Agriculture plays a key role in Thailand’s economy and social structure as it employs more than half of the workforce. Thailand is the leading world producer of rubber, pineapples and prawns and is a top exporter of rice and tapioca, which account for about 25% and 85%, respectively, of total world exports.
Thai agriculture has diversified, although crops still generate 60% of agricultural revenue. The rest is derived from fisheries, livestock, forestry, simple processing and agricultural services.
Development of the agricultural sector is restricted because of individual farm size. Traditionally, farms have been passed down through families, a custom that has resulted in a large number of very small farms. Many are now so small that their economic viability is questionable.
A large-scale food processing industry is replacing the production of agricultural commodities such as rice, cassava (tapioca), sugar cane, maize and rubber. Indeed, agro-industry has been designated in Thailand’s National Economic and Social Development Plan as the link between traditional agricultural society and an expanding industrial base.
In 2000, the government adopted agricultural policies geared to increasing productivity and adding value to basic products, as well as addressing the needs of individual crops. To achieve its goals, commodities were classified into three groups, with specific production and marketing strategies to be developed for each.
Group 1 consists of export crops such as rice, tapioca, rubber, coffee, vegetables, livestock, prawns and poultry; Group 2 includes products for which there is an insufficient supply for domestic consumption and some imports are required, such as maize and soybeans; and Group 3 consists of products Thailand must import, such as cotton.
Over the long term, the government plans to strengthen export competitiveness by focusing on curbing oversupplies, reducing production costs and improving production efficiency. A zoning system for each commodity (rice, tapioca, rubber, sugarcane, pineapple, maize, soybean, palm oil, coffee, chickens, pigs and black tiger prawns) will enable output to be monitored and regulated.
The government also has a 20-year development plan for its key aquaculture sector. Goals are to increase the role of the sector, maintain the importance of low-input aquaculture as a source of protein for domestic consumption and develop a highly competitive, sustainable aquaculture industry to meet consumer demand on both domestic and global markets.
WHEAT AND FLOUR MILLING
Although wheat and flour use slumped during the economic downturn of the late 1990s, consumption has rebounded substantially in the past few years. Even so, Thailand’s annual per capita wheat consumption is among the region’s lowest, at 10 kg.
Total wheat and flour consumption in 2002-03 is forecast to grow by about 7% from the 2001-02 level, based on the outlook for continued growth in both feed and human consumption.
In feed use, the primary market for wheat/flour is shrimp production, a sector that has boomed in recent years. The sector generally accounts for about 35% to 40% of total Thai wheat consumption.
Although wheat feed use in 2002-03 should increase by 1% from the previous season, earlier hopes for continued sharp growth in the shrimp sector have been tempered, at least for the current marketing year. Shrimp exports, which account for 90% of total production, were much slower than expected in the first half of the season and should grow only marginally for the year because of more stringent food safety standards in major export markets such as Japan.
Meanwhile, Thai food use of wheat/flour should expand by about 7% in 2002-03, following an estimated 4% rise in 2001-02. According to trade sources, demand for bakery products, especially bread items, has grown significantly because of an increased number of modern retail bakery outlets and an effort among bread manufacturers to launch new products. For example, sales of President Bakery Co., Ltd., Thailand’s largest bread manufacturer, grew by 21% in volume in 2001.
The noodle market has also expanded to a lesser degree, following fierce competition among large manufacturers in media and market promotion. Biscuit demand also remains steady, but domestic market share has slipped because of competition from imports.
Under the ASEAN Free Trade Area tariff schedule, Thailand cut biscuit import duties to 5% from 30%. Consequently, Thai retail prices for legally imported biscuits originating in AFTA member countries (Malaysia,Singapore and Indonesia) are now close to those for local biscuits, while the quality of the imported biscuits is said to be superior.
The market for all-purpose flour is basically unchanged from the previous marketing year. Trade sources reported that bread and cake currently account for about 35% to 40% of total wheat food consumption, followed by noodles (30%-35%), all purpose (20%-25%) and biscuits (5%).
Wheat flour is a product for which the Ministry of Commerce maintains a "watch." Any price increases must be justified to the Ministry and any subsequent input cost reductions must be reflected in price decreases.
Because prices for domestic wheat flour are the highest among the South Asian markets, Thailand is a target for market penetration by mills throughout the region. This factor and the reduction in wheat and flour import tariffs under AFTA have made import prices much cheaper relative to local flour and wheat-based products (especially biscuit and confectionery) and have begun to pose a threat to local flour mills and biscuit manufacturers.
While the import duty for wheat remains at about 15% of C&F prices, actual import duties, after accounting for a 25% to 30% processing loss, are estimated at about 20% to 22% of C&F prices. On the other hand, imported wheat flour and wheat-based products from AFTA countries pay only 5% in import duties.
Fearful of losing market share to imports, the seven domestic flour mills voiced their concerns to the government, first by questioning whether the flour qualified for AFTA tariffs. Because the AFTA countries themselves imported wheat, the resulting flour did not meet the 30% domestic content requirement, Thai mills argued. The mills also requested a reduction on Thai wheat import duties from non-AFTA sources to make domestic flour more competitive.
The government has not respondedto the tariff issue, partly because the government does not want to lose revenue from the duties, sources said. The government also countered the content argument by describing the need to negotiate origin issues with each country.
Consequently, Thailand is expected to increase flour imports from AFTA countries, such as Malaysia and Singapore, at the expense of its other major suppliers, Japan and Australia. Wheat grain imports should remain supplied primarily by the U.S., Australia and Canada in the next few years.
Thailand’s feed output primarily goes to the aforementioned shrimp industry and broiler production. Total feed output in 2002 (including all kinds of livestock and aquaculture feed) is estimated at about 9.9 million tonnes, compared with 9.5 million in 2001.
The growing livestock industry has prompted some feed mills to enlarge production capacity by expanding old facilities or building new plants. About 80% of domestic feed production is derived from 75 commercial feed mills, while the balance is on-farm feed production.
Thailand has a high potential to expand its broiler production in the next three to five years, as it has successfully diversified to include premium-quality cooked products. This should help Thailand overcome its disadvantage of relatively higher feed costs against competitors like the U.S. and Brazil.
The recent emergence of residue in broiler meat exported to the E.U. forced both the Thai government and integrated poultry producers to respond actively to resolve the problem. The government set up guidelines, which include controlling imports of drugs/chemicals and their derivatives that contain prohibited substances, regulating all drug uses in the feed manufacturing process, regulating all drug uses on farms and monitoring the level of drug residues in all meat products. Meanwhile, most integrated poultry processors strictly control their operations in all steps, from feed milling and farming to processing. According to trade sources, these stringent controls should benefit Thailand by improving its food safety status.
Although maize traditionally was the dominant feed ingredient for livestock, in the past several years, declining costs for soybeans and soymeal have prompted feed mills to switch to higher protein ingredients. As a result, feed rations currently consist of about 50% maize, compared with up to 65% in the past; 25% soymeal against 15%; and 20% full-fat soybeans versus 5% to 10%.
Not only has the demand pattern for maize changed, but the patterns of domestic maize prices are also changing. Because feed mills, especially those that are fully-integrated broiler processors for export, have more freedom to use domestic or imported maize, domestic prices tend to parallel the world price.
The Thai government continues efforts to stabilize domestic maize prices through import quotas and through a "mortgage scheme," similar to the U.S. loan program that allows farmers to take out loans at a set price and either forfeit or sell if market prices increase.
Thailand does not ban imports of genetically modified maize used for feed production.
Rice remains Thailand’s staple food with annual per capita rice consumption estimated at about 110 kg. Thailand also is among the world’s key rice exporters.
The government continues to play an active role in domestic rice markets through various support schemes, including a mortgage program. The Marketing Organization for Farmers and the Public Warehouse Organization also actively intervene in the market when paddy prices drop below target.
These two organizations buy the crop above the market price, then hire millers to process the rice and deliver it to storage. Since millers cannot compete in buying paddy, many of them end up doing business with the government in milling paddy and are paid in brokens and rice bran.
The emergence of Myanmar, Vietnam, Pakistan, China and India as major rice exporters in recent years has made the market for lower-quality rice much more competitive and has tended to drive down world prices. As a result, Thai officials have taken the lead in trying to establish a rice "cartel" among exporting nations to stabilize prices.
In an October meeting in Bangkok, officials from Thailand, India, Vietnam, China and Pakistan formed the Council on Rice Trade Cooperation. The goal is to push prices up to 1997 levels, some 30% higher than prices at the time of the meeting. Rice exports from these five countries account for about 71% of the world market.
The group intends to establish cooperation among member rice trading countries by exchanging information on production, export volume and markets; by discussing cooperation in technology development and by strengthening trading and marketing efforts at national levels. No plans were made to establish rice stocks, set minimum export prices or create a joint rice trading venture.