, the annual average for foreign exchange rate was reported by the Bank of Thailand to be $1USD = 40.22 baht. For all crops, we have included family labor costs valued at 60% of the going wage rate in the areas of study. 4.1 Rice value chain 4.1.1 Farm level rice production

Rice production in the Northeast is characterized by a dual production system. The first big group produces rainfed glutinous rice for home consumption and localized sales, while the

Revenue

Tradable Inputs

Domestic Inputs Profits

Financial Prices A B C D Economic Prices E F G H Policy Transfer I J K L

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second small group, with some irrigation facilities, produce non-glutinous varieties including Kaow Dawk Mali or widely known as Thai fragrant rice destined for urban and export markets. It appears that farmers in the Northeast are getting high margins for rice production, particularly for Kaow Dawk Mali rice. In the Northeast area is suitable for planting Kaow Dawk Mali rice which can be planted in the limited area. The productivity of this rice is much lower than that of other non-glutinous rice varieties. However the Kaow Dawk Mali rice farmers are becoming commercialized due to the higher price and they have suitable area for this rice. Therefore this study has been designed to collect the quantitative information for Kaow Dawk Mali 105 rice variety at critical stages in the value chain beginning with input supply, through to farm production, assembly, processing, and international logistics. Farmer, assembler, miller are in Surin province where having the highest production quantities in Northeast. Even though the Kaow Dawk Mali 105 rice farmers in Surin are represented for commercial farmers but they still apply low production technology and do not use any pesticide or herbicide. They use only 125 kg. per ha of fertilizer (16-20-0) which is less than fertilizer recommended by Good Agricultural Practices (GAP) for rainfed lowland rice, a Northeast farm. However fertilizer need in each province depend on the soil quality. The machinery be used in production is only walking tractor for land preparation. For the others activities such as seed preparation, casting, draining and harvesting use only labor. Both family labor and hired labor are used in rice production processes but more from family labor. Hired labours are spent more for land preparation, casting, harvesting and threshing while family labor involve in all activities. Most of farmers in Surin have their own land for rice cultivation. They have small farms with an average size of less than 4 ha. In crop year 2005/2006 yields in Surin province was averages 2.2 ton per ha which higher than the Northeast yield with an average yield of 1.6 in 2004. Total farm production cost present in the analysis equal $USD127.27 (including family labor which was costed at 60% of wage rate). Hired labor cost account to 38 percent of the total cost (Figure 4.1a). Following by seed and fertilize account for an estimated 26% of total cost structure. Farmers apply low production technology and use the rainfall as source of water, therefore the investment cost in term of depreciation together with fuel for machinery are low at 4 percent of total costs.

Build-up of Farmer's Financial Costs

Family labor24%

Overheads & management

0%

Depreciation4%

Credit & land rent/tax

3%

Spraying, irrigation & machinery

2%

Marketing costs3%

Hired labor38%

Seed, fertilizer & chemicals

26%

Figure 4.1a: Build-up of costs at farm- level production cost

4.1.2 Rice and products

Milling is the most important value added process for rice. Total milled rice contains whole grains or head rice, and broken. The by-products in rice milling are rice hull, rice

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germ and bran layers, and fine broken. Only milled rice and broken rice are exported while other by product use for domestic consumption. Final product for rice considering in this study is only milled rice.

The conversion ratios for quantifying a rice’s transformation at assembly stage is 0.99 for crop drying and product losses while the conversion ratio at the milling stage for the transformation of a rough rice into milled rice is 0.60.

4.1.3 Composition of shipment value The main stages of rice value chain as defined for the quantitative methodology are input supply system, farm production, assembly, processing, and logistics respectively. However in this study there is a crosscutting function at the farm level. Farmers in this study deliver their crop directly to a miller, thereby fulfilling the assembly function as well. However the assembly stage still include in this study showing the delivery function of the rough rice to a miller for milling.

The competitiveness of rice depends on the efficiency of costs in each stage up to the final domestic market. All inputs and outputs carry forward their inherited value from the previous stage. Therefore it is important to analyze the cost levels at different stages as a key determinant of international competitiveness. The shipment value composition at each stage of the value chain of milled Kaow Dawk Mali 105 rice as per MT processed raw material at the delivery point show in form of value and percentage in Figure 4.1b. Total shipment value of milled Kaow Dawk Mali (KDML) 105 rice as per MT processed raw material is $US 248.81. The incremental cost incurred at farm production has the highest composition ($US 127.27, 50 percent) in total shipment value following by assembly and processing stage with the percentage of 32 and 13 respectively. The incremental cost incurred at trade or logistic stage has the lowest composition with only 5 percent of total shipment value. Hence the policy interventions or other investments focused on farm production of the supply chain may be required because this stage accounts for a large share of final shipment value.

Build-up of Final SV by Stage

FarmUSD 127.3

50%

AssemblyUSD 78.5

32%

ProcessingUSD 31.3

13%

TradeUSD 11.8

5%

Figure 4.1b: Build-up of Total Final SV by Stage Remark:1) the number in the first line is value of incremental cost incurred at each stage in USD per MT processed raw material 2) the number in the second line is percentage of incremental cost incurred at each stage of the total final shipment value per MT processed raw material (USD 248.81)

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Similarly, by looking at the build-up of SV and Domestic Value Added (DVA) from stage to stage, this analysis shows the cost component of individual participants. DVA include legitimate local business expenses and mark-ups, official customs duties and taxes, and any number of unofficial payments that sometimes have to be made to facilitate a particular operation. Foreign component represent the different between SV and DVA and show the uncontrollable cost because a country is only able to influence prices within its own borders. Cost and mark up are the highest composition of SV and DVA in each stage of value chain (Figure 4.1c). When considering the duties and tax cost, unofficial extras and foreign cost, these cost have the highest values at trade or logistic for milled rice stage following by milling, assembly and farm gate respectively.

Composition of SV(USD per MT raw material)

-

50

100

150

200

250

300

Farm Gate Assembly Processing Product 1 Product 2 Product 3

Costs & Mark-ups Duties & Tax Unofficial Extras Foreign costs

Figure 4.1c: Composition of SV (USD per MT raw material)

Total costs by category at each stage as shown in Table 4.1a. There is the different of cost type incurred at different stages. Therefore the analysis of assembly, processing, and logistics are designed to accommodate different cost categories. The total shipment cost of $US 248.8 per 1 MT of raw material must be converted into 1 MT of final product (milled rice) by using the conversion ratio (0.6). The costs per ton of KDML milled rice is then $US 414.68 which is higher than costs of other rice varieties as its yield is lower.

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Table 4.1a Total shipment value by stage of production (per 1 MT ot raw material)

Farm Gate Product

Assembled raw material

Processed raw material

Traded commodities (share of 1 MT raw material

Baht USD Baht USD Baht USD Baht USD

Domestic Value Added -Costs & mark-ups

3663.0 91.1 6068.8 150.9 6275.2 156.0 5876.0 146.1

-Official duties & tax

747.9 18.6 1327.0 33.0 1957.7 48.7 2659.4 66.1

-Additional costs

13.3 0.3 94.2 2.3 183.9 4.6 282.5 7.0

Total DVA 4424.1 110.0 7490.0 186.2 8416.8 209.2 8817.9 219.2

Foreign costs 695.0 17.3 786.6 19.6 1117.3 27.8 1190.1 29.6 Total Shipment Value

5119.1 127.3 8276.6 205.8 9534.1 237.0 10008.1 248.8

4.1.4 Competitiveness Export parity price at processing stage was calculated to equal to $USD 183.78 in economic prices compared to $USD 237.03 in financial prices. Fob KDML rice prices in 2005 was reported at $USD 445.74 at Bangkok. Domestic resource cost measured as domestic inputs valued at economic prices compared to the value added from revenue minus value of tradeable inputs at economic prices is calculated to be at 0.70. According to this analysis, rice production in Thailand is internationally competitive (Table 4.1b-d). As there were no exchange rate distortion in 2005, NPC and EPC is at 1.0 Table 4.1b Calculation of rice parity prices ($US)

USD FINANCIAL PRICES (USD per MT)

ECONOMIC PRICES (USD per MT)

per ton Foreign Domestic Total Foreign Domes- tic

Total

KDML 105 rice FOB Bangkok 445.74 445.74 - 445.74 445.74 - 445.74 Less taxes and tariffs - - - - - - - Less local port charges 4.28 0.89 3.38 4.28 0.89 3.38 4.27 Less transport to port 7.01 3.51 3.51 7.01 3.51 3.15 6.66 Equals value at Bangkok 434.45 441.34 (6.89) 434.45 441.34 (6.53) 434.80 Less transport Surin – Bangkok 12.75 6.38 6.38 12.75 6.38 5.74 12.11 Equals value at Surin 421.70 434.96 (13.26) 421.70 434.96 (12.27) 422.69 Conversion factor at 60% 253.02 260.98 (7.96) 253.02 260.98 (7.36) 253.62

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Table 4.1c Summary of rice production costs

FINANCIAL PRICES ECONOMIC PRICES Foreign Domestic Total Foreign Domestic Economic USD per MT Total Variable Costs (incl crop purchase) 24.52 207.61 232.13 24.52 154.53 179.05 Total Investment Costs 3.26 1.64 4.89 3.26 1.47 4.73 Total Costs (per MT) 27.78 209.25 237.03 27.78 156.01 183.78

Table 4.1d Policy analysis matrix: rice

DRC= G/(E-F)= 0.71 NPC=A/E=1.0 EPC=(A-B)/(E-F)= 1.0 4.2 Maize Value Chain 4.2.1 Farm-level maize production. Maize farmers are typically small farmers operating farm size around 2-4 ha. Maize is usually grown in the upland raidfed areas and many farmers would also grow small plots of rice in the lowlands. Farm-level data was obtained from Loei province to represent an average maize farmers in the Northeast. In Nakorn Ratchaseema—another large areas of maize cultivation--farmers would obtain better yields and lower costs.

The main season for maize is between May to September of each year. Much of the inputs for maize are purchased including seeds, fertilizers, pesticide, weedicide, machine hire and labor hire. As the seeds are mostly hybrid seeds from companies, farmers obtain information on cultural practices from private companies. They are commercialized small farmers and can be classified as “emerging commercial farmers ECF” although they do not have any permanent hired laborers in their farms. Land preparation is mostly done by tractors and planting is also done by mechanical seeders attached to tractors. Maize cultivation needs much cash investment which is usually financed by loans from BAAC. The following is the composition of farmers’ costs using 2004 prices.

Revenue

Tradable Inputs

Domestic Inputs Profits

A B C D Financial Prices 260.98 29.79 216.83 14.36 E F G H Economic Prices 260.98 29.79 163.08 68.11 I J K L Policy Transfer - - 53.75 (53.75)

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Build-up of Farmer's Financial Costs

Overheads & management

0%

Credit & land rent/tax

2%

Depreciation8%

Hired labor12%

Marketing costs0%

Spraying, irrigation & machinery

0%

Seed, fertilizer & chemicals

78%

Figure 4.2a Maize: build-up of farm-level production costs

Composition of Shipment ValueFarm Gate Product

Additional expenses

6%

Official duties and tax

6%

Domestic costs & mark-ups

35%

Foreign costs53%

Figure 4.2b Maize: composition of shipment value of farm gate product

Farm level cost analysis reveals that using 2004 prices, Loei farmers obtained around 3.725 ton per ha, incuring total costs of maize production at 12,163 baht per ha ($USD 302.41) and get a gross margin per ha 1,759 baht per ha ($43.7 USD). The costs per ton would be 3,265 baht ($USD 81.18) and gross margin per ton 472 baht ($USD 11.74) per ton. Profit per ton is 235 baht ($USD 5.84). Breaking down the shipment valude at farm gate, it is found that foreign components are quite high (53%).

4.2.2 Maize products. Maize is harvested in September and is threshed by threshing machine at the village before selling the grain to traders who would ship it to assemblers or feed factories. The grain from the village is usually high in moisture around 20-25% moisture. Assemblers will either sun-dry or machine-dry it before further shipment. The grain will then either go to exporters or domestic animal feed factories. Moisture content is reduced and price is set according to moisture content.

4.2.3 Composition of shipment value The value of maize traded is essentially coming from farm. Figure shows the build up of shipment value by stage. 71% of the final shipment value is from farm-level. 19.41% is in assembly and 10.19% is in trade and 0.01% is in processing.

Build-up of Final SV by StageTradeUSD 11.7

10%

AssemblyUSD 22.4

19%

ProcessingUSD 0.0

0% FarmUSD 81.2

71%

Figure 4.2c Build-up of final shipment value by stage. The cost of maize traded commodities is 4,639 baht per ton ($US115.33) composing of 1,995 baht ($US 49.6) foreign components (43%).

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Table 4.2a Build up of maize shipment value Per ton of raw material

FARM GATE ASSEMBLED

TRADED COMMODITIES (Share from 1 MT raw material)

PRODUCT RAW MATERIAL Maize grain 14% moisture THB USD THB USD THB USD Domestic Value Added Costs & mark-ups 1,159 28.82 1,503 37.38 1,531 38.06 Official duties & tax 206 5.12 504 12.52 829 20.60 Additional costs 182 4.53 239 5.95 284 7.07 Total DVA 1,547 38.47 2,246 55.85 2,644 65.73 Foreign costs 1,718 42.71 1,919 47.72 1,995 49.60 Total Shipment Value 3,265 81.18 4,166 103.57 4,639 115.33

Composition of SV(USD per MT raw material)

-

53

107

160

Farm Gate AssemblyProcessingProduct 1 Product 2 Product 3

Costs & Mark-ups Duties & Tax Unofficial Extras

Figure 4.2d Composition of maize shipment costs 4.2.4 Competitiveness Cost of production at the farm level is equal to $USD71.73 in economic prices compared to $USD81.18 in financial prices. Cif maize prices in 2004 was reported at $USD 134 at Rotterdam. Domestic resource cost measured as domestic inputs valued at economic prices compared to the value added from revenue minus value of tradeable inputs at economic prices is calculated to be at 0.86. According to this analysis, maize production in Thailand is internationally competitive. In the nominal and effective rate of protection (NPC and EPC), the researchers did not find any evidence of protection for maize. This is because the exchange rate in Thailand is not over or undervalued since 1997 financial crisis and the adoption of floating exchange rate.

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Table 4.2b Calculation of maize parity prices

USD FINANCIAL PRICES (USD per MT)

ECONOMIC PRICES (USD per MT)

per ton Foreign

Domestic

Total Foreign

Domestic

Total

maize cif Rotterdam 134.0 134.0 0.0 134.0 134.0 0.0 134.0 Sea Freight (Rotterdam-Bangkok) 18.0 18.0 18.0 18.0 18.0 Equals maize fob Bangkok 116.0 116.0 116.0 116.0 116.0 Less local port charges and transport to port

10.2 2.7 7.5 10.2 2.7 6.8 9.5

Equals export parity at border 105.8 113.3 -7.5 105.8 113.3 -6.8 106.5 Less marketing costs (Book 4) 4.7 2.7 2.0 4.7 2.7 2.0 4.7 Less transport Phetchabun - Bangkok

3.9 2.0 2.0 3.9 2.0 1.8 3.7

Equals export parity at Phetchabun 97.2 108.7 -11.5 97.2 108.7 -10.5 98.2 Conversion ratio moisture 80% 77.77 86.94 -9.18 77.77 86.94 -8.40 78.54 Less transport farm gate - Phetchabun 0.8 0.4 0.4 0.8 0.40 0.36 0.76

Equals farm gate export parity price

76.97

86.54

-9.58

76.97 86.54 -8.76 77.78

Table 4.2c Farm level analysis of financial and economic prices

(per ton of raw materials) Financial prices Economic Prices Foreign Domesti

c Total Foreign Domest

ic Econo

mic USD per MT Total Variable Costs (incl crop purchase)

40.49 34.79 75.28 40.49 25.50 66.00

Total Investment Costs 2.22 3.68 5.90 2.22 3.32 5.54 Total Costs (per MT) 42.71 38.47 81.18 42.71 28.82 71.53

Table 4.2d Maize policy analysis matrix

(per ton of raw materials) Tradable Domestic Revenue Inputs Inputs Profits A B C D

Financial Prices 86.54 42.71 48.05 (4.22) E F G H

Economic Prices 86.54 42.71 37.58 6.25 I J K L

Policy Transfer - - 10.47 (10.47) DRC = 0.86 =G/(E-F) NPC = 1.00 =(A/E) EPC = 1.00 =(A-B)/(E-F)

4.2.5 Discussions: As have been explained in Chapter 2, maize produced in the Northeast of Thailand can be exported as can be seen from this value chain analysis but as the demand of the feed industry is growing in the country, it is mostly consumed in the country. A similar analysis treating maize as an import substitution find the domestic resource cost ratio of 0.41

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meaning that it is better to use maize as an import substitution than as an export commodity. A sensitivity test of the baht value at $USD = 35 baht (2007 rate) finds that maize is not international competitive as an export crop (DRC=1.17). It is still profitable as an import substitute crop. At $USD = 40.22 baht (DRC=0.51), the profit to farmers are quite marginal and in financial prices, it is not so profitable although in economic terms, it is marginally profitable. Northeast farmers are finding other attractive crops than maize if they cannot obtain higher yields in the fields.

4.3 Cassava value chain

4.3.1 Farm-level cassava production in the Northeast

In the Northeast of Thailand, cassava production is dominated by small farmers with a very low incidence of large farms. They usually grow paddy rice in the lowlands mainly for household consumption and grow cassava in the rainfed upland areas for cash income. Since labor were hired in all main activities, they can be classified as “emerging commercial farmers” (ECF), although they do not have any permanent hired labors in their farms. In 2005, about 53% of the total cassava production area in the Northeast is in the Nakhon Ratchasima which is only 225 kilometers from Bangkok. Hence, data used for value chain analysis was obtained from Nakhon Ratchasima. Most of cassava growers in the Northeast have their own land but some farmers also rent additional land for cassava production. The average size of cassava plots was 4 ha (Chanual, Narongsak and Preecha, 2000).

Technology used for cassava production in the Northeast is considered as medium level, especially in the smallholder farmers. Kasetsart 50 hybrid cultivar is the most popular cultivar grown in the Nakhon Ratchasima (65% of planting area) as well as in the Northeast. It is characterized by high yield, high starch content and excellent adaptability to a wide range of soil and climatic conditions. They usually rent a four-wheel tractor for preparing the land, if they do not have their owned hand tractors. Both family and temporary hired labors are used for planting, weeding and harvesting activities. Most labors are used for weeding, about 2-3 times per crop, followed by harvesting activity. Hence, labor demand is peaked during those periods. Most of smallholder farmers weed by using a hoe or hand tractor. In addition, some farmers also apply herbicide for control the weed. Most cassava farmers use chemical fertilizer in the crop but at the low application rate, whereas fewer farmers apply manure additionally. Since Thailand has no experience in any serious pests or disease infestations in cassava, pesticide spraying is not necessary for the farmers. Harvesting of cassava fresh root is mostly done by using labors cutting, digging and rooting up, although the high technology with tractor-mounted harvesting tool has been introduced but less is used. The average yield of cassava used in this analysis is 16.71 ton per ha. Quality of cassava fresh root is measured from the starch content. Cultivar used and age of harvest are significant for the starch content in fresh root. Generally, cassava should be harvested after 10 to 12 months for the best yield and quality, although it can be harvested from 8 to 14 months. The average time requirements for producing cassava fresh root are 320 days or around 10.5 months. The starch content in the fresh root is usually about 25%.

Considering the composition of farmer’s cost using 2005 prices, one ton of cassava fresh root was produced at the total cost of 980 baht ($US 24.37). 84% of the total cost is financial cost. Most farmers usually get loans from BAAC. Hired labor cost account for the

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largest share of total financial cost (47%) followed by seed, fertilizer and chemical component (33%) (Figure 4.3a). Fertilizers and pesticides were imported inputs whereas the stems were from local source. By looking at the composition of SV as shown in Figure 4.3b, domestic costs and mark-ups was the largest component (73%) of the total SV whereas foreign costs shared almost one fourth (24%) of the total SV. Gross margin was 170 baht (4.22 USD) per ton or 2,837 baht (70.45 USD) per ha. As one hectare of land requires approximately 43 mandays for cassava production, net return per day was quite low at 67 baht (1.66 USD).

According to the high costs from hired labor and imported inputs, labor-saving technology which is suitable for small farmers and reduction of import tax on fertilizer and chemicals could therefore be effective strategies for reducing total cost and consequently improving trade competitiveness.

Build-up of Farmer's Financial Costs for cassava fresh root production

Spraying, irrigation & machinery

4%

Hired labor47%

Overheads & management

7%

Credit & land rent/tax

9%

Seed, fertilizer & chemicals

33%

Composition of Shipment ValueFarm Gate Product

Foreign costs24%

Additional expenses

1%Official duties

and tax2%

Domestic costs & mark-

ups73%

Figure 4.3a. Build-up of farmer’s financial costs for cassava fresh root production

Figure 4.3b. Composition of shipment value at the farm production stage

4.3.2 Assembly of cassava fresh roots Actually most of cassava farmers sold their farm products directly to processing factories which located around the planting areas. Hence, in this value chain analysis, the cassava farmers also act as the assemblers. Farmers usually transported their products to processing factories on the same day of harvest and sold at the factories near their farms. Then, only transportation cost for transferring cassava to the factories were considers as the assembling cost. Transportation cost was only 200 baht ($US 4.97) per ton of cassava fresh root, 65% of total financial costs excluding cassava purchasing cost (Figure 4.3c). Depreciation of vehicle was 92 baht ($US 2.34) per ton. The composition of SV shows that domestic costs and mark-ups account for the largest share (58%) of total assembling costs, followed by the foreign costs (33%) as shown in Figure 4.3d.

Build-up of Assembler's Financial Costs (excluding purchase price)

Vehicle costs68%

Depreciation32%

Composition of Shipment Value Assembled Raw Material

Foreign costs33%

Additional expenses

1%Official duties and tax

7%

Domestic costs & mark-ups

59%

Figure 4.3c Build-up of assembler’s financial costs Figure 4.3d Composition of shipment value at the

assembling stage

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4.3.3 Cassava products Cassava fresh roots can be processed into many forms but mostly in the form of chips and pellets for animal feeds and starch for food-related industries. The fresh roots should be quickly processed to be cassava products before starch content is reduced.

Cassava fresh roots are transformed to be cassava chips by chipping and sun drying processes. Normally, one ton of fresh root with about 65% moisture content can produce 440 kilograms of dried chips with the standard 14% moisture content. The chip size is about 3 cm diameters (Chanual, Narongsak and Preecha, 2000).

In the pellet factories, the chips are ground up into meal, mixed with steam and then extruded through a large die in the pelleting machine and then cooling to finish the process of hard pellet production. Cassava pellet is a small hard sticks, about 2 cm long and 0.5 cm in diameter (Watana, 2006). The conversion ratio used in the value chain analysis is 440 kg of hard pellets from one ton of fresh roots.

For producing starch, fresh root of cassava are transformed to be starch by grinding, sedimentation and sun drying or conductive heating. One ton of fresh root can transform to be starch 250 kg and manioc residue 150 kg. The most important characteristics of cassava starch are odorless, paste clarity and stickiness. However, The Thai Tapioca Flour Industry Trade Association, Ministry of Commerce has announced the standard of quality for the cassava starch in 2004 as follows. The color has to be white with maximum 13% moisture, minimum 85% of starch by Polarimetric method and minimum stickiness at 550 B.U. Range of pH value is 5.0 to 7.0. Maximum pulp and ash are 0.20 cm3 and 0.20%, respectively.

4.3.4 Composition of Shipment Value The SV compositions of three finished cassava products, chips, hard pellets and starch, are presented in this section. Figure shows the build up of shipment value by stage of each cassava finished products. The values from farm production stage contribute the largest part to the final SV in all finished products (54% for chips and pellets and 47% for starch). In chips and pellets, about 25% of total SV is in the assembling stage whereas processing and trade contribute the smaller parts to the total SV as shown in Figure 4.3e. In starch, 27% to the total SV is in processing stage, 22% in assembly and only 4% in trade.

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Build-up of Final SV by Stage: Cassava Chips

Assembly25%

Processing8%

Trade13%

Farm54%

Build-up of Final SV by Stage: Cassava Pellets

Trade9%Processing

11%

Assembly26%

Farm54%

Build-up of Final SV by Stage: Cassava Starch

Farm47%

Assembly22%

Processing27%

Trade4%

Figure 4.3e Build-up of final shipment value by stage of three cassava finished products

Figure 4.3f(i-vi) show the build-up of processor’s costs and SVs of all three products. For cassava chip processing, the total cost is 1,592 baht ($US 39.57) per one ton of fresh roots. Apart from raw material, the main cost of chip processing is costs of vehicle operating and maintenance, which mainly come from tractor used in chip factory. Domestic costs and mark-ups account for the largest share (61%), followed by 24% foreign costs, the rest beingk duties, taxes and other expenses.

The composition of SV of hard pellet is quite similar to that of chips. The total cost of pellets is 1,618 baht (40.22 USD) per ton, composing 61% domestic costs and mark-ups and 25% foreign cost. Energy and machine operations as well as depreciation contribute the large shares to the pellet processing cost, excluding raw material.

For starch, the total cost is 1,996 baht (49.63 USD) per ton, composing of 59% domestic costs and mark-ups and 28% foreign cost. Except for raw material, more than a half of starch processing costs come from energy and machine operations.

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Build-up of Processor's Costs (excluding raw material)

Packaging & other

consumables

0%

Storage and plant

R&M12%

Energy & machine

operations6%

Depreciation

20%

Interest6%

Ov erheads & license

8% Hired labor8%

Vehicle O&M40%

Build-up of Shipment Value cassava chip

Foreign costs24%

Domestic costs &

mark-ups62%

Additional expenses

2%

Official duties and

tax12%

i. Costs of cassava chips ii. SV of cassava chips

Build-up of Processor's Costs (excluding raw material)

Depreciation29%

Interest4%

Hired labor3%

Overheads & license

6%Vehicle O&M

14%

Packaging other

consumabl0%

Storage and plant R&M

10%

Energy & machine

operations34%

Build-up of Shipment Value Processed Raw Material

Official duties and tax

12%

Additional

expenses2%

Foreign costs25%

Domestic costs & mark-ups

61%

iii. Costs of cassava pellets iv. SV of cassava pellets

Build-up of Processor's Costs (excluding raw material)

Energy & machine

operations54%

Storage and plant R&M

3%

Packaging & other

consumables7%

Vehicle O&M9%

Hired labor11%

Overheads & license

4%

Interest6% Depreciation

6%

Build-up of Shipment Value Processed Raw Material

Foreign costs28%

Additional expenses

2%

Official duties and

tax11%

Domestic costs &

mark-ups59%

v. Costs of cassava starch vi. SV of cassava starch

Figure 4.3f Build-up processor’s costs and build-up shipment value of each cassava product

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The total cost of traded chips is 1,835 baht ($US 45.61) per ton of fresh root or 4,132 baht ($US 102.73 ) per ton of chips, composing of 25% foreign cost. The total cost of traded pellets is 1,809 baht ($US 44.97) per ton of fresh roots or 4,073 baht ($US 101.27) per ton of pellets, composing of 26% foreign cost. The cost of traded pellet is a little bit cheaper. For the starch, the total cost of traded starch per ton of fresh root is higher at 2,086 baht ($US 51.86) or 8,343 baht ($US 207.42) per ton of starch. Also, the foreign cost component is higher at 28%.

Composition of SV (USD per MT raw material)

0

10

20

30

40

50

60

per cent

Foreign costs 5.94 11.83 9.38 11.49 10.26 11.81 14.07 14.76

Unofficial Extras 0.24 0.53 0.77 1.18 0.78 1.19 0.77 1.27

Duties & Tax 0.55 2.83 5.03 8.16 5.09 8.21 5.36 8.98

Costs & Mark-ups 17.64 20.66 24.39 24.79 24.74 23.76 29.43 26.84

FARM GATE

ASSEMBLY

CHIPS PROCESS

CHIPS PELLETS PROCESS

PELLETS STARCH PROCESS

STARCH

Figure 4.3g Composition of shipment values stage by stage from farm level to traded products

4.3.5 Competitiveness Table 4.3a shows policy analysis matrix of three cassava products. Domestic resource cost (DRC) measured as domestic inputs valued at economic prices compared to the value added from revenue minus value of tradable inputs at economic price is calculated to be at 0.74 for chips, 0.58 for pellets and 0.67 for starch. According to DRC, all three cassava products are internationally competitive. As there is no difference in financial and economic prices due to floating exchange rate, revenue and tradable inputs of financial and economic prices are the same. Hence, the nominal and effective rates of protection (NPC and EPC) of all three cassava products are equal to 1 which means no protection of cassava products.

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Table 4.3a Cassava policy analysis matrix (per ton of raw material)

Cassava Products Tradable Domestic Revenue Inputs Inputs Profits

Cassava chips

Financial Prices 46.59 9.38 33.67 3.54

Economic Prices 46.59 9.38 27.54 9.67

Policy Transfer - - 6.13 (6.13)

DRC = 0.74 NPC,EPC= 1.0

Cassava pellets

Financial Prices 58.48 10.26 34.27 13.95

Economic Prices 58.48 10.26 28.07 20.15

Policy Transfer - - 6.21 (6.21)

DRC = 0.58 NPC, EPC= 1.0

Cassava starch

Financial Prices 60.64 14.07 37.49 9.07

Economic Prices 60.64 14.07 31.18 15.38

Policy Transfer - - 6.31 (6.31)

DRC = 0.67 NPC,EPC= 1.0 4.4. Sugar value chain The analysis of the value chain for sugar production in the Northeast of Thailand is based on a review of available secondary data and primary data collected from sugarcane growers, collectors, millers, traders and exporters during 2005. Khon Kaen Province was selected as the reference for primary data collection owing to the fact that it is one of the major sugarcane production areas and a prime location of sugar mills. Along the value chain, linkages from input supplies for sugarcane production to the final products and by-products are discussed in more detail in chapter 2. The focus of this chapter is on farm characteristics, cost structures along the stages of value chain, value chain components, and the competitiveness of sugar production. 4.4.1 Farm characteristics and final products of the value chain The average farm size of selected sugar cane growers in Khon Kaen Province is about 8 ha with an average yield of 62.50 MT per ha. Labor is the major input used in sugarcane farming, primarily for land preparation, planting, applying fertilizer and harvesting. Hired labor accounts for more than 73% of labor cost used at farm level. Other inputs are planting material, fertilizer and chemicals. According to the farm characteristics, the sample farms presented in this value chain analysis can be classified as Emergent Commercial Farmers (ECF) due to the high level of hired labor aside from family labor involved in management and farming. The average price for cane sticks obtained by farmers in Khon Kaen is about 580 baht per MT ($US 14.42 per MT). Final products derived from sugarcane are raw sugar, white sugar or refined sugar, with molasses as the major by-product. According to the

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information obtained from the millers, 1 MT of sugarcane can be converted into 0.10 MT of raw sugar or 0.085 MT of white sugar and 0.05 MT of molasses. The remaining 0.85-0.86 MT are considered as waste with no commercial value.

4.4.2 Cost structure along the stages of value chain This section provides information on cost structures along the stages of value chain starting from farm production, assembling of raw material, processing, and logistics. 4.4.2.1 Farm Production The sample data of farm-level costs as shown in the Table 4.4a below suggest that labor costs contribute the highest share of the total farm-level costs with about 43.5%, followed by costs of planting material, chemicals and fertilizer accounting for 41.2%. This cost structure indicates that the competitiveness stems party from the low level of opportunity costs of labor. An increase in these opportunity costs would seriously compromise the comparative advantage of sugar production in this region. The rate of return at farm level is about 37%. Table 4.4a Farm-level cost for sugar cane production in the Northeast Thailand

4.4.2.2 Assembling of raw material Within the value chain, assembling refers to the stage where sugarcane is collected and delivered to millers for processing. Assembling costs occur mainly from purchasing from farmers accounting for 76.2% of the total shipment value, followed by costs of transportation at 19.8% and general overhead costs of 3.9%.

Item Total per MT raw material (baht)

%

Variable costs Planting material 33 7.8 Fertilizer 116 27.3 Chemicals 26 6.1 Machinery O&M 11 2.5 Hired labor 135 31.8 Family labor 49 11.7 Overheads & management 5 1.2 Seasonal credit 26 6.2 Land rent/tax 22 5.2 Total variable costs 423 99.9 Fixed investments 0 0.1 Total costs 423 100.0 Total costs in USD 10.52 100.0 Gross revenue 580 Net profit 157 Net profit/Total costs 0.37

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4.4.2.3 Processing Sugar processing into the two main products, raw and white sugar, is somewhat different with regard to the cost structure. The main cost component is crop purchase accounting for 91% for raw sugar, and 79% for white sugar. Other variable costs and investment costs account for 9% for processing raw sugar and 21% for processing white sugar. The differences in cost structures of these two products stem from the fact that processing of white sugar is a more sophisticated process requiring more equipment than processing of raw sugar. Prices obtained by processors for raw sugar is about 8,627.19 baht ($US 214.50) per MT, and for white sugar 11,000.17 baht ($US 273.50) per MT. Molasses, the major by-product, is valued at 1,932.97 baht ($US 48.06) per MT. The sample data obtained from the millers in Khon Kaen Province suggests a rate of return for processing raw of about 8%, and 1% for white sugar. Table 4.4b shows the costs per ton of processed raw materials. This can be converted to costs per ton of finished products using conversion ratio (0.1 for raw sugar and 0.085 for white sugar). Table 4.4b Costs per ton of processed raw materials

Item Raw Sugar White Sugar Total per MT

processed raw material (THB)

%

Total per MT processed raw

material (THB)

%

Variable costs Crop purchase (Payment to assembler) 800 91

800

79

Other variable costs 37 4 110 11 Investment costs 45 5 106 10 Total costs 883 100 1,016 100 Total costs in USD 21.94 25.26 Revenue for final products 862 935 Revenue for molasses 97 97 Gross revenue 959 1,032 Net profit 77 16 Net profit/Total costs .08 .02

4.4.2.4 Logistics The logistics stage refers to the delivery process of the final products to the export market. In this analysis, the reference point for exporting raw sugar is in the Caribbean and for white sugar in Europe. The logistics cost structures of raw and white sugar are similar, with crop purchase or payment to processor constituting about 97% of the total costs. Transportation costs to the delivery port and loading & storage costs are the main components accounting for 74% of other variable costs.

4.4.2.5 Final shipment value Along the value chain, traded raw sugar value is built up mainly at the farm level accounting for 47.50 %, followed by assembly at 37.89%, processing at 13.66% and trade at 0.94% as shown in Figure 4.4c. The shipment value of raw sugar is 8,909 baht per MT ($US 221.51) (Table 4.4 c) consisting of domestic value added (DVA) at 82.8% or 7,366 baht, while the remainder stems from foreign costs with the value at 1,543 baht (17.32%) (Figure 4.4a).

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Table 4.4c Costs of raw and white sugar per ton of final traded product

TRADED COMMODITIES (1 MT Final Traded Product)

Raw sugar White sugar THB USD THB USD

Domestic Value Added Costs & mark-ups 5541.19 137.77 6398.82 159.10 Official duties & tax 1536.54 38.20 1859.00 46.22 Additional costs 288.04 7.16 347.47 8.64

Total DVA 7365.78 183.14 8605.28 213.96 Foreign costs 1543.44 38.38 2676.94 66.56

Total Shipment Value 8909.22 221.51 11282.22 280.51

Composition of Final Shipment ValueRaw sugar

Additional expenses

3.23%

Domestic costs & mark-

ups62 20%

Official duties and tax17.25%

Foreign costs17.32%

Composition of Final Shipment ValueWhite sugar

Foreign costs23.73%

Official duties and tax16.48%

Domestic costs & mark-ups

56.72%

Additional expenses

3.08%

Figure 4.4a Composition of final shipment value for raw sugar

Figure 4.4b Composition of final shipment value for white sugar

Build-up of Final SV by Stage

Trade0.94%

Assembly37.89%

Processing13.66%

Farm47.50%

Figure 4.4c Build up of final shipment value of raw sugar by stage

Build-up of Final SV by Stage

Farm44.13%

Processing20.32%

Assembly35.20%

Trade0.35%

Figure 4.4d Build up of final shipment value of white sugar by stage

The value chain component of white sugar is similar to that of raw sugar. Total shipment value of white sugar is 11,282 THB per MT ($US 280.51)(Table 4.4c) and

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consisting of domestic value added (DVA) at 83.9% or 9,466 baht, with the remaining 16.1% being foreign costs with a value at 1,816 baht (Figure 4.4b)The major part of the final shipment value is generated at farm level with 44.13%, followed by assembly, processing and trade at 35.20%, 12.69% and 7.98% respectively (Figure 4.4d). 4.4.3 Competitiveness of exported Thai sugar To measure competitiveness of Thai sugar, the domestic resource cost (DRC) is applied as an indicator. It is defined as the shadow value of non-tradable factor inputs used in an activity per unit of tradable value added. The DRC indicates whether the use of domestic factors is socially profitable (DRC<1) or not (DRC>1). The DRC calculations indicate that exports of Thai sugar products – both white and raw – are competitive as the DRC of each product is less than 1. With a DRC of 0.49, raw sugar is apparently more competitive than white sugar with a DRC of 0.62 (Table 4.4d-e). Apart from DRC, the nominal protection coefficient (NPC) measures competitiveness by relating the domestic price to a reference border or world market price. Hence, it is an indicator of the degree of market protection through government policies. The calculated NPCs of both raw and white sugar are equal to one, suggesting that Thai sugar products for export are not under government protection. The effective protection coefficient (EPC) is the ratio of value added in private prices to value added in social prices. The EPC of the two sugar products for export is equal to one. This indicates that there is no policy intervention to protect the export of Thai sugar. In sum, the results indicate that both white sugar and raw sugar for export are competitive without a tangible protection by government policies. Table 4.4d Policy analysis matrix (PAM) for raw sugar

Revenue Tradable

Inputs Domestic

Inputs

Profits

Financial Prices

A 36.62

B 3.61

C 19.02

D 13.99

Economic Prices

E 36.62

F 3.61

G 16.18

H 16.83

Policy Transfer

I -

J -

K 2.84

L (2.84)

DRC= 0.49, NPC=1.0, EPC=1.0 Table 4.4e Policy analysis matrix (PAM) for white sugar

Revenue Tradable

Inputs Domestic

Inputs

Profits

Financial Prices

A 33.00

B 6.91

C 18.88

D 7.21

Economic Prices E

33.00 F

6.91 G

16.06 H

10.03

Policy Transfer I -

J -

K 2.82

L (2.82)

DRC= 0.62, NPC=1.0, EPC =1.0

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4.4.4 Conclusion Along the value chain stages, the value of exported sugar is built up mainly at the farm level. The major component of the shipment value of exported sugar is derived from the domestic value added. The value chain analysis indicates that sugar production in the Northeast of Thailand is competitive considering the DRC of both exported products, raw and white sugar. This competitiveness has come without direct protection from the government. This is in line with the discussion in Chapter 2. This chapter has shown through value chain analysis of the four crops, namely rice, maize, cassava and sugar cane, that the Northeast farmers are internationally competitive. Cassava and sugar cane is more internationally competitive than rice and maize. For rice and maize, farmers in other regions such as the Central plain and the North are probably more competitive than the farmers in the Northeast as they obtain better yields and/or lower costs. Value chain analysis is needed to establish comparison across regions.

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CHAPTER V SOCIAL IMPACT OF COMPETITIVE COMMERCIAL AGRICULTURE

5. Social impact of competitive commercial agriculture The change from subsistence to commercial farming has both positive and negative impacts on the Northeastern society. There are no studies which specifically look at the social impact of commercialization in the Northeast. Most studies compared the difference of economic and social factors between the phase of subsistence farming and the phase of commercial farming in the Northeast but the differences are also from other developments. However, this chapter tries to analyse the major social impact of the agricultural commercialization process in the Northeast. 5.1 Reduced poverty and improved standard of living The most obviously positive impact of the commercial agriculture in the Northeast is the increase of farm income and standard of living from cash cropping. Statistics from the Office of Agricultural Economics showed that farm cash income of Northeast farmers had gradually increased from 5,187 baht per household in 1974 to 12,696 baht in 1988. However, later when the commercial agriculture has been fully expanded in the Northeast there was a dramatic increase of income to be 40,926 baht per household in 2001. During this period, the minimum wage rate in the Northeast substantially increased from a nominal rate of 19 baht per day in 1977 to 134 baht per day in 2001. The consumer price index for the Northeastern region were available only from 1998 to 2007 and the consumer price index for the whole country is used to calculate the real wage rate as well as the farm income for the Northeast. For the whole kingdom in 1977, the consumer price index was 28.8 (base year=2002), increasing to 46.1 in 1981, 56.3 in 1988, 69.2 in 1992, 96.0 in 1998, 99.4 in 2001 (Table 5.1). For the Northeast region, CPI aligns with those for the whole kingdom. An estimated real wage rate in 1977 was 66 baht a day increasing to 135 baht, in 1992 to 152.2 baht a day in 1996 but after the economic crisis in 1997, decreased to 135 baht/day in 2001. (calculated from the data from Department of Labour Protection, 2005). As for farm cash income, it was estimated that taking account of consumer price index, the real farm cash income in the Northeast more than doubled during 1977-2001, increased from a level of 18,883 baht per household in 1977 to 41,173 baht per household in 2001 (Table 5.1). Increased household income, partially from commercial agriculture, has improved living conditions of rural households. It enables the farmers to buy the electrical household appliances such as fans, refrigerators, rice cookers, radios and televisions as well as liquid petroleum gas (LPG) stoves. To some extent, LPG stoves and electric rice cookers reduced demand for firewood for cooking and also labor for collecting the firewood. Having radios and televisions enables farmers to improve their knowledge, information and vision as well as to provide entertainment for the household members.

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Table 5.1 Northeast nominal and real farm income and wage rate

CPI (whole country,

2002=100)

Northeast nominal

farm income

Northeast real farm

income (2002=100)

Northeast nominal

wage rate

Northeast real wage

rate (2002=100)

1974 n.a. 5,187.4 n.a. n.a. n.a. 1977 28.8 5,424.1 18,833.6 19 66.0 1979 34.2 7,630.9 22,312.7 35 102.3 1981 46.1 15,056.9 32,661.4 53 112.8 1983 50.3 11,494.4 22,851.6 56 111.3 1987 54.2 11,020.1 20,332.2 61 112.5 1988 56.3 12,696.5 22,551.5 n.a. n.a 1992 69.2 19,026.7 27,495.2 94 135.8 1996 84.1 31,191.2 37,088.3 129 152.2 1998 96 n.a. n.a. 131 136.5 1999 96.2 38,814.0 40,347.2 n.a. n.a. 2001 99.4 40,926.3 41,173.3 134 134.8

Source : Nominal farm income: Agricultural Statistics of Thailand CPI: Bureau of Trade and Economic Indices, Ministry of Commerce Thailand. Nominal wage rate: Department of Labour Protection, Ministry of Labour Real farm income and wage rate : calculated using CPI for the whole country as deflator

Moreover, other social indicators of the Northeast such as patient number per doctor, phone lines per 1000 people, percent of households having access to electricity and piped water improved even though when compared to those in Bangkok, a large gap still remains (NESDB and the World Bank, 2005). One of the indirectly positive impacts of the commercial agriculture is the better education of the Northeast children. Increase of household income, partially from commercial crop production, enables the parents to send their children to school and buy school uniforms, books and other necessary materials for use in the school. Children have opportunity to continue their study at the higher level as they like. This can see from the improved education level of the Northeast children as described in the Chapter 1. Looking into the incidence of poverty in the region, the statistics of the National Statistical Office (NSO) showed that poverty incidence in Thailand, had gradually declined from 45 per cent of total population in 1988 to 17 per cent in 1996 and increased during the recent Thailand economic crisis to 21.3 per cent in 2000 before decreased to 11.3 per cent in 2004. For the Northeast region, the poverty incidence had also a dramatic decrease. The head-count ratio in the Northeast poor had significantly declined from 56 per cent in 1988 to 17.2 per cent in 2004 (Office of the National Economic and Social Development Board, no date). Even though the poverty levels in absolute terms in the Northeast have fallen through time, the rates of decrease in the Northeast have been slower than in other regions. With the slowest rates, poverty becomes more concentrated in the Northeast. In 2004, approximately a half of the 7 million poor people (51 per cent) lived in the Northeast, followed by the North (27 per cent), the Central (11 per cent), the South (9 per cent) and Bangkok Metropolitan (1.5 per cent) (Office of the National Economic and Social Development Board, no date). The poorest five provinces are located in the Northeast. The disparities exist not only among regions but also between urban and rural areas and among different groups as well. Most of the poor people (89 per cent) in the Northeast

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lived in the rural areas (Table 5.2). Farm workers and operators, with mostly owning and operating small or medium-sized plots of land, households with a large number of dependents, and households headed by individuals with primary or less education, have had stubbornly high rates of poverty over long periods (Human Development Sector Unit, 2001 and the World bank, 1996). Table 5.2 Poverty ratio by region, 2004.

Regions Area Poverty line Poverty ratio

No. of poor

Population

baht/person/month

% of the poor

million

BMR Urban 1,853 1.64 0.108 6.608 Total 1,853 1.64 0.108 6.608 Central Urban 1,525 3.29 0.166 5.055 Rural 1,243 6.01 0.591 9.834 Total 1,339 5.09 0.757 14.889 North Urban 1,294 8.31 0.202 2.435 Rural 1,089 18.31 1.705 9.312 Total 1,131 16.24 1.907 11.747 Northeast Urban 1,229 10.30 0.407 3.954 Rural 1,043 18.72 3.243 17.326 Total 1,078 17.16 3.650 21.279 South Urban 1,313 4.56 0.093 2.057 Rural 1,116 8.88 0.561 6.319 Total 1,164 7.82 0.655 8.376 Whole country Urban 1,525 4.86 0.978 20.109 Rural 1,110 14.26 6.101 42.791 Total 1,242 11.25 7.079 62.900

While Thailand’s poverty incidence has decreased due to its economic growth, the income disparities between regions have increased. With rapid growth in the late 1980s, the disparities of Gross Regional Product (GRP) per person between Bangkok areas and the Northeast region increases through time. Bangkok’s GRP per person compared to that in the Northeast increased from 5.3 times in 1975, to 9.8 times in 1993 (JICA, 2000). The rapid growth in Bangkok and metropolitan areas in comparison with the other regions of Thailand should not overshadow the fact that absolute rapid growth in the other regions including the Northeast has taken place in the last four decades. Considering the income distribution within the region, the available Gini coefficients of the Northeast region in 1980, 1985 and 1996-2002 showed that the income disparities within the region had been increased over time from 0.474 in 1980 to 0.527 in 2002 (Table 5.3). However, if considering only in the agricultural sector, it was found that the income distribution in agricultural sector of the Northeast region decreased to a quite low value from the Gini value of 0.416 in 1980 and 0.444 in 1985 to a lower value at 0.384 in 1996 and 1998 but it slightly increased again in 2000 before decreased to 0.396 in 2002.

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Table 5.3 Gini coefficients in term of income distribution in 1980-2002 by region.

Agricultural sector Non-agricultural sector Total

1980 1985 1996 1998 2000 2002 1980 1985 1996 1998 2000 2002 1980 1985 1996 1998 2000 2002

Whole country 0.472 0.533 0.434 0.428 0.457 0.453 0.518 0.580 0.455 0.455 0.498 0.489 0.575 0.654 0.491 0.484 0.523 0.511

North 0.494 0.490 0.383 0.395 0.424 0.433 0.539 0.466 0.459 0.476 0.516 0.506 0.538 0.554 0.478 0.489 0.529 0.517

Northeast 0.416 0.444 0.384 0.384 0.409 0.396 0.549 0.707 0.459 0.476 0.516 0.506 0.474 0.553 0.529 0.518 0.550 0.527

Central 0.491 0.607 0.440 0.419 0.468 0.431 0.484 0.557 0.449 0.444 0.472 0.457 0.538 0.653 0.463 0.450 0.483 0.463

South 0.432 0.549 0.462 0.473 0.495 0.491 0.533 0.611 0.470 0.463 0.508 0.467 0.541 0.632 0.482 0.482 0.519 0.496

Bangkok & metropolitan areas

0.547 0.416 0.435 0.366 0.358 0.554 0.472 0.517 0.382 0.351 0.425 0.458 0.512 0.548 0.389 0.352 0.427 0.464

Sources: Data in 1980 and 1985 cited from Suganya Hutaserani and Somchai Jitsuchon,1988. Data in 1996-2002 cited from National Economic and Social Development Board (NESDB) of Thailand, 2002.

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These Gini coefficients in agricultural sector indicated a more equal distribution of income in agricultural sector in the Northeast relative to other regions. Like in other regions of Thailand, the disparity of income exists between the agricultural and non-agricultural sectors and it even grows through time. Amid the rapid growth and changes in the agricultural sector in the Northeast, a comparative study on determinants of poverty between the rural Northeast and the rural area in other regions in Thailand was conducted using data from the Thai Socio-Economic Survey (SES) in 1998. This study looked at factors determining the poverty in the Northeast using maximum likelihood probit equations for estimating the probability of being poor for the rural Northeast (Human Development Sector Unit, 2001). The results suggested that the determinants of poverty in the rural Northeast differ from those in the rest of rural areas in Thailand highlighting two important factors, namely access to land and female participation. The amount of land owned had a much stronger effect on reducing poverty in the rural Northeast than in other rural areas. This result corresponded with the study of Somporn and Decharut (1999) that the poverty was highly concentrated (33 per cent of total poor households) in the households that have land size less than 10 rai and the poverty decreased when the land size increased. Nevertheless, the lack of land ownership had no effect on poverty in the Northeast perhaps because tenancy is not widespread in the Northeast as compared to other regions. The study found that households headed by females of any age reduced the probability of poverty in the rural areas of the rest of the country while in the Northeast, ages of female heads made a difference to the poverty level. Younger female household heads reduced the probability of poverty while the older female household heads (i.e., those aged 45 years or more) increased the probability. This was likely to reflect migration patterns. The households headed by younger females in the Northeast were the households that most of the males migrated to other regions for higher-wage employment and usually would send money back to the family. Hence, they were less likely to be poor. For the household headed by older females had fewer sources of incomes and were likely to have a higher probability of poverty.

5.2 More efficient productive systems

One of the obviously positive changes of the agricultural commercialization in the Northeast is the process of farmers’ adoption of new agricultural production technology. Changing from subsistence farming to more commercialized agriculture has led to a substantial increase of external inputs such as chemical fertilizer, pesticide and modern farm equipments such as tractors, water pump and sprayers. The use of these modern inputs are positive behavioural changes leading to increased crop productivity and income for farmers. Farmers now use chemical fertilizers widely for both lowland and upland crop production but mostly for commercial field crops and the high-yielding variety rice production (Sawaeng and Nongluck, 2001). According to the reports of the National Statistics Office (1978, 1993, 2003), fertilizer use in the Northeast increased from 0.155, to 0.968 to 1.35 m.ton in 1978, 1993 and 2003 respectively. The average fertilizer application rate increased from 63, to 153, to198 kg per ha and the number of farmers who uses pesticides increased from 0.32 m. to 0.81 m. to 1.15 m. in the same periods. The increase of the external inputs, especially improved seed varieties and fertilizer, has improved the efficiency of commercial crop production. For example, the new recommended cassava variety, Rayong 72, provides a higher yield in compare to the local Rayong 1 variety (see the average yield of each variety in the Chapter 2, Table 2.3.1). In some crops, it also has

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positively effected the market prices, for example in the case of maize when the hybrid varieties gave higher yields as well as large and good color grain which are preferred for the market.

At the same time, the use of two wheel tractors also increased 300 per cent from 1978 to 1987. The increase was nearly 200 per cent for big tractors, about 162 per cent for water pump, 75 per cent for sprayers with machine operated, 837.3 per cent for sprayers with hand operated and 161 per cent for threshing equipment at the same period (Kriangsak and et al., 1991). The continued increase of the use of modern farm equipment in the agriculture is shown in Table 5.4. The use of tractors enabled farmers to do early planting and to farm on less suitable land (Sawaeng and Nongluck, 2001). Some farmers applied the motor from the walking tractor as water pumps and to attach them to a cart for transport farm materials. The adoption of walking tractors affected the necessity of having buffaloes for land preparation. This resulted in a declined in buffalo numbers and as a consequence, animal grazing land decreased and was replaced by crop areas (Sawaeng and Nongluck, 2001). Also, increase use of labor-saving farm equipments resulted in free time of farmers for off-farm and non-farm activities. Many farmers would migrate to towns and cities for supplementary employment. However, the adoption of external inputs and modern farm equipments is quite varied according to farm size. Table 5.4 Number of equipments used in agriculture, 1981-1997

Unit: units Items 1981 1985 1989 1993 1997

Two wheel tractors 20,879 38,790 71,835 140,813 288,578

Big tractors 3,422 4,950 7,943 13,170 22,776

Water pump 67,568 95,579 146,021 235,632 402,106 Sprayers with machine operated 6,010 6,010 7,701 13,389 29,586

Sprayers with hand operated 218,245 218,245 590,059 1,588,834 3,796,480

Threshing equipment 2,631 1,631 3,715 5,259 7,646

Source: Bureau of Agriculture Economic Research, Office of Agricultural Economics.

Along all the value chains, efficiency of operations—in input market, production, assembly, processing, logistics is improved. The number of days used as well as the costs of operations in each stage of value chain are reduced. Many services are specialized. The agricultural production and marketing systems of the region, not only for the four major crops but for all crops, are made more efficient making use of the new technologies and management skills.

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5.3 Farmers’ adaptability to market system There are many factors affecting the land-use pattern in the Northeast. One of them is the greater degree of commercialization of agriculture. Before the expansion of commercial crops in the Northeast, farmers usually had only a small piece of upland fields (less than 0.1 ha) for cotton and vegetable cultivation for home consumption (Viyouth and Prasit, 2000) whereas rice was mainly grew in the lowland. The introduction of commercial crops such as maize in the 1960s and cassava in the 1970s encouraged more farmers to seek new land for cultivation as the crops were regarded as good sources of income with low investment costs while yielding high profits. During the period of 1970s and 1980s when the maize and cassava were popular in the Northeast, forest areas were rapidly depleted and transformed into maize and cassava land (Napat, 1985 and Sawaeng and Nongluck, 2001). Scholz (1985) also mentioned that well developed system of infrastructure; in particular a road network, ineffective use of Thai forest policies and laws, and favorable price development for such cash crops such as maize, cassava and sugarcane on the world market were the important structural conditions for the rapid expansion of farm land in connection with spontaneous pioneer settlement. As farmers are used to cash cropping, they have a tendency to change land use according to their profitability and over the years, they diversify their farming into different crops. In the same year also, they grow different crops e.g. rice with cassava, rice with maize or cassava and maize. Diversified cropping pattern can reduce the farmers’ risks both in production and marketing. During the 1980s and 1990s, agriculture in the Northeast has been more diversified, especially in rainfed areas. Figure 5.1 shows land use change in the Northeast from 1978 to 2003. Although changes in field crops are frequent, rice still remains the predominant crop in lowland areas. Some changes in rice farms occur dealing with farmers’ uses of different rice varieties (Sawaeng and Nongluck, 2001) and thus the degree of rice commercialization and intensification (Ahmad and Somporn, 2003). Experience of Northeast farmers in commercial crops, such as maize and cassava, at the beginning phase enable farmers to cope with other kinds of commercialization that came later for other crops as well e.g. contract farming with private companies for vegetable production.

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Northeast Agricultural Land Use in 1978-2003

0%

20%

40%

60%

80%

100%

1978 1983 1993 2003

Year

perc

ent o

f the

tota

l lan

d

Rice Maize Cassava Sugarcane Rubber Others

Figure 5.1 : Northeast agricultural land use in 1978-2003 Source: Fan, Jitsuchon, and Methakunnavut, 2004 and OAE, 2004

5.4 Better farmland distribution and security Suwit and et al. (1985) studied about economical changes in the Chee watershed and found that expansion of commercial crops into the forest land has led to a significant land reform in the Northeast as described in the Chapter 1. As more forests were farmed, more land was available to the farming population. The Thai governments were under pressure to recognize farmers’ land use rights. In the past, the local officials were authorized from the government to issue the land document, called Sor Kor 1 which indicate the farmers’ right to cultivate a piece of land but not to sell it. After 1978, the land was widely issued to the better type of land documents, called Nor Sor 3 and Nor Sor 3 Kor which are certificated or testimonial stating that the occupant has made use of the land for a prescribed period of time and enables legal transfer by sale. The statistical data about land tenure in the Northeast showed that during 1975 to 1988, when maize and cassava production were popular, owned farm land had increased from 7.1 million ha in 1975 to 8.7 million ha in 1988 (OAE, 1980-2004). Beside the security in land, the obvious advantage of the legal land documents is that the farmers can get credit from banks under fair terms. Even though total agricultural land in the Northeast had increased to almost 9.1 million ha in 2001, the average farm size of the Northeast farm households gradually decreased from 4.5 ha per household in 1975 to 3.5 ha per household in 2001 due to an increase in the number of farm families (OAE, 1978-2004). The total farm households increased from 1.68 m. in 1975 to 2.62 m. in 2001. Available data about distribution land holdings from1993 to 2003 (NSO, 1993 and 2003, and NSO, 1998) showed that farmers who hold the land less than 1.5 hectare had been increasing from 25.6% in 1993 to 30.4% in 2003 whereas farmers with large land holdings (more than 6.4 hectares) had been decreasing from 12.7% in 1993 to 9.8% in 2003 and the percent of middle land holders (1.60-6.3 hectares) had been slightly changed from 61.7% in 1993 to 59.8% in 2003 (Table 5.5). This information shows no sign of farm land concentration in the region. The region is still predominantly smallholder-based in the last four decades of development. In absolute terms, more smallholder households were able to access farm land during these times.

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Table 5.5 Distribution of land holdings in the Northeast region from 1993-2003

Number of Holdings Percent Size of land holdings (hectare)

1993 1998 2003 1993 1998 2003

Total 2,505,936 2,589,354 2,653,391 100.0 100.0 100.0

Under 1.0 330,115 315,846 415,012 13.2 12.2 15.6

1.0 - 1.5 312,091 372,310 393,074 12.4 14.4 14.8

1.6 - 6.3 1,545,488 1,685,690 1,586,188 61.7 65.1 59.8

6.4 - 22.3 311,441 211,174 252,561 12.4 8.1 9.5

22.4 and over 6,801 4,334 6,556 0.3 0.2 0.3

Source: The National Statistical Office, 1993 and 2003 and 1998.

5.5 Greater hired labor market

The expansion of commercial crops led to an increase of labor requirement for farm activities in the Northeast region. Before the phase of commercial farming, a wage labor system was hardly found in a village. Most of the Northeast villagers commonly used a traditional labor exchange system. Until the late of 1970s when the agricultural land for commercial crops had been expanded, demand for hired labors had been increased (Parnwell, 2005) and traditional labor exchange mechamisms within a community had practically disappeared (Sawaeng and Nongluck, 2001). Suwit (1987) criticized that the main reason of changes in the labor system from exchange labor to wage labor was the high cost of exchange labor. He stated that the cost of exchange labor had been increasing whereas the work load has not been increased as high as the cost. Usually a host farmer invites people to help and in return he had to provide food and drink for the working guests. Food and drink must be well prepared and have more than enough for all the working guests otherwise the host farmer will be complained and it will be difficult to find a help or exchange labor for the next time. However, Maneemai (2003) argued that a lack of labor can be found in the Northeast but only in the short time; that is during planting and harvesting periods. Harvesting time for a commercial crop is usually limited than a traditional crop as the time is determined by its market price. Since the time is limited, the first priority is given to their own farms. Hiring labor, especially from other areas or less land farmers is required in this limited time. Impact of agricultural commercialization is not only in term of increasing demand for labor in the farm activities but also in the agro-industrial sector. Increase of commercial crop production in the Northeast led to also an increase of agricultural processing factory near the production areas. Statistics showing number of factory in the Northeast revealed that there was an increase of number of factory almost 22 times from 1,908 in 1975 to 44,033 in 1995; 78 per cent of the total factory were rice mills. The growth of factory was still continuous to be 43,747 factories in 2000 with about 324,490 employees in the Northeast and 77 per cent were agricultural related factories (Theerapong, 2003). Cheap wage condition was an incentive for factories to be located there. However, the majority of factories in the Northeast was small-scale enterprises and mainly located in the main

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provinces of the Northeast, i.e. Nakorn Ratchasima, Khon Kaen, Udon Thani and Ubon Ratchathani (Theerapong, 2003).

5.6 Increased credit use and associated indebtedness problems

Even though the farm cash income of the Northeast farmers has been increasing over the period of commercial agriculture, there are also literatures presenting the increase of debt from commercial farming. More commercialized agriculture has led to an increase use of expensive external inputs such as hybrid seeds and fertilizers which has in turn created the need for a ready source of alternative cash income for rural households. Most farmers borrowed money from traders under the high interest charge. The unreliable rainfall in the Northeast created the high risk of commercial crop production. In the year that the rain is good, the farmers will have enough money to pay back both the principal and interest. In the year that the crop failed due to drought or low price, farmers have no money to pay back the debt and also to invest in the new crop. Suwit (2003) showed the results on his study that the village in which farmers grew mainly commercial crops have more debt ranged from 0.6 to 6 times than the village in which farmers grew mainly paddy rice. Nevertheless, the income of the farmers growing commercial crop and applied modern technology also was about 2-3 times higher than the farmers who did not. The report of debt repayment from BAAC in 2003 showed that in the aggregate, there are only low percentages of bad debts and the Thai farmers are generally disciplined when it comes to repayment of their debts (Thanongsak, et al, 2003). The 2005 annual report of BAAC, however, showed good repayment rates of farmers (around 90 per cent for individual farmers and 97 per cent for farmer groups and cooperatives) in all regions including from the Northeast. For the Northeast itself, BAAC loaned a total amount of 278,369 m. baht to the Northeast during 2001-2005 (an average of 55,673.8 m. baht per year), while received loan repayment of 269,549 m. baht during the same period (an average of 53,909.8 m. baht per year) (BAAC, 2005). The indebtedness problems are certainly real for a group of farmers who experienced crop failure or market risks but it seems the majority of the Northeast farmers are able to cope with them.

5.7 Migration and effects on social welfare

Among other things, migration has become a major coping strategy for the households which either have not enough capital for farming, not enough income from farming or those with indebtedness problems. A combination of mechanization in agriculture and rural population growth have contributed to increased seasonal and permanent migration to urban areas among the Northeastern farming population. In quest of urban jobs, adult members of farming families would migrate to urban areas within the region or in other regions, especially in Bangkok, as well as abroad. By the late 1980s, migrants accounted for about 30 per cent of the population of Bangkok, and most originated from the Northeast (Richter, Guest, Boonchalaksi, Piriyathamwong and Ogena, 1997 cited in Cameron and Lim, 2005). From 1985-1990, the Northeast region experienced a net migration loss of 554,000 people (Sussangkarn, 1995 cited in Cameron and Lim, 2005). These migrants would then support their rural family through remittances. Among receiving households in the Northeast, these remittances accounted for one third of household income in 1996 and slightly increased in 2002. It reduced the poverty headcount in households by almost one third in 2002 (NESDB and the World Bank, 2005). However, while about 50 per cent of Northeast families rely on remittances from migrants, almost a half of Northeast villages affirmed social problems with migration (NESDB and the World Bank, 2005) such as

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children being raised in a household without their parents. The study of Cameron and Lim (2005) found that migration of adult members to urban areas has a significantly negative effect on child welfare, as measured by child weight-for-height and weight-for-age. However, receipt of remittances in excess of 8,000 baht from migrants provides a positive marginal effect on child weight-for-height and weight-for-age, suggesting that the negative effects can be mitigated by remittances. Another important of remittances is to use as a means of alleviating debt. Labor migration and remittances make the Northeast labor market as well as household living standards dependent on the rest of Thailand, especially Bangkok and Central regions. Even though out-migration of Northeast labor have been increasing over the period of commercialization, increased degree of commercial crop production have slowed down the speed of out-migration of villagers in the commercial crop areas. The transformation study of Northeast peasant economy by Maneemai (2003) found that the employment of the commercial farming village where most farmers grew rice two times per year and grew other cash crops was higher than that of the less commercial village. Also, the out-migration of commercial farming village was less than a half of the less commercial villages. Regarding labor market in the Northeast, there are numbers of Laos workers migrate into Northeast, Thailand for working purposes, especially in bordering provinces due to the higher wage levels in Thailand. Working in the Northeast should not be difficult for Laos workers as Laos and northeast Thai society are quite similar and they also speak the same language. Pramuan (2004) studied about Laos migrant workers in the Northeast of Thailand and found that most the Laos migrants were single female and poor. Most of them used to work in agriculture (70% of the 260 samples) but earned less income than required which was the main factor for migration. However, less was contributed to farm activities in the Northeast since only around 7% of them worked in the agricultural sector as hired labors in cash crop production. Most of them worked as workers in factories, restaurants, rice mills, petrol station and also as maid in private houses. The changes that have happened in the Northeast have had effects on a neighboring country as well. The effects are probably similar to those taken place in the Northeast region itself although there are not many studies investigating the social impact of such a process.

5.8 Political empowerment Under the commercial agriculture, a farmer is not only a producer but also a seller. Farmers should not only have control over production activities but should also have bargaining power in determining price for their products. In the phase of commercial agriculture in the Northeast, farmers have been encouraged to work in groups in order to have bargaining power for their commercial products. Community organizations and networks found in the Korat Basin that engaged in agricultural production is farmer group networks such as the rice-growing farmer group. Viyouth (2001) demonstrated how a rice-growing farmer group work and can successfully cope with problems of input and output price. Due to the low rice purchasing price, the community rice mill was set up to buy paddy from the network members to process and sell rice directly to consumers, cutting off the rice trader. The farmers can sell their products at a higher price than the market price and at the same time, rice consumers also got benefit from the lower price. Benefits gained from rice mill operations will be partly returned to members to increase their income.

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Without the commercial agriculture, this kind of network or organization would not be seen in the Northeast region. Formation of farmer organization also creates political bargaining power to serve their needs. Commercial sugarcane growers can be a clear example to explain the political bargaining power of farmer organization. In the past, the cane price was set by buyers from sugar mills and sugarcane farmers had no bargaining power. But after the establishment of the Sugarcane Farmers Association, the association together with sugar millers has pressured Thai governments to maintain the price of sugarcane well above the world market price. They have even forced organizational changes upon government ministries in order to accommodate their needs (Ramsay, 1987). Another example which happened recently is that the Sugarcane Farmers Association have recently (early 2006) requested the Thai government to stop controlling the domestic sugar price by letting the price being managed by market mechanisms to solve the problems of shortage and illegal exports as the world sugar price is higher. They also requested the government to give a response within a short time otherwise all of the representatives of sugarcane farmers would resign from the Cane and Sugar Board or they would not let the sugar out of the sugar mills. As the result, the commerce minister had called for an urgent meeting with sugar manufacturers and traders over a sugar shortage and prices (Mathichon daily newspaper, 5 January 2006). After that a study about floating sugar price had been conducted but the Thai government had been changed before making any decision about the sugar price. The next elected government will decide whether or not to deregulate the sugar industry and end nearly three decades of sugar price controls (Bangkok Post, 28 October 2006). Three factors have facilitated sugarcane farmers’ success in creating politically influential organizations: high concentrations of land holdings; geographical concentration; and the industrial structure of the sugar industry (Ramsay, 1987). For farmers growing other crops, e.g. rice farmers, as a result of farmers getting together to share their problems, they are now quite organized. Their organizations are quite vocal in stating their demands and putting forwards their requests to the government. Politically, they are more strong and empowered. The process of competitive commercialization of their agriculture has made them more organized, cosmopolitan and politically active.

5.9 Mitigation of impact of the 1997 financial crisis on the northeast economy After a period of financial crisis in the beginning of 1997, by July 1997, the Bank of Thailand decided to switch from a fixed exchange rate system to a floating rate as Thailand has been unsuccessful defended of the Thai baht against the continuous attack of speculators. Switching to the floating exchange rate meant that the value of Thai baht would be determined by the demand and supply of the Thai baht in the world currency market. As the result, the Thai baht was devalued by about 15-20 % (28.80 baht per 1US$) after the announcement. By the end of 1997, the value of baht had continuously gone down and reached the lowest record at 48.80 baht per 1US$ which was almost a half of its value before switching the exchange rate (Narisa, 1999). The private sector, particularly the financial institution, found it even more difficult to repay their foreign debts because the floating exchange rate had caused the debt in baht terms to rise. Consequently, several firms were forced to shut down which resulted in a high rate of unemployment. The Northeast economy was also hit hard by the financial crisis, especially in the construction, property, local manufacturing and services sectors. However, the impact has

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been mitigated to some extent by good conditions in the agricultural sector. In 1997, the agricultural products in the Northeast were quite well as rainfall had been good. The devaluation of the Thai baht had increased the prices of export products including rice, sugar and cassava, especially the price of jasmine rice which had the highest on record in that year (Theerapong, 2003). Consequently, commercial farmers in the Northeast should not be affected by the financial crisis. Moreover, the commercial agriculture also plays an important role in absorbing the unemployment people, who had migrated out to work off farm in Bangkok as well as within the region and were laid off due to the financial crisis. Those unemployed labor were welcomed home by rural-based extended families. They managed to find sufficient work in agriculture. For example, according to a field survey by the Bank of Thailand’s northeast office, more than 500 of the 600 workers laid off by a vehicle-parts manufacturer were re-employed by the agricultural sector (Theerapong, 2003). Barnaud and et al. (2006) also reported that the expansion of sugarcane growing areas in the northeast region during 1996 to 2002 played an important role by providing off-farm employment to wage earners in the mills but also in the fields, as weeding and cane harvesting operations require a lot of hired labor in the wet and dry seasons.

5.10 Conclusion The commercial agriculture in the Northeast has obviously improved the income and well-being of the Northeast people, although in relative terms the economic growth of the Northeast is still slower than the other regions. The Northeast farmers have significantly adopted the new production technology to improve the efficiency of crop production. Crop production is more diversified and land is more secured through the process of commercial agriculture. The commercial agriculture created employment both in agricultural and agro-industrial sectors for the Northeast people and as the consequence, it has slowed down the rate of out-migration. Although, there was in-migration of labors from neighboring countries but less was contributed to the agricultural sector. The use of farm machineries has on the other hand eased farmers’ work loads and some farmers migrate to urban areas for employment. Remittances provide their families with extra income and sometimes financing the farm sector. Formation of farmer organization for commercial crop marketing has improved a political-economic bargaining power for the Northeast farmers. While commercial agriculture has increased the household income of the Northeast, it also increased the expenditure and risk of crop production. Some farmers have debt problems and the difficulty of refinancing the debts although the majority can cope and repay their debt. However, the commercial agriculture played an important role in mitigating the impact of financial crisis in 1997 by being a working source of unemployed labors which were laid off due to the crisis. Competitive agriculture in the Northeast has positively and negatively affected the traditional ways of life and social relationship. Farmers are now more dependent on credit for production, merchants and outside markets and they are now technology-oriented as well as market-oriented. Their traditional exchange labor system is now undergoing changes. There are concerns dealing with poor, landless and indebted farmers and how they can survive in the process of competitive commercialization. The evidence in the region has not been much to support large negative impact. Despite some of these concerns, in the overall, its social impact has been positive. The Northeast population is

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now well-off and better educated. The economy is expanding and the society is modernizing. Without the past process of competitive commercialization in agriculture, the Thai Northeast farming population would not have achieved what they have today. Looking back, their patience and perseverance with such the process and systems paid off in the long run. The process is not only benefiting rice, maize, cassava or sugarcane farmers but it has contributed to the whole economy of the region to be more adaptable to change, more open to competition, and more able to cope with varability in all lines of productive activities.

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CHAPTER VI

ENVIRONMENTAL IMPACT ASSESSMENT OF COMMERCIALIZED AGRICULTURE

6. Environmental impact assessment of commercialized agriculture A comprehensive environmental impact assessment of commercialized agriculture in the Northeast is hardly possible. Many existing studies of the environmental impact of cash crop production in Northeast Thailand have been confined to plot-level experiments and village-level studies. Others have provided only snapshots of environmental effects of commercial agriculture. Although long-term and in-depth studies remain scant, most studies of the 1980s and 1990s pointed to rising environmental problems associated with commercial agriculture in this area. The most well established impact of commercial agriculture appears to be the loss of forestland. Other adverse effects, such as enhanced soil erosion, decline of soil fertility and degradation of wetlands, have been shown only at selected sites or remain anecdotal in character. In the following sections, we will discuss these problems in more detail and show some of the recent responses by farmers and policy-makers that provide a more encouraging outlook for reversing negative trends and enhancing environmental protection through more sustainable forms of commercial agriculture. 6.1 Forests

The major share of the Northeastern region is formed by a dryland plateau with altitudes ranging from 100 to 200 m. It drains to the Mekong River, which determines the region’s northern and eastern borders. To the west, the plateau borders the Dong Phaya Yen mountain range and to the south, along the border with Cambodia, by the Phanom Dongrak range. Most of the northeast was traditionally covered by open deciduous woodlands (mainly dry dipterocarp types) and savanna, with evergreen forests being mostly confined to the mountain slopes. Some lowland evergreen forests could be found in the extreme northeast, bordering the Mekong River, but these have now been almost entirely cleared for agriculture (ICEM, 2003). In 1961 when the first national social and economic plan was implemented, the forest area in the Northeast was estimated at about 70,904 km2 accounting for about 42 percent of the region’s total area. During the period from 1961-1988, the forest area decreased dramatically at an annual rate of 10-18 percent, driven by the kingdom’s logging concession policy at that time. Within 15 years, 50 percent of the Northeast’s forests had been destroyed. Following a nation-wide logging ban implemented in 1989 (see below), the decrease of forest area still continued, but at a lower rate. Between 1988 and 1998, forest cover declined from about 14 percent to 12.4 percent with an annual loss of approximately 1.1 percent. From 2000 onwards, an increase in forest area has been recorded due to the implementation of a strict reforestation policy and promotion of forest plantation such as eucalyptus plantation in the northeast region (Table 6.1). In the following we describe the driving forces for forest depletion in the second half of the last century. Since the 1950s the socio-economic basis in the entire region has changed with the dramatic growth of upland cash crop production backed by government programs. Consecutive depletion of forest resources was accelerated by the fact that agricultural output was raised mainly by expanding the area under cultivation rather than by increasing

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productivity. This was exacerbated by customary land use patterns and traditional perceptions towards forestland as a reserve for agriculture. As a result of the promotion of upland cash crops, agricultural land use increased by 53 percent between 1950 and 1984 (Hafner 1990 cited in Neef and Schwarzmeier, 2001). Data presented by Bello, Cunningham and Li, (1998) suggest that upland farming was extended more than sixfold from around 0.28 million ha in 1961 to 1.75 million ha by 1989. Table 6.1 Forest Area in the Northeast of Thailand

Year Forest area

(sq. km) Annual

decreasing rate Percentage of

total regional area 1961 70,904 41.99 1973 50,689 -2.38 30.02 1976 41,494 -6.05 24.57 1978 31,221 -12.38 18.49 1982 25,886 -4.27 15.33 1985 25,579.9 -0.39 15.15 1988 23,693.3 -2.46 14.03 1989 23,586 -0.45 13.97 1991 21,798.7 -3.79 12.91 1993 21,472.9 -0.75 12.72 1995 21,264.6 -0.49 12.59 1998 20,983.9 -0.44 12.43 2000 26,954.7 14.23 15.96 2004 28,095.7 1.05 16.64

Source: Royal Forest Department (2004) Historically there were three different “cash crop waves” that changed the agricultural land use pattern: corn was grown in the first wave induced by strong export market demands, replaced by kenaf in the second wave due to strong price incentives, and followed finally by cassava from the early 1970s in most areas. From the mid-1970s to the late 1980s cassava production increased dramatically, from 1.6 million tons to 10-14 million tons annually, in response to a growing and highly profitable animal feed market in western countries, mainly Europe. The increase in production was achieved mainly through expansion of cassava planted area, from about 460,000 ha in 1974/75 to 1 million ha in 1988/89 (Office of Agricultural Economics, various years). Forest clearing in frontier areas of the northeast, in particular, was not only permitted but actively promoted by the government as a strategy of combating communist insurgents who had taken refuge in forested areas at the time. The area is endowed with mainly poor soils and rather unpredictable rainfall, so cassava was the upland crop of choice. Massive deforestation continued until the late 1980s, when most land within Thailand’s borders had already been cleared; at that time the government proclaimed a national logging ban, following a disastrous flood in the country’s south, to arrest the alarming rate of destruction of the native forests (FAO, 2001). The case of cassava exemplifies the growing dependence of farmers on national and international markets, middlemen and national agricultural policies. Strong demand from European markets in the late 1960s turned the Northeast into the world’s biggest cassava growing region. The cassava boom has also been supported as it complements wet-rice production rather than competing with it for labor and land. Hence, its production could be easily expanded into forested areas (Dhira and Panayotou 1990, cited in Neef and Schwarzmeier 2001). Bello, Cunningham and Li (1998) claimed that upland farming was not primarily a response to population growth but rather the result of a shift from subsistence to cash crop

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production which had been actively promoted by government agricultural policies, often in conflict with national environmental policies. The expansion of upland crops were further fuelled by the government’s rice policy, i.e. to keep domestic rice prices at a low level, thus urging farmers to diversify their agricultural production and switch to more profitable products. Hafner (1990, cited in Neef and Schwarzmeier, 2001) concluded that the expansion of upland cash crops is a result of market and price incentives leading to increased deforestation and consecutive land degradation. While population growth and expansion of agricultural production for export are certainly major driving forces of deforestation, they are not the only factors. A study of deforestation in several Northeastern provinces cited population density, price of wood, poverty, road density, rice yields and distance from the market as central factors contributing to deforestation (Panayotou and Somthawin 1989 cited in ICEM, 2003). A similar study in the same region cited poverty (in terms of real GDP per capita), population growth, and the price of cassava as the main causes (Sopin et al. 1990 cited in ICEM, 2003). Panayotou and Chatchai (1990) showed that conversion of forestland to agriculture is positively related with the price of main crops and farm population numbers, and negatively related with agricultural productivity and the degree of industrialization. 6.2 Land resources

As land is the most crucial factor for agricultural production, rapid expansion of agriculture directly affects the demand for land and land use practices. Inappropriate use of agricultural land has aggravated problems of soil erosion, soil salinity and soil fertility in this region.

6.2.1 Soil erosion Dramatic expansion of commercial crops, namely cassava, maize and sugarcane, in the upland areas has been a primary cause for soil erosion problems. A comprehensive study of Patma et al. (2004) draws the conclusion that the landscape of the Northeast was transformed from forestland into cultivated areas by pioneering farmers only after the economy became more commercialized with the expansion of cash crop cultivation in the early 1950s. Forest conversion into agricultural land began in the lowlands – the prime areas for paddy cultivation – and expanded later towards the uplands. The study was based on primary data at the community, landscape, and field plot level in Kham Muang in Khon Kaen province and included long-term monitoring by means of various methods of physical measurement between 1998 and 2001. It was found that land use changes induced degradation of the uplands, but not in the paddy cultivation areas. The authors found that upland fields without proper soil conservation measures have much higher soil erosion rates and lower soil organic matter pools than natural forest. Annual soil loss from upland cassava and sugarcane plots are estimated at around 20 t/ha, double the US Soil Conservation Service’s soil loss tolerance threshold of 10 to 12 t/ha/yr. The high loss in field crop plots is a consequence of their low ground cover and frequent soil disturbances, particularly from plowing. The paddy fields, on the other hand, receive continuing in-flows of nutrients eroded from higher parts of the landscape (Patma et al., 2004). Hence, continuous increase of soil degradation can be anticipated in the future resulting in unsustainable forms of agriculture in this region. Aside from soil loss on-site, soil erosion has also significant off-site effects: it can result in shortening of the effective life span of irrigation channels and dams as a consequence of increased sedimentation. Vidhaya, Viriya and Aran (2004) reported that to compensate for the soil loss in their upland fields, farmers

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apply chemical fertilizers to maintain current production levels. Rising input costs through increased fertilizer use reduce the profitability of crop production in the short term. Income from upland crops in the Northeast may not be sufficient to completely cover the costs of replacing soil nutrients lost in the cultivation process. In the long run, farmers can loose their production base, if soil loss cannot be compensated anymore through agrochemical use.

6.2.2 Soil salinity Salinity currently affects about 12% of the lowland soils in Northeast Thailand but there are predictions that it will increase to about 30% (Yuvaniyama, 2001, cited in Bell and Seng, 2004). Evidence suggests that salinization is a consequence of the change in the water balance at the landscape level after clearing of the forest for agriculture (Williamson et al., 1989, cited in Bell and Seng, 2004). In the past, forests played a vital role in suppressing soil salinity in the region. The combination of accelerated deforestation for different purposes, such as agriculture and dam construction, has contributed to the dilution of below-ground salt deposits and the diffusion of salt through natural and artificial waterways (Bello, Cunningham and Li, 1998). In Northeast Thailand, areas affected by high salinity levels are often found in rainfed paddy fields. Under rice-based and upland farming significant recharge of the ground water occurs annually which regularly causes water tables to rise. Where groundwater reaches the soil surface or is found in depths of less than 2 meters, discharge of salt occurs and can cause significant damage to the vegetation. As a consequence, many agricultural fields have been abandoned in recent years. Survey data from the last 10 years suggest that salt affected areas in Northeast Thailand occupy about 28,400 km2 and have been expanding mainly due to human activities such as deforestation, salt making, irrigation and construction of dams, canals and roads (Wada, Wichaidit and Pramoganee 1994, cited in Somsak and Yamamoto, 2002). Inadequate management of agricultural land further accelerates salt accumulation.

6.2.3 Soil fertility As stated earlier in this report, the Northeast of Thailand has undergone dramatic land use changes over the past 40 years. This has included a move away from subsistence-based agriculture to commercialized farming systems. Cassava and sugarcane have become predominant components of upland farming systems (Nobel and Suzuki, 2005). Light textured sandy soils are common throughout the region and – despite their inherent infertility – constitute an important economic resource for agriculture (Panichapong, 1988, cited in Noble and Suzuki, 2005). During the period from 1982 to 1998, 500,000 ha of Dipterocarp forest was cleared for agricultural activities in Northeast Thailand, largely being driven by a population increase in the region of 4.8 million (Office of Agricultural Economics, 2001, cited in Noble et al., 2004). Land use change has resulted in a significant decline of the nutrient status of these soils, largely due to declining soil organic carbon in surface horizons. The study by Noble et al. (2004), drawing on data obtained from six paired sites covering both upland and lowland cropping systems in North-east Thailand, showed that these soils become particularly fragile when cleared of their native Dipterocarp communities. These adverse effects on the soil resource base are not confined to the uplands but also occur in lowland locations. The key driving force associated with

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the chemical degradation of these soils is continuous tillage which causes a loss of organic carbon and a decline in cation exchange capacity (CEC). Soil organic matter is particularly difficult to restore in tropical and sub-tropical environments where regular disturbance of the soil texture occurs during the preparation of seedbeds and weed control. This result is confirmed by other studies (Somya and Patma, 2002; Somya, 2002 cited in Patma, 2007) showing that carbon contents of most soil organic matter pools are much lower in the upland cultivated fields than in the lowland paddies and the forest. In the upland fields, the degradation of soil organic matter pools was more severe under cassava than sugarcane because the latter returned more organic residues to the soil (Patma, 2007). 6.3 Biodiversity and genetic diversity

Gustafson (1995) states that in response to the high variability of rainfall patterns farmers in the Northeast have developed flexible cultivation patterns. The focus of the strategy is to ensure stability of production over the years rather than to maximize yields. The use of traditional rice varieties with a large degree of ecological flexibility and adaptability is central to this strategy. In the past, each farm family grew 3-5 rice varieties in their rice fields. A report by Bhundhit and Areewan (2003) stated that the genetic diversity of local rice varieties has been decreasing to critically low levels. Due to the government extension and promotion program, farmers have been gradually substituting their own varieties by government bred high-yielding varieties, such as Kor-Khor 6, Kor-Khor 8, Kor-Khor 15 and Kow-dok-mali 105 (white jasmine). The two most important factors affecting the erosion of the Northeast’s rice diversity are considered the strong export orientation and national rice breeding policies. The adoption of a few recommended varieties has induced concerns of ‘genetic erosion’. As a response, rice biodiversity conservation projects based on farmer participation were recently established (DOA, 2002, CBDC, 2002). Thailand’s New Plant Variety Protection Act 2542 has the intention to protect local communities’ rights to indigenous varieties. A study of Benjavan and Kanok (2002) for northern Thailand suggests that market forces can actually enhance genetic diversity rather than jeopardizing it. Many different kinds of rice of varying properties can now be found in rice retail markets across Thailand. Highlanders in northern Thailand regularly sell their own hand-milled upland rice and buy twice to four times as much rice from the lowland market with the proceeds (ibid). A report compiled by FAO (2001) mentioned that the rapid area expansion for cassava production in northeastern Thailand from 1975 to 1989 must have resulted in a loss of many native forest species, including many plants used in traditional Thai herbal medicine, although the exact extent of this loss of biodiversity remains unknown. Since centuries, rice and other wetland products, including fish, amphibians and wild plants collected from paddy fields and their surroundings, have catered for the main subsistence needs of the rural population. Wetlands were long considered to be an open access resource. Water resource development activities and ‘flood plain development’ for irrigated agriculture have resulted in the draining of wetlands and their conversion into paddy fields, leaving only few natural wetland areas unaffected. Examples are dike and weir constructions that encircled Nong Hang in the northern region and Nong Prakun in the northeastern region and encouraged alienation of the surrounding wetland areas for agricultural use. This irrigation infrastructure development combined with road construction has contributed to reducing the water levels in wetlands, thus blocking the migration of aquatic animals (ICEM, 2003).

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Dam construction for agriculture connected with the growing demand for irrigation has indirectly caused adverse effects on biodiversity and wetland resources. The case of the Pak Mun Dam, a highly controversial multi-purpose development project for hydropower generation and irrigation, provides evidence on the impact of dam construction on biodiversity losses. It is estimated that approximately 200 species of fish were found in the Mun River prior to the construction of the dam. According to a survey done in 2001 by researchers at Ubon Ratchathani University, 184 species from 44 families were found, while villagers documented 156 species (counted according to the number of local names for the fish). A Mekong Watch survey documented 108 species from 26 families (Mekong Watch, 2004). In addition, downstream of the Pak Mun project, one or two species of fish have completely disappeared from the catch after the dam construction. This project has also resulted in a loss of riverbank vegetation and a type of seasonally flooded community forest, locally known as “Bung-Tam” forest, with high ecological and economic value. Previously, women harvested around 40 edible plants, 10 bamboo species and 45 mushroom species for household subsistence and to generate small amounts of cash income. A number of medicinal plants were also found near the Mun riverbank. Loss of these plants through inundation has implications for both biodiversity and household food security (World Commission on Dams, 2000; Sneddon, 1998).

6.4 Increasing uses of agrochemicals

Agrochemicals in form of inorganic fertilizers, herbicides, and insecticides are used throughout the production process of the main commercial crops (rice, maize, cassava and sugarcane) in the Northeast, although agrochemical application is generally lower than in the high-potential agricultural zones of the Central and Eastern region. The promotion of chemical fertilizers as a single source of plant nutrients while neglecting the value of organic fertilizers has enhanced soil degradation processes in the Northeast as mentioned in previous sections. A report commissioned by Green Peace Southeast Asia claimed that continuous and exclusive application of chemical fertilizers can decrease organic matter composition and microbiological activity, leading to soil compaction, reduced water-holding capacity and micronutrient deficiencies. As a consequence, crops suffer from stunting, are more vulnerable to pests, and produce lower yields (Vitoon, 2003). Often, farmers indicate that using chemical fertilizer causes hardened soil surfaces, increasing cost of inputs, pollution, decreased bio-diversity and increased dependency on external resources. Secondary effects of increased soil hardness are that farmers in this region increasingly employ tractors for ploughing, which results in a dramatic decrease in raising buffaloes and cattle. Hence, various benefits of livestock accruing to both the environment and livelihoods of people have vanished. In the past, almost every household raised at least several heads of livestock, mainly native breeds of cattle and buffaloes. Besides serving as an asset for sale in the case of cattle and/or for draught power in the case of buffaloes, livestock manure was a precious resource for crop cultivation. In the past farmers applied manure to fertilize their paddy fields, as well as home garden plots. Application of manure in paddy fields was strongly related to beliefs and rituals, such as the heag na practice. Traditionally, ruminants were raised in a free grazing system in paddy fields or public lands and thus their manure was widely distributed on the soil as a fertilizer. Dung beetles that lived on manure not only helped to decompose the manure, but also became a food source for farmers as well as home-raised chickens. After 1976 the livestock population throughout the northeast began to decline, a process that still continues today. Buffalo numbers, for instance, dropped from 3.6 million heads in 1976 to

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only 2.3 million in 1997. With less ruminants grazing on the paddy buns, excessive growth of grasses and weeds has made the harvested paddy fields a preferred habitat for rats. As the rat populations grow, vector-borne diseases like leptospirosis spread in many regions (Suchint, Sukaesinee and Somjai, 2003).

The decline of ruminant populations also affects other agricultural sectors. Aquaculture has been continuously promoted as a source of protein and cash income in the northeast. Manure spread in natural water increases populations of aquatic life, such as various species of fish, crabs, aquatic insects, which serve as an important human food source. Recently, it has been discovered that manure applied in fishponds can also improve water quality. However, with decreased livestock populations, limited manure supply and, at the same time, wide application of toxic agricultural chemicals, the farmers realized that water quality in fishponds is deteriorating and that an important and cheap source of protein-rich food has declined, making them more dependent on external food sources. A report of van Liere and McNeely (2005) states that in Northeast Thailand the available data points to a decrease in overall fish catches as a result of expansion of irrigated agriculture. The increasing use of agricultural chemicals, some of them with hazardous properties, has greatly depreciated the rice-fish systems which have traditionally contributed to the farmer’s diet. Direct pesticide poisoning has also become a serious health problem for many northeastern farmers. The incidence of pesticide poisoning during the period 1971-1988 increased substantially (Vitoon, 2001). One example of the hazardous effect of pesticides is the control of the Brown Plant Hopper (BPH). Extension services in the Northeast have put emphasis only on pesticide application. In the initial period, farmers started with less hazardous pesticides. When BPH infestation continued to increase, farmers resorted to more toxic chemicals and a combination of pesticides to control them. In spite of this, BPH continues and appears to even be expanding. In addition, a study indicates that pesticide application destroyed proportionally more of BPH’s natural enemies than the number of BPHs themselves (Ooi et al.,1992 cited by Vitoon, 2003). With fewer natural enemies, the BPH population rises excessively. A study conducted by Sriratanasak, Buddha-samai and Tayadharma (1996, cited in Vitoon, 2003) found that BPH in the central region of Thailand has the highest level of insecticide resistance when compared with BPH in the northern and northeastern regions due to the even higher doses of pesticide application in the central region. Another study by den Braber (1992, cited in Vitoon, 2003) also comes to the conclusion that resistant rice varieties, fertilizers, and BPH migration are minor factors in BPH outbreaks, while pesticide spraying is the key factor contributing to an increase in the BPH population through interrupting the BPH-natural enemy population balance. A serious side-effect of pesticide application is that the BPH is also widely consumed by local people, hence pesticide contamination in the pest would finally be transferred to humans (Vitoon, 2003). den Braber (1992: 300) concludes that “reduction of insecticides is the essence of every long-term, sustainable BPH control strategy”. It should be noted, however, that many of the investigations related to the use of agrochemicals in Thailand and Northeast Thailand were done by environmental non-government agencies (NGO) which tend to be skeptical about commercial forms of

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agriculture. There is a need for much more scientific and balanced studies to confirm these phenomena. 6.5 Water resources

Agricultural commercialization in the Northeast affect water resources both directly and indirectly. Deterioration of the quality of surface water is classified as a direct impact caused by leaching of agrochemicals. As crops grown in the upland areas, such as sugarcane, are grown with high doses of agrochemicals, leaching of chemical residues into the waterways is a common phenomenon. Notwithstanding the intensity of agrochemical use, a report from Office of Environmental Policy and Planning (OEPP, 2000) suggests that water quality of important rivers in the northeast region could still be classified as ‘good’ for the past decades. The Northeast is biophysically distinct from other regions of Thailand by its situation on a plateau and by a high degree of spatial and temporal rainfall variability. Annual precipitation ranges from 800 to 1400 mm, most of which occurs in the six months of the rainy season. Rainfall distribution is characterized as bimodal with distinct wet and dry periods erratic and poor distribution results in regular, seasonal drought periods with a significant impact on rainfed agricultural production systems (Nobel and Suzuki, 2005). The precipitation rate dropped at the average of 0.6% per year during the period of 1990-1996. The southwestern part of the region receives only 900–1100 mm annually making it the most drought-prone. A study by Vichian and Wanpen (2002) reported that water quantity in this region was about 36,700 MCM, but only 7,780 MCM or about 21% could be stored due to the low water capacity of soil as a result of various factors, and one among them is inappropriate agricultural practices as mentioned in section 4.2. Water resource development by the state in the Northeast has tended to focus primarily on large-scale projects (dams, irrigation schemes). These megaprojects have contributed to the degradation of aquatic systems and have resulted in many tensions and conflicts between the state and local communities throughout the region over the past two decades (e.g. Sneddon, 1998). Impacts of dam construction on forest, biodiversity and wetland are mentioned in section 6.1 and 6.3. Regulations to control water quantity and quality in Thailand can be grouped into three categories. 1) The application of environmental impact assessment (EIA) for determining the impact and mitigation plan for development projects with various types and sizes such as dams with a storage volume of 100 million m3 or more, and irrigation projects exceeding 12,800 hectares. 2) The establishment and application of effluent standards such as industrial effluent standards, domestic effluent standards, effluent standards for pig farms and fish/shrimp farms etc. 3) The ambient water quality standard and classification based on the water quality situation, socio-economic aspects, and availability of treatment technologies. The ambient water quality standards were established in 1994 and have served as guidelines of supposing the receiving waters based on major beneficial uses. The surface water quality standards are categorized into five classes. Class 1 is extra clean water for conservation purposes. Class 2 refers to very clean water used for (1) consumption which requires ordinary water treatment processes (2) aquatic organism conservation (3) fisheries, and (4) recreation [for example, DO > 6 mg/L, BOD > 1.5 mg/L, Fecal Bacteria < 1000 MPN/100ml). Class 3: Medium clean water used for (1) consumption, subject to an ordinary treatment process and (2) agriculture [for example,

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DO > 4 mg/L, BOD < 2 mg/L, Fecal Bacteria < 4000 MPN/100ml). Class 4 is fairly clean used for (1) consumption requiring a special treatment process and (2) industry [for example, DO > 2 mg/L, BOD < 4 mg/L). Class 5 refers to water that is not classified under class 1-4 with no water quality requirement and used for navigation (Wijarn, 2002). The existing regulations suggest that the emphasis is more on point sources of pollution, and less on agricultural pollution classified as non-point sources. This might stem from the complexity of identifying and quantifying agricultural pollution. 6.6 Mitigating adverse environmental effects of commercial agriculture

6.6.1 Reversing the loss of forestland To tackle the problem of deforestation, Thailand has resorted to legal mechanisms in managing natural resources, especially forest conservation and demarcation of protected areas. The National Forest Reserves Act of 1964 was enacted to improve the administration and management of lands designated as forest reserves. This was to be accomplished by imposing punishment on illegal occupants of such areas. The use of legal instruments to suppress deforestation and illegal occupation of forestlands has been employed by the Royal Forest Department (RFD) since the promulgation of the first Wild Animals Reservation and Protection Act in 1960 (amended and further tightened in 1992), followed by the National Parks Act of 1961. These laws endorsed the establishment of protected areas utilizing the most effective procedures for designating and administering national parks and wildlife sanctuaries. From 1985 onwards, a watershed classification system was gradually introduced at the national level, categorizing all land into five watershed classes, with class 1A being a zone where all human activities are prohibited. From 1989 onwards, the protected area system expanded rapidly as a result of the logging ban and other government conservation policies. As of July 2002 there were 81 terrestrial national parks, encompassing 46,453 km2 or around nine per cent of the country. In the northeast, there were 20 parks covering 10,320 km2. This accounts for 6.1 per cent of the regional territory (ICEM, 2003). Protected areas had been managed and supervised by the Royal Forest Department (RFD) until 2002. With the establishment of the Ministry of Natural Resources and Environment (MONRE) in 2002, protected areas were placed under the responsibility of the Department of National Park, Wildlife and Plant Conservation (DNWP), with the RFD now focusing on forest plantation and production on degraded forestland and – to a lesser extent – on former farmland. While the state-paradigm of forest protection and rehabilitation remains controversial in Thailand, the Community Forestry Bill (CFB), which has been drafted in various versions and hotly debated since the early 1990s, has a high potential to enhance forest protection and reforestation (e.g. Neef and Schwarzmeier, 2001). The CFB, which is currently considered for ratification by the Thai government, will provide a legal basis for the many existing community forests in the Northeast and is likely to provide incentives for the establishment of further community forest areas.

6.6.2 Protecting land resources and restoring soil fertility Soil conservation measures have been introduced for decades to tackle the problems of soil erosion in the uplands. Tree planting in upland fields is considered a viable measure for reducing soil erosion and enhancing soil fertility. However, Patma (2001) reports that this measure is not suitable for sugarcane plantations as they have relatively little tolerance to shading. Since sugarcane has become predominant in the uplands, it has been observed that its cultivation has led to the clearing of trees in sugarcane fields at an accelerating rate. In

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addition, small land holdings – a typical characteristic of Northeastern farms – are preventing farmers from having trees in the upland fields. Planted trees are mainly found at the boundaries of the upland fields as a means to mark land ownership rights. Patma (2001), on the other hand, reports some cases of Northeastern farmers attempting to retain and even integrate new trees in their farming system. Multipurpose trees that provide tangible economic benefits to farmers were found to be successfully adopted in cultivated fields, both in paddy fields and uplands, as reported by Pakarat (1993, cited in Patma, 2001). As the problem of high salinity in northeastern soils is essentially a water balance problem (Williamson, Peck and Turner, 1989 cited in Bell and Seng, 2004), its solution has to come from land use changes that decrease the recharge of regional groundwater, which is a particular challenge given the current importance of lowland rice cultivation. Tree planting or rehabilitation of perennial vegetation on a wider scale may be needed to restore the water balance, though the minimum area needed to be effective remains unknown. Presently, it is mostly upland areas that are targeted for tree planting, but expansion of agroforestry systems in the lowlands may also be essential for restoring the water balance. Current research emphasis, however, appears to be on the selection of salt-tolerant crops to be grown in salt-affected soils, rather than on finding effective ways to restore the water balance (Yuvaniyama, 2001, cited in Bell and Seng, 2004). Thailand’s Department of Land Development (DLD) tried to solve the problem by introducing Acacia ampliceps and other salt-resistant crops. In addition, farmer leaders were trained to improve the land and infrastructure. Soil and water conservation methods were also applied, and canals were constructed to drain the excess water during the rainy season and store it for use in the dry season. Roads were constructed to control the flood in the rainy season. The project area of Thung Kula Rong Hai under the DLD improved 549,520 rai (87,923 ha) of saline soil for the benefit of 14,280 farm households. Today, Thung Kula Rong Hai is the largest area to produce jasmine rice in Thailand (Chatchai, 2003). Restoration of soil fertility can be achieved through various methods. Some authors have suggested the introduction of long-term grass leys in rotation with crops which would increase the soil organic carbon content and have a direct benefit for soil properties and carbon sequestration (e.g. Noble et al., 2004). However, resource-poor farmers in developing countries whose primary objective is household food security regard the implementation of long-term conservation measures without direct economic returns as a fairly unattractive option. Patma et al (2004) showed that a crop rotation of sugarcane and cassava can help to maintain crop yield levels. Cassava grown after sugarcane produced higher yields than continuous cassava cultivation as the residual chemical fertilizers from sugarcane and its organic residues enhanced soil fertility. The extent of soil fertility decline is well recognized by farmers in the region as they have developed endogenous strategies to reverse chemical degradation based on the use of termite mound materials and, more recently, the application of lake dredged materials (Nobel and Suzuki, 2005). The marginality of the upland environment in the Northeast, however, has seriously limited the scope for innovations enhancing soil fertility and maintaining or increasing crop productivity. Hence, Boserup’s seminal work on the effects of population growth on the development of agrarian change appears to have limited relevance for large parts of the agrarian landscape in Northeast Thailand (cf. Rigg, 1987). The situation is different in the

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paddy cultivation areas. A study conducted by Walsh et al (2001), drawing on data collected from rice farmers in Nang Rong district, Buriram Province, showed that higher population pressure was associated with higher rice yields, which points to a Boserup effect in those areas with higher agricultural potential.

6.6.3 Preserving the remaining wetlands Recently, the importance of wetlands to the management of national water resources has been moved from the fringes of public interest to center-stage following a national survey and the increasing recognition of their importance as habitat for a wide range of unique plant and animal species, and nesting grounds and temporary homes for many migratory birds. Biodiversity and wetland conservation has been implemented by the Thai government as the Contracting Party of the Ramsar Convention since 1998. The Office of Environmental Policy and Planning (OEPP) serving as the national focal point of the Convention had completed the inventory of wetlands in Thailand in 1999. The inventory divided important wetlands in Thailand into three categories; wetlands of international importance (61 sites), wetlands of national importance (48 sites), and wetlands of local importance (19,295 sites). After the nomination of many wetlands of international importance to the Ramsar Bureau, in the year 2002, Thailand has six wetlands designated as the “Ramsar Site”. Currently, the Khorat Plateau of the Northeast comprises 12 wetlands of international conservation significance and 10 wetlands of national importance (ICEM, 2003). In addition to these conservation efforts, the Natural Resources and Biodiversity Institution (NAREBI) was founded in 1998, following a proposal by the Committee on Agricultural and Cooperatives Policy and Planning. NAREBI is the responsible coordinating body in the field of natural resources and biodiversity policy and management under the Ministry of Agriculture and Cooperatives. The Thailand Biodiversity Center (TBC), established in 2000, is a national focal point for the access and transfer of biological resources, under the National Committee on the Conservation and Use of Biodiversity (OEPP, 2000). These institutions are likely to draw further attention to the necessity of preserving the remaining wetlands of northeastern Thailand.

6.6.4 Enhancing alternative forms of agriculture The rising global demand for organic products enhances the opportunities for farmers in developing countries to increase the value of their products as the consumer’s willingness to pay is higher for organic than for conventionally produced products (Morawetz et al., 2007). With the increased purchasing power of the urban population and a growing demand for healthy and chemical-free agricultural products in Thailand, the promotion of organic agriculture as an alternative to conventional, high-input agriculture has also a significant potential in the Northeast. Organic rice production in the northeastern region under the Organic Fair Trade Rice Project is one example of how more environmentally friendly types of agriculture could provide both agro-ecological and social benefits. A group of farmers in Tatoom village in the northeastern province of Surin has recently switched from conventional to organic farming. Farmers participating in the project stated that organic farming has improved the soil structure and organic matter content since rice straw and stalks, often burnt in the past, were now being ploughed back into the soil. Animal manure and green manure also add

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organic matter to the soil. Farmers have protected perennial trees in the rice fields, since the project requires maintaining existing trees for conservation purposes. The cessation of agrochemicals means that fewer harmful substances are added to the local ecosystem, contributing to the maintenance of a balanced ecology and to an increase in different animals in the rice ecosystem. Farmers notice an increase in natural enemies, e.g. spiders, birds, and fish in their rice fields. In addition, organic rice farmers have a much lower risk of exposure to pesticides (Vitoon, 2003). Organic agriculture is also in line with the current emphasis on the principles of self-sufficiency farming, promoted by His Majesty the King of Thailand. While the self-sufficiency concept does not reject commercial forms of agriculture per se, it calls for a balance between human needs and ecological integrity. 6.7 Conclusion The successful expansion of commercial agriculture in Northeast Thailand has come at a price. The conversion of forest lands into areas for cash crop cultivation from the 1970s to the 1990s has been well documented in the Northeast. Since the turn of the millennium this negative trend has been reversed and efforts by government agencies and local communities have been undertaken to restore the forest cover in many areas. Further momentum is likely to be gained if the Community Forestry Bill were enacted, which would provide local people with new incentives to protect their forest resources. During the peak periods of cash crop expansion of the 1970s-1980s, upland areas were exploited with no adequate measures to control soil erosion and maintain soil fertility. In irrigated areas, soil salinity became an increasing problem. Although agrochemical use has been more moderate as compared to other areas of Thailand, contamination of soil and water with agrochemical residues have been reported in many locations, since the mostly sandy soils of the region are more prone to leaching. Several megaprojects, such as dam constructions, have threatened wetlands and disrupted villagers’ livelihood opportunities. As comprehensive, longitudinal studies covering larger areas have not been conducted to date, more research is needed to establish clear cause and effect relationships. Commercialized agriculture in the past raised the economy of the Northeast above the subsistence level in a relatively short time. Since the negative effects on the environment, namely forests, water and soil are being felt in many locations – albeit at varying degrees by different groups of farmers–, recent years have seen a trend towards more sustainable forms of commercial agriculture. Soil and water conservation measures as well as integrated systems, such as crop-livestock-fish systems, agroforestry systems or organic farming, are currently being supported by many government and non-government agencies and they are gradually gaining acceptance by Northeastern farmers. The concept of sustainable agriculture has been enshrined in three consecutive National Economic and Social Development Plans (NESDP) since 1997 and has since been promoted by the Thai government. These efforts have also been recognized in the recent UN Human Development Report (UNDP, 2007).

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REFERENCES Agricultural Development Research Center in Northeast Thailand (ADRC). (1992).

Workshop on Agricultural Research Strategies and Development in Northeast Thailand, 13-16 January 1992, Khon Kaen.

Agricultural Futures Exchange of Thailand. (2006). Tapioca Starch Premium Grade: Overview, [Online], Available, http://www.afet.or.th/english/product/ts/, [September 17, 2006].

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