Breaking the trap of poverty

Ignored by previous governments, Thailand's rural majority has embraced the populism of a Thaksin government that is helping families pay down debt and develop alternative opportunities to earn an income

By PHUSADEE ARUNMAS and WORANUJ MANEERUNGSEE

In Thailand, farming is synonymous with low social status, hardship and poverty.

Despite decades of government efforts to promote the development of heavy industry, approximately 60% of the population or 5.6 million households work in the agricultural sector.

Per-worker productivity on average is low due to low levels of mechanisation, leading to low wages for most households depending on agriculture for their living. Farm produce in this abundantly fertile nation accounts for 10% of the country's gross domestic product of six trillion baht.

Although farmers make up the majority of the Thai population, they earn the least income of all sectors. Average farm income in 2001 and 2002 was 2,500 baht a month, compared with 7,500 baht for the non-farm sector, according to government statistics.

Perhaps it is no wonder, then, why Prime Minister Thaksin Shinawatra's Thai Rak Thai Party was handed a landslide election victory in late 2000, due largely to its populist economic campaign platform, which promised wealth for the grassroots, especially the nation's hard-scrabble farmers.

Once in power, the government followed through on its promise of a three-year debt moratorium for farmers and the One Tambon, One Product (Otop) initiative, aimed at transforming rural residents from simply being producers of low-margin raw materials into entrepreneurs.

Those policies were welcomed by voters, who saw them as not only a rare vote of confidence in their abilities from politicians in the capital, but also a credible means of helping them generate extra income.

Thailand's farmers, largely ignored by previous administrations, were to play a key role in Mr Thaksin's dual-track economic strategy aimed at jump-starting the nation's stagnant economy.

By finding a way to increase incomes for the nation's poverty-stricken majority, their higher purchasing power would stimulate consumption on the local and ultimately, national level.

The other second and simultaneous track, seeks to boost exports and foreign direct investment as a means of increasing the nation's wealth.

One strategy undertaken by the government has been to attempt to boost prices of major farm export commodities such as rice and rubber, both domestically and internationally, rather than using taxpayers funds to stabilise prices as previous administrations had done.

As for international markets, the government has attempted to address inadequacies in the marketing of the nation's agricultural exports. Despite being the world's largest rice exporter, Thailand has never been able to achieve the status of price-setter in that commodity.

A key element of the administration's rice policy lay in inviting other leading rice-exporting countries such as India, Pakistan, China, and Vietnam to form a Council on Rice Trade Co-operation (CRTC). Its objective was to stabilise prices in the world market and boost prices by limiting supplies, just as the Opec grouping has done with oil.

A similar approach has been taken with rubber, a commodity in which Thailand is the world's largest producer and exporter. The government persuaded other key leading producers, Malaysia and Indonesia, to form the Rubber Tripartite Council. The group agreed to work together to keep the price of rubber ribbed smoked sheets number 3, or RSS3 above US$1 per kilogramme.

The former members of the nearly two-decades old International Natural Rubber Organisation (Inro) _ which only a few years ago collapsed due to internal squabbles and pressure from its consumer nation members, the US and Japan.

Industry observers noted that while the idea of agricultural cartels sounds good, they are notoriously difficult to implement, requiring a limited number of players dealing in a product in high demand, as proven by Opec, which has been able to influence world oil prices to its own benefit since the mid-1970s.

Although Thailand and its partners are the world's leading producers in rice and rubber, they are neither sufficiently unified nor big enough to influence world rubber and rice trading.

The country's first commodity futures exchange which opened in May is intended to help alleviate price risks for farmers. But concerns have been raised regarding the viability of the Agricultural Futures Exchange of Thailand as trading volume has so far been thin. Critics have suggested that the government promote the market more aggressively, to raise awareness among investors and educate them on the advantages of futures contracts for rubber, rice, shrimp and tapioca.

Despite the Thaksin government's slogan "Think New Act New", previous administrations price intervention programmes have largely continued to prop up the prices of farm commodities. Recent scandals indicate that corruption in the system continues as before.

Export and local prices for rice and rubber have increased on Mr Thaksin's watch, though analysts credit higher worldwide demand, not the administration's policies.

Declining domestic rice production and higher demand for rubber in China have pushed up prices, with Thai rubber prices soaring from 22 baht a kilogramme to a record high of 50 baht/kg in late 2003.

In 2002, China's imports of rubber from Thailand doubled to US$715 million from the year before, making Beijing the kingdom's biggest rubber importer, overtaking Japan and the United States.

The government deserves a pat on the back for its commodities marketing efforts and measures to increase competitiveness in the farm sector, however.

Former commerce minister Adisai Bodharamik's efforts to upgrade the quality of Thai Hom Mali rice, also known as jasmine rice, showed exceptionally good results in a short time. First, he issued a new export regulation requiring exporters eager to benefit from the reputation of Thai Hom Mali rice to deliver the grain no less than 92% pure.

Though exporters initially had trouble achieving such an exacting standard, once they were able to fully comply with the new regulation, they saw the price of the new premium grade climb to over 10,000 baht per tonne, up from its average price of 5,500 baht a tonne for the past couple of years.

Improving the country's food safety reputation was not an item high on the government's policy agenda at first. However, a programme was added to facilitate the nation's ambition of becoming the "Kitchen of the World". The issue of food safety, a growing concern in food importing countries in the developed world, forced the Thai government to take the matter more seriously. The bird flu outbreak this year drove the message home even more forcefully.

The Agriculture Ministry has established a 3.3-billion-baht budget to be administered by the National Bureau of Agricultural Commodity and Food Standards to supervise food safety regulations from farm to table.

The Bank of Thailand's farm gate price statistics show farmers have been receiving higher prices for their produce in the past three consecutive years and this momentum should continue until at least the end of this year.

The farm income price index, which stood at 114.1 in 2002, increased to 136.2 last year and was recorded at 143.9 in the first quarter of this year.

But simply raising prices of farm commodities is not enough to eliminate rural poverty in the long run. Sooner or later the upward price trend will begin to fall instead, as is the nature of commodities.

In order to improve living standards in rural communities, the Thaksin government must do more to help farmers cut production costs and improve yields, according to Dr Nipon Poapongsakorn, an economist and researcher at the Thailand Research Development Institute (TDRI).

Dr Nipon said the fundamental weakness in the country's farm sector stemmed from the lack of research and development in nearly all areas, from developing new, higher yielding strains to infrastructure.

Increasing production can eliminate the damage caused by falling prices. For example, although tapioca prices have plunged in recent years, thanks to R&D, tapioca yields per rai have been doubled to two tonnes.

He credited former prime minister Prem Tinsulanonda's government for establishing a 700-million-baht Thai Tapioca Development Foundation.

As all crops need water, he suggested that the government find ways to manage the country's water resources more efficiently _ but not by building more dams. Instead he suggested demand-based management to share water effectively between farms, industry and consumers.

Thailand can learn from California's water management, he said. Farmers there own the rights to use water in their communities. As the state-appointed stewards of the resource, they can use as much as they want and sell the excess to outsiders. Income from selling water is then used to improve water delivery and catchment systems.

Unlike previous governments, the Thaksin administration, with its firm parliamentary majority, is likely to govern the country for at least another term. Catering to the country's rural majority will pay dividends, provided steady progress in addressing the fundamental problems faced by the farm sector can continue to be made.