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More gains were expected from a sector well positioned to thrive on a weak baht, but rising production costs have eaten into farm income, while major structural improvements still must be carried out

 

AGRICULTURE

Harvest of fear and anxiety

Phusadee Arunmas

The agricultural sector was expected to be one of the drivers of the economic recovery, given Thailandûs formidable reputation as a world-class food producer and exporter. But agriculture has lagged behind other sectors in terms of recovery, buffetted by domestic and external factors.

The Agricultural Economics Office forecast that if the economy grew by 3.84% in 2000, agricultural sector growth would be just 1.91% compared with last year. Its contribution of 12% to the gross domestic product would not make a significant dent in the countryûs economic problems.

A worldwide oversupply of many major commodities, along with slowing economies in some key markets, have left Thailand fighting it out with other producing countries for market share.

Natural disasters including severe floods in the Northeast and Upper North did not have the impact that some people had feared, and total farm output still increased. The weakening of the baht against the US dollar, meanwhile, helped to create export opportunities.

On the domestic front, farm prices rose but farmers did not necessarily see any extra income. Most of the increases were due to rising production costs. Soaring oil prices were one factor, while the weak baht pushed up the cost of inputs such as fertiliser. The manufacturing cost structure of primary agricultural products involves about 3% imported materials, while the figure for food processing and other agro-industries averages 35%.

The farm price component of the Consumer Price Index increased by 2.7% from last year, compared with an average increase of 1.17% for other sectors. Domestic prices of vegetables, fruits and some livestock products all rose.

Farm crop output rise by 3.17% from last year. High growth was seen for fruits such as durians, longans, lychees, rambutans and mangoes, as well as vegetables. Smaller increases were recorded for key commodities including rice, maize, cassava, rubber and soybeans. Palm oil and sugarcane output fell slightly.

The prices paid to farmers for most key products was on the downtrend, however. The average paddy price ranged from 4,835 to 7,060 baht a ton, compared with 5,579 to 6,892 baht a year earlier.

Other prices (last year's figures in parentheses, included: maize, 3.90 baht a kilogramme (3.69); cassava 0.61 baht/kg (0.91); soybeans 9.01 baht/kg (9.75), oil palm 1.73 baht/kg (3.37); grade 3 rubber sheet 21.2 baht/kg (23.06).

Production of the livestock rose slightly, but average prices of swine, eggs and chicken fell due to heavier competition.

The value of farm product exports between January and August 2000 rose by 11.34% from the same period of last year, as a result of expanding markets in the United States, Europe and Japan, along with entry into new markets.

Export revenue from rice, cassava and fishery products was reduced due to more sluggish trade. The fishery continued to suffer from the depletion of stocks, as well as spiralling fuel prices.

Cassava exports fell because European Union countries were producing more grains for their animal-feed industries. As well, the EU's Common Agriculture Policy dictates that grain prices must be reduced by 7.5% per year.

Rubber exports increased as a result of Japanese futures market speculation, as well as the demand by tyre producers after the recall of 6.5 million suspect Bridgestone tyres. Sugar exports also rose on the back of the weak baht, while fresh and canned fruits, frozen chicken and shrimp performed well.

For 2001, the Agricultural Economics Office projected that if the economy grows by 4% and the baht continues to fall due to high demand for the currency to repay foreign debts, the agricultural sector should grow by 1.38% compared with 1.91% this year.

The office said the projected growth rate would still be a far cry from the 3.66% seen in 1999.

The gross domestic product of the sector would rise to 347.8 trillion baht next year from 343.1 trillion this year. The prices of key products have been moving up since the last quarter of this year by 3% on average.

The uptrend is likely to continue throughout 2001, as the output of some key products from the coming crop might be reduced. Maize, cassava and sugarcane growers would be paid more for their produce, while prices of swine, chicken and shrimp would hold firm.

The output of rice, maize, tapioca and rubber would decline slightly, with soybeans and oil palm recording gains. Livestock and fishery production would increase in line with higher demand for white meat such as chicken and seafood.

Agricultural services, including post-harvest management and food processing, are expected to expand substantially in line with rising farm product output. The country's exports of farm products would benefit from economic improvement and the expansion of market by major buying countries such as Europe, the United States and Japan.

Progress in solving exporters' lack of fund, combined with low interest rates, have helped stimulate exports. But obstacles to farm product exports would persist, with non-tariff barriers in the form of environmental or sanitary regulations in Europe a major concern for producers who have failed to invest in improvements.

Help for the sector has come from the Agricultural Sector Programme Loan scheme, worth US$600 million or about 26 billion baht. Half of the funds came from the Asian Development Bank and the other half from the Japan Bank for International Co-operation. To date, 15.7 billion baht in disbursements have been improved.

Adisak Sreesunpagit, deputy permanent secretary of the Agriculture Ministry, said 14 projects had been approved. They include improvement of small, medium-sized and large irrigation systems, land reform projects, product quality and management improvement, biotechnology research and development, upgrading inspection standards, and improving forestry protection.

Seven other projects valued at seven billion baht are still under review. They cover development in irrigation areas, improvement of community production potential, agriculture technology transfer centres in tambons, and studies on the potential of black tiger prawn farming in brackish water.

Other projects include a plan to set up a central market for orchids, flowering plants and wooden products on land managed by the Forest Industry Organisation; promotion of commercial forest development in reforested areas; an agricultural network; and a project to hire an adviser on restructuring the ministry.

As with so many areas of the economy, the agriculture sector awaits the formation of the new government to see whether promises made for major structural improvements will be approved, changed or sent back to the drawing board.

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