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1
Nipon Poapongsakorn
Thailand Development Research Institute
Thailand Focus 2011 on “Enhancing Thailand’s Competitiveness
Through the Next Decade.” Organized by Phatra Securities.
Four Seasons Hotel, Bangkok
29 March 2011
2
Role of agriculture and food sector in the
global market and the Thai economy• Why is Thailand one of the world major food
exporters?
• How can Thailand remain the major food exporter
in the next decades?
Impact of food price inflation• Role of government : do and don’t
Thailand has been the 13th top exporter of agricultural
and food products, with the export value of 515 billion
baht and the market share of 2.24% in 2007
• Table 1 Agricultural Export Rank of Thailand
3Source: FAOSTAT 2011.
1980 1988 1998 2008
Food and agriculture 17 16 13 13
Agricultural Products 17 16 16 16
Total Merchandise Trade 46 31 24 26
4
Figure 1 Thailand’s Share of World Agricultural Export (%)
Source: FAOSTAT 2011.
0
0.5
1
1.5
2
2.5
3
1990 2000 2007 2008 2009
Agricultural Export Food Export
%
It is the world largest exporter of rice, rubber,
cassava, canned tuna, shrimp and canned
pineapple
5
70.1
46.8
37.6 37.4
30.6
16.8
77.7
45.339.8
14.1
34.7 36.8
0
10
20
30
40
50
60
70
80
90
%
Share of Value Share of Quantity
938 563
6,722
1,940
6,109
2,535
13,642
619
2,832
506
10,216
360
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Value (Mil.US$) Quantity (1000 tons)
Source: FAOSTAT 2011.
Market Share Export Quantity and value
It is also the major exporter of sugar (world
number 3), chicken, tropical fruits and
vegetables, and feeds
6
5.18 5.19
2.50
0.24
9.81
8.54
1.12
0.22
0
2
4
6
8
10
12
Sugar Fruit Vegetables fresh Chicken meat
%
Share of Value Share of Quantity
1,649
936
68 40
5,908
1,044
33 230
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Sugar Fruit Vegetables fresh Chicken meat
Value (Mil.US$) Quantity (1000 tons)
Source: FAOSTAT 2011.
The growth of output is the major
source of export growth, thanks to a
decline in domestic per capita
consumption and low population
growth• Growth rate 1980-2010 (%pa)
Agricultural output 3.4%
Food value added 6.7%
Agricultural export 10.5%
Food export 12.2%
7
• Why productivity growth contributes to
more rice export ?
8
Increase in Production (1976-
78 and (1984-86)Changes in demand
+2.258
+0.334
-0.237
export+95.9 %
Seed+14.8%
Consumption-10.1%
+2.258 mil tons
+0.334
-0.237
Production
2.355Mil tons
Mil tons
+
0
-
Agriculture still plays more important
role in the Thai economy than its 10%
share in GDP• Low cost of living
• Very few Thais are hungry
• It is the safety net for 6 million farm households
(30% of all households) and their member
(38% of workforce)
9
Strength of Thai agriculture and food sector • Thailand has comparative advantage in land-intensive
crops, e.g., rice, rubber, cassava, sugar cane, corn
• It has acquired competitiveness in some high value
products, safe food and products which are income
elastic e.g., shrimp, cooked and ready-to-eat chicken
meat, safe vegetables, fruits, etc.
Ready-to-eat food exports has increased rapidly
• It is not competitive in protein-based crops and
rapidly losing competitiveness in low value products,
e.g., oil palm, soybean, quality beef, low quality rice,
etc.
10
• Factors explaining Thailand’s competitiveness : investment and technology
(1) Land abundance : land per worker is higher than Asian countries
11
Land/worker
-
20
40
60
80
100
120
140
0
1
2
3
4
5
6
7
8
9
19
61
19
62
19
63
19
64
19
65
19
66
19
67
19
68
19
69
19
70
19
71
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
Mil.Rai
Rai /
workerPlanted
Areas
Source: 1. Office of Agricultural Economic, 2. National Statistical Office Labor Force Survey
(2) Infrastructural investment :
Irrigation & universal primary education in the 1960s
Rural roads in the 1970s
Rural electrification in the 1980s
Public sector investment in food safety infrastructure
in the early 2000s as a result of chemical residue in
food exports and NTBs
(3) Farmers’ investment as a result of the
establishment of Bank for Agriculture and
Agriculture Cooperation in 1966.
95% of farm households have access to credit
12
(4) Surge in mechanization investment in response to labor shortage since the 1990s
Mechanization investment
13
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
Un
it
Two wheel walking tractors
Big tractors
Water pump
Sprayers
Threshing equipment
Source: Office of Agricultural Economics, Ministry of Agriculture & Cooperatives
• (5) Public investment in R&E since the1950s
14Source: Bureau of the Budget.
0
1
2
3
4
5
6
7
8
9
Bil
lio
n B
ah
t a
t 1
98
8 P
ric
e
Agricultural Extension Agricultural Research Department
Public R&E in agriculture
• (6) The private sector also invests in agricultural
R&D. Its role is more important in food R&D
15
0
200
400
600
800
1000
1200
1400
2001 2003 2005 2007
Mil.Baht
Agriculture Food
A. Private R&D
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2001 2003 2005 2007
Government Private
B. Share of Private Research expenditure in Agricultural R&D
29.8%
Source: NRCT.
What is more important in growth
generation : investment or R & D ?• Investment accounted for 55-64% of
agricultural growth in 1970-2006.
• R&D accounted for 17.5-21%
• But investment is subject to law of diminishing
returns, while R&D is not.
• Rate of return to R&D in agriculture is higher
than 40%
• In some cases, IRR is 200%
16
What are the technologies produced by
R&D?
• There are thousands of agricultural and food
technology in every stage of the supply chain in
the last 50 years
• The most important technology is genetic
improvement which resulted in higher yield or
productivity : green revolution and major role of
the public research
Farmers develop fruit tree and large animals
Private sector invests in hybrid technology : corn,
vegetables, rubber, small animal
17
• The second most important technology is
mechanization, followed by the post-harvesting
technology, .e.g., handling, processing, storage
and logistics
• Software technology also plays increasing role in
productivity enhancement, value creation and
food safety : GAP, GMP, HACCP, food safety
standards, standards for organic food,
production process that are environmental friendly and animal welfare standards
18
Studies show that a few large-scale
agribusiness firms and supermarkets have
constantly engaged in technology
upgrading and increasingly invested in
R&D, particularly product development
• Such activities generated “spillover” benefits for
SMEs which are copy cats
• Main channels of technology upgrading are from
multi-national buyers, technology suppliers, labor
mobility and R&D.
19
• The following table list the types of technology
in agriculture and food
20
Technology Chicken Fishery Swine/dairy Rice Sugar Vegetables Corn
1. Hardware
- Breeding hybrid - heat-tolerant hybrid HYV seedshybrid
seeds
- Reproduction shrimp AR
cultivation
- Feed improved improved improved
- Housing evaporative evaporative -
hydroponic
- closed
system
- closed
system farm
- factory/farm - scaling up - scaling up scaling up scaling up
-mechanizatio
n - - -
Technology Chicken Fishery Swine/dairy Rice Sugar Vegetables Corn
2. Software-management
-GAP, GMP organic organic - feed factory
-QCC/HACCP - - -
-biosafety / traceability - - -
-
raw materialscontract &
owned farm
- trust &
owned farm- scaling up - CCS -
- skills
workers
collecting
station (canned pineapple)
-
logistics&handling - major
improvement
- handling
stationmajor improvement
-procurement/standards -
by supermarket (brands) (brands) (brands) - - (brands)
-
product development - ready-to-eat - ready-to-eat- new
productionorganic - organic -
-package Retort pouch - small package -
Technology Chicken Fishery Swine/dairy Rice Sugar Vegetables Corn
3. Market strategy
- New products - - -
- Brands - buying brand -
-alliance with
partner - - - -
abroad (china) (china) (Autralia)
Why do firms invest in R&D or upgrade
technology? • Tax-exemptions for R&D investment up to 200%
• Cost reduction and productivity in provement
• Market opportunity : many new ready-to-eat
products have been introduced in the Thai and
Chinese markets
• Threats, particularly disease outbreaks and stringent
SPS measures on food imports have forced firms to
invest in the closed farming system, bio-safety farms,
adoption of GAP and traceability system, private
labels and food safety standards certification, and
organic products
23
Domestic constraint 1 : few young farmers in
the future. Farm size will be larger to
accommodate mechanization
• 4 million young people have left the farm and will
not return during 1995 and 2010
• Most farmers are old : average age is 54 years and
17% are 60 years and over, 26% are 50-59 years old
24
25
0
1
2
3
4
5
6
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
Mil
lio
ns
15-24
25-34
35-44
45-54
>55
Source: NSO, Labor force survey.
Domestic constraint 2 : agricultural pollution
and degradation of natural resource • Agriculture is major source of pollution
• Overfishing in the Gulf of Siam
26
Figure 10 Total fishery catch in Gulf of Siam
Mil tons
Domestic constraint 3 : increasing water
shortage• figure 11 Supply and Demand of water in Thailand
27
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
North Northeast Central East South All Country
Demand 1996 Demand 2006 Supply 1996 Supply 2006
shortage
Source: Department of Water Resource, 2007
Domestic constraint 4 : Food safety is still
the major problem in the domestic food
market and the SME exporters of fruits
and vegetables, e.g., recent problem of
vegetable export to EU
Domestic constraint 5 : decline in public
research intensity, inadequate incentive
for agricultural researchers and policy
constraints affecting biotech research
28
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
0
0.5
1
1.5
2
2.5
1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
U.S. (Right bar) China India Philippines Thailand Malaysia
Source: Waleerat 2009 and ASTI database.
Figure 12 public research intensity has declined
External challenge 1 : more stringent SPS
measures and increasing demand for
environmental – friendly foods and trade
protectionism
• Carbon footing, food mileage
• Water – saving and energy-saving foods
30Source: James Reynolds 2009.
External challenge 2 : climate change will have serious
impact on some crops, especially irrigated rice
Covariance of rice yield and ENSO index
31Source: Benjavan 2010.
But there are also opportunity
• Higher food prices forecast due to the increase in demand for biofuel for food and energy in emerging economies and slower growth of agricultural productivity
IFPRI’s modeling of cereals price changes (2000-15)
32Source: Joachim von Braun 2008.
• Increasing demand for high value food and
safe food as the per capita income of the
emerging economies increases.
33
It depends critically on the direction of the government policies
Policies with positive direction• Public R&D policy : 5 public research funding
agencies have formed a coalition, commissioned policy studies and pushing for more research budget as well as better incentive for researchers
• Water management and natural resource management : the Reform Commission, the National Reform Assembly Commission and 234 networks of rural communities, NGOs, and government officials have proposed a major policy reform of resource management that will enable the community to have property rights and rights to manage the common resources, including water
34
• The Food and Drug Agency and MOAC have
adopted active policy on food on food safety in
the domestic market by cooperation with the
consumer protection groups
• There are also some policy measures and
incentives for the new generation of farmers
• There has been a tendency for less government
intervention in the market, except palm oil and
sugar cane and egg
No export restriction
The price insurance policy replaces the highly
distorted paddy mortgage scheme
35
4. What will the future of Thai agriculture and food sector be
Policies with negative direction or no
positive change
• Land policy : there is increasing pressure to
either limit land holding or introduce the
progressive land tax, thanks to the inequality
problem
• The proposal is contrary to the future trend of
larger farm size which is the consequence of
migration out of the farm sector
• However, the proposed policy is highly
politically sensitive and the land reform law will
have small chance of being legislated
36
4. What will the future of Thai agriculture and food sector be
Food prices and fuel prices began to put pressure to
inflation at the beginning of 2007 and peaked in the
early 2008 before subsided
• They surged again in the late 2010
• Figure 16 Food Price Index and Food Commodity Indices
37Source: The World Bank 2011.
38
Source: Vikram-Nehru 2011.
39
Source: Vikram-Nehru 2011.
• Food prices contributed more to overall
inflation than oil prices
40
Figure 19 Monthly Price Movement of Crude Oil, Palm Oil and Rice, 2007-2011
0
50
100
150
200
250
300
350
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3
2007 2008 2009 2010 2011
Index(1/2007=100)
Crude Plam Oil Price WTI Crude Oil Price 100% Thai Rice Price
Note: all prices are normalized to 100 on January 2007.Source: Energy Information Administration, Malaysian Palm Oil Board, Weekly Rice Update,
Inflation in 2010-11 is rising because of • Food price increases
• Capita inflows adding to liquidity
• Delayed with drawl of fiscal stimulation
Causes of Rising Food Prices• Major factors in 2008
Export ban by 2 largest rice export countries
Rising demand for energy
Drought and declining stock of cereals
• Main reasons in 2010-11
Driven by prices of maize, wheat and vegetable oil
Food prices rose in most East Asian countries for different reasons
Declining stock of grains and lagging supply as the food demand increases
41
• Food price inflation affects the poor
more than non-poor because the share
of food in the poor’s expenditure
(56.2%) is higher than that of non-poor
(22%-49%)
So the poor responded by maintaining
food expenditure, thus reducing quantity
of food consumed
Such behavior may affect their health,
especially their children’s
42
43
88
90
92
94
96
98
100
102
104
106
108
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2007 2008 2009 2010
NON-FOOD AND BEVERAGES EXCLUDE FOOD AND ENERGY
Source: CPI from Ministry of Commerce.
44Source: Calculate using data from SES 2007 and 2008. Food CPI from Ministry of Commerce.
• Rural people are more prone to food inflation than urban
people because the rural households spent 38% of total
spending on food, while urban households spent 32%
• 90% of all poor (2.4 millions) are in the rural
45
-5
0
5
10
15
20
25
30
35
40
45
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11
2003 2004 2005 2006 2007 2008 2009 2010
(%yoy)
WK Food Inflation Rural Food Inflation
Source: CPI from Ministry of Commerce.
Figure 22 Food Inflation, Rural and Overall (%yoy)
• Do Thai households, particularly the poor, gain
or lose from rising food prices? Depend on
whether they are net sellers (farmers) or net
buyers of food. Data for rice shows that
(Somchai and Ammar 2009)
(1) Proportion of low income households that are rice
surplus (36-44%) is higher than high income
households (4%-23%)……good news
(2) Though there are more deficit households (11.47
million) than surplus households (4.48 million), value
of total rice surplus for all households exceeds total
rice deficit
46
(3) This means that Thai households will have
net benefit from the increase in rice price and
the benefit would spread over all income
classes, but more than proportionately to the
high income classes
Implication : higher rice price is good for the
Thai farmers and the economy
47
Income Decile
Surplus group (,000 household)
Deficit Group (,000
household)
Neutral Group (,000
household)
% Rice Surplus Group
Average Surplus for
Surplus group
(Baht/HH/year)
Total Surpls (Million
Baht/year)
% Total Surplus
Average Deficit for
Deficit Group (Baht/HH
/year)
1 2 3 4 5 6 (1 x 5) 7 82006
1 624 563 297 42% 14,377 8,976 4% -5,5002 651 698 262 40% 20,725 13,500 6% -5,4023 659 783 248 39% 28,253 18,628 8% -5,7204 567 975 250 32% 33,131 18,795 8% -5,8325 515 1,058 273 28% 47,541 24,506 11% -5,6966 464 1,160 251 25% 55,420 25,693 11% -5,9947 351 1,290 273 18% 75,208 26,421 12% -5,8448 330 1,481 325 15% 92,015 30,332 13% -5,2399 180 1,631 423 8% 135,109 24,282 11% -5,113
10 139 1,834 491 6% 249,076 34,683 15% -5,329total 4,481 11,472 3,092 24% 50,399 225,853 100% -5,5282007
1 667 615 250 44% 19,559 13,049 6% -6,0352 630 752 239 39% 26,024 16,384 7% -5,9653 617 862 247 36% 31,272 19,289 9% -6,0384 600 969 228 33% 38,534 23,134 10% -6,1405 512 1,104 248 27% 50,392 25,821 11% -5,9836 423 1,230 216 23% 66,485 28,152 13% -5,9367 344 1,361 283 17% 75,706 26,052 12% -5,8928 266 1,548 293 13% 103,409 27,545 12% -5,4579 190 1,759 356 8% 137,509 26,067 12% -5,090
10 105 1,986 410 4% 186,556 19,536 9% -5,070total 4,354 12,187 2,769 23% 51,677 225,028 100% -5,641
48Source: Socio-economic Survey, 2007 and Agricultural Census, 2003Note: Rice surplus/deficit groups are defined as households with net surplus/deficit in net (income from rice – expenditure on rice).
A study by Ruenbanterng, et.al. (2008) also
find that producers of major crops benefit
from food price increase even though their
production cost rose due to the higher fuel
and fertilizer prices
49
The government took the mis-steps in its
attempt to control food prices
• The price control will affect the farmers’ incentive
• Moreover, it also results in food shortage, and the actual
food price will be higher than when food price is allowed
to adjust freely as shown by the case of palm oil
• The palm oil price control is an expensive lesson for the
government, and particularly for the Democratic Party
• Another mis-step is an impractical measure to promote
egg selling by weight (kg.)
50
• The government should consider abolishing all price
controls and change its policy of subsidizing selected list of
goods and services since some of the measures have
serious targeting problems, e.g., the price control of diesel
and gas.
• The priority should be a targeted cash subsidy for the poor,
or employment for cash
Eliminating all price control measures
Investing in an information system of vulnerable families
and households
Strengthening the outreach capability by (a) improving
the area-based budget allocation ; assistance to the needy ;
and (c) delegating some tasks to the NGOs which are
specialized in service delivery for the poor and the needy
51