AGRICULTURE Production is up but prices are down and trade barriers still appear in various sizes

Doom and gloom down on the farm

WALAILAK KEERATIPIPATONG

Falling prices for many key agricultural products give Thai farmers little reason to celebrate the new millennium.

Worldwide, production of cash crops including rice, tapioca, sugarcane, pineapple and rubber was likely to exceed demand in the last quarter of 1999, leading to a further decline in prices.

Compared with a year earlier, output by other leading agricultural countries, especially leading producers of rice, rubber, sugarcane, tapioca and palm oil, is expected to rise, as climatic conditions have been more favourable.

If forecasts prove correct, the government will inevitably come under pressure to provide heavy subsidies to farmers through price support.

Without market intervention and price guarantees, the government will surely face protest rallies that could prove damaging in an election year.

Competition in the world market will be intense in 2000, with countries trying to find new non-tariff barriers to protect their domestic producers. The failure of negotiations under the auspices of the World Trade Organisation in late November has created more difficulties and has delayed attempts by members including Thailand to liberalise the agricultural trade.

The call for members to reduce export subsidies is contentious, with developed countries, especially those in the European Union, insisting protective measures are essential for them.

To counter trade barriers in various non-tariff guises, the government and the private sector need to ensure that products keep abreast of all requirements such as stricter hygiene standards for food production and storage, labelling of products free from genetic modification, and compliance with animal welfare regulations.

As well, Thailand needs to export more processed added-value products, in preference to exports of raw produce.

Among the new developments in 2000 will be the emergence of a commodities market to make trade in products more systematic and, hopefully, improve earnings.

The Food and Agriculture Organisation forecasts that the world rice trade in 2000 will total 23-24 million tons, the third-highest annual total on record.

While exportable supplies are expected to be plentiful, demand is expected to be sluggish, given good production prospects in many major importing countries such as Indonesia, Bangladesh, China, and the Philippines, all four of which are significant Thai export markets.

Thailand was on track to export about 6.3 million tons of rice in 1999, compared with 6.41 million the previous year. The government expects paddy for the 1999-2000 main crop will be almost 18.9 million tons, 3% more than a year earlier.

With an expected four million tons from the second crop, the country's overall production could reach 23 million tons. However, given market conditions, the price is likely to fall sharply unless the government intervenes.

The Rice Policy Committee has introduced measures aimed at keeping paddy prices the same as a year earlier.

The central bank will set aside 20 billion baht for paddy merchants, and the Export-Import Bank of Thailand will provide the same for rice exporters.

The Bank for Agriculture and Agricultural Co-operatives will be a core organiser of finance for farmers by accepting 2.5 million tons of mortgaged paddy.

For fragrant paddy it will pay 6,840 baht a ton, with farmers receiving 95%, or 6,495 baht, when the crop is mortgaged. For paddy of 100% white rice, the price is 5,560 baht a ton, and 6,200 baht for good grade glutinous paddy.

Agricultural co-operatives and groups, as well as state agencies, have a total of 2.02 billion baht on hand to intervene in the paddy and rice markets.

To stabilise the rice price, the Foreign Trade Department plans to sell 750,000 tons on government-to-government contracts in 2000.

Two state-run agencies, the Public Warehouse Organisation and the Marketing Organisation for Farmers each plan to buy 250,000 tons to provide price support.

The government has also placed 4.78 billion baht with the Farmers' Assistance Measures and Policy Committee to stabilise the prices of several other crops from the start of the 1999-2000 fiscal year last October. About 1.3 billion baht will be spent to intervene in the production and marketing of cassava to shore up the price of the root at 0.85 baht per kilo.

Cassava output for 2000 is forecast by the industry at 20.26 million tons, 23% more than the 16.37 million recorded a year earlier. However, the increase will cause the price to fall to 0.75 baht per kilo from 0.70-0.80 baht now.

Suchai Jaovisidha, director-general of the Internal Trade Department and a director of the committee, said more money would be needed if prices were to be supported effectively. In 1998, the committee spent more than 10 billion baht on market intervention.

As well, the agricultural sector will face another challenge from the government's tax revamp plan which has been restructured to comply with global pacts.

The Finance Ministry planned to restructure taxes on about 1,300 farm and agro-industrial products by the end of 1999. The restructuring would reduce import tariffs on farm and agro-products to 0-15% from a current 28-50% by the start of 2000. However, by mid-December the ministry had still to announce the rates for each category.

Local farmers and manufacturers of agro-industrial products warn against changes that would make Thai goods less competitive against foreign products and have asked for more time to upgrade their operations before they are exposed to the full blast of competition.

They have protested that the planned tax cuts would run ahead of the schedule that Thailand had agreed with the World Trade Organisation. Thailand, in fact, is required to reduce customs tariffs on farm and agro-industrial products to 27-40% by 2004.

The Finance Ministry has placed farm products in three categories: raw materials, defined as natural products; semi-finished products, processed items; and finished products ready to be eaten.

About 1,300 farm and agro-industrial products are registered with the Customs Department. They now attract 27 different tariffs from zero to 100%.

The Agriculture and Commerce ministries want to make exports more competitive by tapping US$600 million from the Asian Development Bank.

Farm products will be classified into three groups, each with specific plans involving production and marketing to be established by the ministries, according to Sompol Kiatphaibool, permanent secretary for commerce.

The first group consists of export crops such as rice, tapioca, rubber, coffee, vegetables, livestock, prawns and poultry.

The second comprises products of which there is an insufficient supply for domestic consumption and some imports are required, such as maize and soybean.

The third consists of crops which Thailand has to import, such as cotton.

As well, the Agriculture Ministry will also launch a five-year master plan starting in 2000 to strengthen long-term export competitiveness of 12 categories of farm products.

The plan will focus on three aspects of development: curbing oversupplies, reducing production costs and improving production efficiency.

The products are rice, tapioca, rubber, sugarcane, pineapple, maize, soybean, palm oil, coffee, chickens, pigs, and black tiger prawns. The zoning system for each commodity will enable the ministry to control output to meet demands.

Besides the restructuring plan, the government will introduce the country's first commodities market.

Initially, four products will be traded on the market: rice, rubber, tapioca and prawns.

Manufacturers and exporters are being urged to produce more high value items instead of raw materials.

Ajva Taulananda, a former deputy minister of agriculture, also suggests they focus on the developing market for organic produce. He said the government had acted too slowly to meet concerns over genetic modification.

Suthep Lauhawatana, a former executive of Coca-Cola Thailand Co and a current member of the Thai Rak Thai Party, said that in 1998 Thailand earned about 120 billion baht from exports of processed food, compared with 395 billion baht from shipments of all farm products.

Therefore, there was much room for more exports of high value-added products. But the government needed to provide tax privileges for small and medium enterprises and farmer groups involved.

Technology from leading food producing nations could improve local production, he said, adding that organic food could be an alternative.

 

 

 

 

 

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