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Economy

'Sacred cow' of farming blocks Thailand's growth

Years of agricultural supports have weakened competitiveness

Kulnathee Suparathcapun grows EU-certified organic rice in Thailand's Nakhon Pathom Province.

BANGKOK -- From organic crops to modern technologies, Thailand's farmers seek new ways to carve out a place in the global market. But the kind of painful reforms the country desperately needs are slow to come, with the government wary of alienating a key political bloc.

Organic Thai rice recently began appearing at high-end supermarkets in Luxembourg, whose per-capita gross domestic product was a world leader in 2015 at $103,000. The grains, grown in Thailand's central Nakhon Pathom Province without pesticides or chemical fertilizers, have half the yield of regular rice but fetch 10 times the price.

"We won't survive unless we farmers try new things and add value to our crops," said Kulnathee Suparathcapun, a 44-year-old who grows this special rice.

Only around 60 Thai producers have achieved the notoriously difficult feat of gaining organic certification from the European Union. It took Kulnathee's family 10 years to start exporting.

Cooking up policies in kitchen of the world

Branding is not the only change on the horizon. Japanese agricultural machinery maker Kubota began training about 100 rice farmers in northeastern Thailand four years ago on the use of farming equipment and fertilizer. Yield has risen up to 40% compared with traditional methods.

Thailand considers itself the kitchen of the world. The country is a leading producer and exporter not only of rice, but also of natural rubber, sugar cane, cassava and other crops. Yet the nation has lost its competitive edge in recent years.

The country was the world's largest exporter of rice for over three decades, but tumbled to third place in 2012 behind India and Vietnam. Though Thailand has defended its top spot in natural rubber, prices are just half what they were three years ago. Low productivity hampers Thailand's agricultural sector, which accounts for 40% of employment but about 10% of GDP -- a weaker ratio than in India or Vietnam.

The problem's roots trace to years of government policies designed to appease farmers. Urban elites once controlled Thailand's political landscape, but Thaksin Shinawatra, who became prime minister in 2001, tightened his hold on power through generous assistance to farming villages. The Thaksin camp dominated at the polls, resulting in a wide rift with the country's conservatives and a reluctance to implement any agricultural reforms that could cost the farm vote.

The breaking point came in 2011 with a controversial rice subsidy scheme introduced by Thaksin's sister, then-Prime Minister Yingluck Shinawatra. The government effectively bought the grains for 50% more than the market price, which led to higher prices, lower quality and reduced competitiveness in exports.

Prime Minister Prayuth Chan-ocha, who heads the military-led government formed following a 2014 coup, had slammed Yingluck for pork-barrel politics. But when farmers threatened a large-scale protest in 2016 after the price of high-quality rice sank to a 10-year low, he quickly approved roughly 50 billion baht ($1.39 billion at current rates) in interest-free loans. Farmers use rice as collateral, which means the government is effectively buying the grains at roughly 20% over market price -- little different from what Yingluck had done.

Reversal of labor

The handouts have produced another unexpected effect. The farming population, which had declined since the 1990s, grew 4% -- or by 550,000 -- in 2012, according to the Thai central bank.

"Lavish handouts have stemmed the shift of labor into urban manufacturers and weighed down Thailand's industrial competitiveness," said Akio Egawa at Momoyama Gakuin University.

Prayuth said in November that he aimed for a sixfold increase in the average farmer's income to an annual 390,000 baht within the next 20 years. He is encouraging small farmers to join hands in order to scale up, as well as a shift to more profitable crops. But the prime minister is hesitant to take on painful reforms, like an output cut.

Even the military government cannot ignore the agricultural vote. But Thailand must change its inefficient farming practices if the country is to escape the middle-income trap.

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