TACR: Regional: The Rice Situation in Thailand Rice Situation in Thailand 1. INTRODUCTION The...

Technical Assistance Consultant’s Report Project Number: TA-REG 7495 January 2012

Support for the Association of Southeast Asian Nations Plus Three Integrated Food Security Framework (Financed by the Japan Fund for Poverty Reduction)

The Rice Situation in Thailand Prepared by Boonjit Titapiwatanakun for the Asian Development Bank, with the assistance of Boosaree Titapiwatanakun

Boonjit Titapiwatanakun is a professor at the Department of Agricultural and Resource Economics at Kasetsart University in Bangkok, Thailand.

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, or the institutions at which the consultant works, and ADB and the Government and these institutions cannot be held liable for its contents. ADB does not guarantee the accuracy of data and presentations

included in this report and accepts no responsibility for any consequences of their use. By making any designation of or reference to a particular territory or geographic area, or by using the term country in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area.

ABBREVIATIONS

AFET Agricultural Future Exchange of Thailand BAAC Bank of Agriculture and Agricultural Cooperatives DIT Department of Internal Trade EU European Union FAO Food and Agriculture Organization of the United Nations

FOB free on board GAP good agricultural practice ha hectare HACCP Hazard Analysis and Critical Control Points kg kilogram MOAC Ministry of Agriculture and Cooperatives MoC Ministry of Commerce MOPH Ministry of Public Health mt metric OAE Office of Agricultural Economics TREA Thai Rice Exporters Association

Note: In this report, "$" refers to US dollars.

ABSTRACT

Rice production has long played a vital role in Thailand’s socio-economic development,

making the country the world’s largest rice exporter in the last 3 decades. However, the role and significance of rice have been slowly decreasing in the Thai economy. These are reflected in the declining percentage of paddy land in total agricultural landholdings and the decreasing share of rice in gross agricultural production and agricultural exports. Given this trend, this paper takes a

look at key issues: what are the situation and prospects of the Thai rice industry; how is rice policy evolving, together with the transformation of the rice economy; and what are the implications of these for food security, both domestically and globally? The changing role of rice in Thailand and the increasing dynamism and complexity of both the domestic and international markets call for a rethinking of the general direction of Thailand’s rice industry.

This paper was prepared for the Asian Development Bank by Boonjit Titapiwatanakun, Regional Rice Trade

Economist cum National Rice Economist for Thailand, under TA 7495-REG: Support for the Association of Southeast

Asian Nations Plus Three Integrated Food Security Framework. The paper is part of the TA’s diagnostic study on the

food security of five ASEAN member countries—Cambodia, Indonesia, the Philippines, Thailand, and Viet Nam—with

a special focus on rice. The paper is an abridged version of a full country report on Thailand, which is available upon

request. The paper is being published to disseminate the findings of work in progress to encourage the exchange of

ideas. The emphasis is on getting findings out quickly even if the presentation of the work is less than fully polished.

CONTENTS

1. INTRODUCTION …………………………………………………………………………………… 1

The changing role of rice …………………………………………………………………………. 1 Aims and scope of the country report …………………………………………………………... 2

2. RICE SITUATION ………………………………………………………………………………….. 4

Rice production ……………………………………………………………………………………. 4 Exports ……………………………………………………………………………………………… 7 Production cost and profitability ………………………………………………………………….. 10 Trends in prices and marketing margins ………………………………………………………… 13 Food balance sheet ……………………………………………………………………………….. 15 Supply and demand prospects …………………………………………………………………… 17

3. POLICY ENVIRONMENT …………………………………………………………………………. 18

Regulatory environment …………………………………………………………………………... 18 Major subsidy programs ………………………………………………………………………….. 19

4. PROBLEM ANALYSIS ……………………………………………………………………………. 20

Food security issues ……………………….……………………..………………………………. 20 Looking back at the 2008 crisis ………………………………………………………………….. 22

4. RECOMMENDATIONS …………………………………………………………………………… 23

REFERENCES ……………………………………………………………………………………….. 24

The Rice Situation in Thailand

1. INTRODUCTION The changing role of rice

Rice remains the preeminent crop in Thai agriculture, although its relative importance has been declining in recent decades.

Rice production has long played a vital role in Thailand’s socio-economic development, making the country the world’s largest rice exporter in the last 3 decades. However, as the Thai economy has become more developed, the role and significance of rice have been gradually declining.

Three indicators reflect the gradually changing role of rice in the last 4 decades. First is the declining percentage of paddy land in Thailand’s total agricultural landholdings (Table 1). Although total agricultural land progressively increased in 2005–2008, paddy land slightly decreased in 2005–2006. The current landholding structure indicates that it would be rather unlikely for paddy land to significantly increase in the coming years.

Table 1: Shares of Thailand’s Total Area by Land Use (%), 2005–2008

Total Land Residential Paddy Land

Upland Crop

Fruit Trees, Perennials

Other Uses

2005 100.0 2.8 49.0 21.0 21.3 5.8 2006 100.0 2.8 48.8 20.9 22.0 5.6 2007 100.0 2.8 49.0 20.4 22.3 5.5 2008 100.0 2.7 49.7 21.4 21.3 4.8

Source: Office of Agricultural Economics (OAE) 2010.

Second is the decreasing percentage of paddy share in the gross value of agricultural

production (Figure 1). The time series on rice production value and gross production value of agriculture, which was obtained from the Food and Agriculture Organization of the United Nations (FAO) for 1961–2008, revealed that from a high of 30.9% in 1963, the percentage share of rice decreased to 19% in 2008. In this period, both production values showed a slow decreasing trend following almost the same pattern.

Third is the declining share of rice in agricultural exports (Figure 2). Rice exports were

above 35% in the first half of the 1960s but dropped below 30% in 1971 to around 20% by 2008.

ADB Technical Assistance Consultant’s Report The Rice Situation inThailand | 2

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Figure 1: Share of Paddy Rice in Gross Value of Thailand’s Agricultural Production (%), 1961–2008

Source: FAO Statistics Division 2011.

Figure 2: Share of Rice in Value of Agricultural Exports (%), 1961–2008

Source: FAO Statistics Division 2011.

Aims and scope of the country report

All the foregoing indicators show that for the last decade, the role of rice has decreased to a rather constant level. Given this trend, key issues of interest arise: what are the prospects for the Thai rice sector; how is rice policy evolving, together with the transformation of the rice economy in Thailand; and what are the implications of these prospects and policies for food

security, both domestically and globally?

The data for this study are drawn mostly from official statistics released by the Office of Agricultural Economics (OAE) of the Ministry of Agriculture and Cooperatives (MOAC); the Ministry of Commerce (MoC), in particular the Department of Internal Trade; the Customs

4345

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% Share of rice of total Agr. Prod. Exp.


Box 1: An Assessment of the Official Rice Statistics of Thailand

Data and information on the supply side at the farm and provincial levels are under the responsibility of the Office of Agricultural Economics (OAE) of the Ministry of Agriculture and Cooperatives (MOAC). The OAE releases preliminary rice production figures 4 times per crop year, using combinations of methods of estimation, e.g., reporting system, econometric model estimate, and field observation using rapid rural appraisal. The OAE also collects and publishes farm price data on a weekly basis. These price data are collected at the rice mill and transportation costs are deducted to

arrive at an estimated farm gate price. The cost of production data is collected through the OAE’s regional offices each crop year. Some of these data are for off icial use only, such as in the determination of government intervention price. Cost figures are the most controversial data because these involve the average of all farm sizes, i.e., small, medium, and large. For small farmers, the cost of production is normally higher than that of the large farm.

The demand side information is collected by the Ministry of Commerce (MoC) and private institutions related to trade. The Department of Internal Trade (DIT) collects daily rice price information such as the retail and wholesale price of different kinds of rice varieties. The price information is available on the DIT website which releases this weekly in the Thai language. The method of collection is through selective interview and reporting system.

The Custom Department collects monthly trade data from every lot of imported and exported rice following the international Harmonized Commodity Description and Coding System. The data are also available on the MoC website and trader associations such as the Thai Rice Exporters Association (TREA). The Bangkok rice price, free on board, is derived from the trade data that are collected by the TREA on a weekly basis from the website. Rice stock data are collected by the MoC and TREA for their internal consumption. The monthly rice stock data are estimated by both the government and

private sectors. One problem of monthly stock data is the lack of monthly rice production and utilization data, especially for production. The most recent available stock data have a one year lag.

All the foregoing data are generally reliable because they are scrutinized and released by well-

trained officials and experts from government offices. Nevertheless, the degree of accuracy varies with the nature of the data and the method of collection. The trade data are usually the most accurate

because they are sourced from official trade documents. However, some border trades of rice with neighboring countries (Cambodia and Laos) are not reported officially. Price data are also very sensitive to the actual volume and the time period of the transaction.

One important issue affecting the reliability of data is timeliness. The most recent data or

information are usually difficult to obtain and their reliability may also be questionable. The timeliness

of data is moreover affected by the higher cost of obtaining them. But a private exporter notes that rice information is very much updated among the rice traders due to their continuous personal daily contact. Still, it may be safe to say that despite the time lag, the rice information released by public and

private institutions is quite reliable.

Department; and the Thai Rice Exporters Association (TREA). Box 1 presents a detailed description and assessment of the official statistics of Thailand in relation to rice.


2. RICE SITUATION Rice production

The rice industry in Thailand has reached a mature stage of development, with a high degree of specialization in high-value native rice.

Thailand is located in the temperate zone where it is suitable to grow Indica or the so-called

long grain rice. Small areas in the northern provinces grow Japonica or short grain rice. The Bureau of Rice Research and Development classifies rice varieties in several ways,

which includes dividing them by ecological cultivation, i.e., lowland rice, floating rice, deep water rice, upland rice, and highland rice. The market and trade classification of rice reflects both the cost of production and the quality of rice according to existing domestic and export market demands. Basically, there are 3 types of rice: fragrant, non-fragrant, and glutinous (Table 2). The rice varieties can be roughly approximated from the classification of paddy rice in the market. For example, Jasmine or Horm Mali rice has two varieties: Kao Hom Doc Mali 105 or KDML105, and Gor-Kor or RD 15.

Table 2: Rice Varieties in Thailand

Market Classification Approximate Varieties Areas or Province

Fragrant rice

1. Jasmine or Kao Horm Mali

Kao Hom Doc Mali 105 (KDML105 and Gor-Kor)

Thung Kula plain (2 million hectares), Surin, Buri Rum

2. Jungwad Same variety as Hom Mali 105 Province other than in (1)

Khao' Jow Hawm Non-photosensitive, irrigated Suphan Buri Khao’ Jow Hawm Khlong Luang 1

Non-photosensitive, irrigated, Mostly planted in Central Plain

3. Pathumthani Pathumthani 1 Non-photosensitive, irrigated

Non-fragrant white rice Many varieties, photosensitive and non-photosensitive

Most provinces

Glutinous rice Niaw Ubon, Niaw San-pah-tawng Northeastern and Northern

Source: Compiled from interviews by the author, January 2011.

Although Thailand has had the lowest yield among the world’s top 10 rice-producing

countries, even lower than the world average, Thailand has been the largest rice-exporting country for almost 30 years now. This is because of the different varieties of rice produced among the top 10 rice-producing countries, with some countries utilizing more new high-yielding varieties while the others grow low-yielding local varieties. While Thailand has been producing comparatively high-quality rice such as Jasmine or Hom Mali rice that is classified as a fragrant variety with a lower yield, it has also been producing large quantities of high-yielding varieties of

non-fragrant rice. Although the Thai national average yield is low, the total production is much higher than the domestic utilization, creating at least 6–9 million tons of rice surpluses for export each year.

In the last decade, total production increased 18%, from 25.8 million tons in 2000 to 31.5

million tons in 2009 (Table 3). The harvested area grew by 7%, expanding from 9.9 million


hectares (ha) in 2000 to 10.7 million ha in 2009. The yield per hectare gained 10%, from 2.6 tons to 2.9 tons. In this period, the average total harvested area of rice reached 10.224 million ha, producing 29.5 million tons of paddy rice (or 19.5 million tons of rice) with a yield at 2.9 ton per ha. The average farm gate price notched $192/t, generating a total farm value of $5,667.5 million. Due to the government pledging program, the harvested area jumped to 0.5 million ha from 2006–2007 while the farm price surged from $180/t to $327/t, marking an increase of $147/t.

Table 3: Area, Production, Yield, and Prices of Paddy Rice, 2000–2009

Harvested area

‘000 ha Production

‘000 t Yield t/ha

Price $/t

2000 9,891 25,844 2.6 108

2001 10,125 28,034 2.8 109

2002 9,654 27,992 2.9 118

2003 10,164 29,474 2.9 134

2004 9,993 28,538 2.9 165

2005 10,225 30,292 3.0 172

2006 10,165 29,642 2.9 180

2007 10,669 32,099 3.0 327

2008 10,669 31,651 3.0 291

2009 10,684 31,508 2.9 317

Av. 2000–2009 10,224 29,507 2.9 192

Source: OAE 2010.

In general, rice is grown in two main cropping seasons in Thailand, which are comprised of the major crop of rice and the second crop of rice. The major crop is grown from May to October, except in the 6 southern provinces where the cropping season is from mid-June until February of the next year. The second crop is the irrigated rice that grows in the dry season from November to April, and from March to mid-June in the provinces in the south.

Most of the rice is produced during the major cropping, which covers around 57 million rai

or 9 million ha (6.2 rai = 1 ha) and yields more than 22.2 million metric tons of paddy rice. Major rice cropping is estimated at 77% of the total crop year, including paddy production, with the average yield at 2,569 kilograms (kg)/ha. Major rice crops are grown in every province. In terms

of rice production by region, the largest area is in the northeastern region, comprising about 57% of the total, followed by the northern region at 22%; central region, 17%; and the southern region, 4% (Tables 4 and 5). Most of the second rice crop is produced in the Central Plain that is equipped with an irrigation system designed for rice production. The total area planted to rice covers about 1.6 million hectares, 55% of which are located in the Central Plain, 34% in the northeastern region, 9% in the northern region, and 2% in the southern region.


Table 4: Total Rice Harvested Area by Season (in ha and regional shares in percent)

Region 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Major Rice Crop

Northern 21.4 22.4 21.3 21.9 22.4 22.1 22.0 22.2 22.1 21.9

Northeastern 56.5 56.3 56.9 56.5 56.6 56.8 57.4 57.0 57.2 57.6

Central Plain 17.5 17.5 17.7 17.9 17.2 17.4 16.8 17.3 17.4 17.3

Southern 4.5 3.9 4.1 3.7 3.8 3.7 3.7 3.5 3.3 3.2

Total area 8,755 8,789 8,136 8,675 8,596 8,645 8,560 8,623 8,702 8,760

Second Rice Crop

Northern 37.3 34.3 34.0 29.4 32.4 32.9 33.5 34.4 35.0 35.3

Northeastern 51.7 53.2 57.7 58.8 56.4 56.9 57.9 54.6 52.6 49.9

Central Plain 3.1 2.6 1.3 1.7 2.6 2.1 2.0 2.1 2.6 3.1

Southern 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Area 1,215 1,391 1,404 1,390 1,489 1,397 1,580 1,605 2,046 1,982

Source: OAE 2010.

Table 5: Paddy Production by Season

(in million tons and regional shares in percent)

Region 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Major Rice Crop

Northern 4.96 5.76 4.87 6.57 6.46 6.72 6.46 6.61 6.60 6.50

Northeastern 8.54 9.47 9.09 10.19 10.01 10.44 10.29 10.38 10.30 10.38

Central Plain 4.67 4.92 4.91 5.54 5.39 5.60 5.29 5.52 5.59 5.63

Southern 0.85 0.75 0.76 0.83 0.79 0.78 0.80 0.81 0.75 0.75

Total 19.02 20.89 19.63 23.14 22.65 23.54 22.84 23.31 23.24 23.25

Second Rice Crop

Northern 0.30 0.45 0.29 0.45 0.40 0.36 0.32 0.48 0.69 0.84

Northeastern 1.85 2.20 1.73 2.25 2.04 1.96 2.27 2.31 3.06 2.90

Central Plain 2.89 3.30 3.55 3.66 3.78 3.49 4.07 3.91 4.88 4.48

Southern 0.11 0.10 0.06 0.07 0.11 0.08 0.09 0.10 0.17 0.20

Total 5.16 6.06 5.62 6.43 6.33 5.89 6.75 6.80 8.79 8.42

Source: OAE 2010.

The development of rice farming in Thailand has shifted from subsistence farming to commercial farming. During the last 2 decades, rice farmers have been relying more and more on purchased inputs such as seeds, fertilizers, and labor and farming services (land preparation and harvesting). Commercial-oriented farming with more cash inputs has created more cash flow requirements. As a result, farmers have had to borrow more from the Bank for Agriculture and Agricultural Cooperatives (BAAC). In addition, appropriate farming practices and knowledge have also been needed by farmers. Both government and private companies play an important role in transferring farming technologies and promoting suitable farm input application. The government especially plays a vital role at the farm level—in undertaking research and development, especially for variety improvement, quality seed improvement and propagation, and promoting organic fertilizer and good agricultural practices (GAP) farming systems.


Exports

The export market of Thai rice is highly diversified, whether in terms of destination or type of product. The bulk of Thai rice exports is in high value and processed rice.

In 2010, data obtained from MoC showed that the countries with the biggest rice imports from Thailand were Nigeria, followed by the United States, Cote d'lvoire, and Saudi Arabia (Table 6).

In 2009, rice export data from the OAE showed that of the total rice exports of 8.6 million tons, Hom Mali rice had the highest share at 31%, followed by parboiled rice, 31%; white rice, 27%; and glutinous rice, 6% (Table 7


Table). The export shares of Pathumthani fragrant rice and husked rice were 2.5% and 2.3%, respectively.

Table 6: Shares in Value of Rice Exports of Thailand by Major Trading Partner, 2008–2010

Country Share (%)

2008 2009 2010

1. Nigeria 10.21 11.43 11.88

2. United States 5.29 7.53 8.24

3. Cote d'lvoire 4.09 6.02 6.21

4. South Africa 5.44 8.18 5.72

5. People’s Republic of China (PRC) 2.63 4.13 4.09

6. Hong Kong, PRC 3.58 4.54 4.03

7. Japan 1.44 2.65 2.9

8. Singapore 2.97 2.92 2.72

9. Indonesia 0.86 1.49 2.68

10. Malaysia 5.96 2.31 2.32

11. Cameroon 1.06 1.65 1.95

12. Australia 1.59 2.04 1.92

13. Ghana 2.06 2.1 1.8

14. France 1.06 1.34 1.2

15. Syria 0.44 0.12 1.17

16. United Arab Emirates 1.53 1.24 1.12

17. Bangladesh 0.09 0 1.07

18. Congo 0.22 0.5 0.82

19. Iran 1.31 0.31 0.67

20. Gabon 0.54 0.59 0.59

21. Others 47.63 38.92 36.88

Total 100.00 100.00 100.00

Source: Ministry of Commerce 2010.


Table 7: Rice Exports by Major Varieties, 2008 and 2009

2008 2009

Quantity (t) Value

($’000)

Quantity

(t)

Value

($’000)

Total rice exports 10,216,128 6,100,239 8,619,871 5,022,714

Shares by rice variety (%)

White rice 41.18 35.3 26.86 20.25

Hom Mali 24.63 29.66 30.52 39.82

Pathumthani fragrant rice 2.52 2.76 2.49 3.08

Glutinous rice 2.92 2.46 6.12 4.4

Husked rice 2.03 1.92 2.3 2.15

Parboiled rice 26.65 27.83 31.55 30.2

Broken parboiled rice 0.028 0.02 0.143 0.078

Others 0.05 0.05 0 0.01

Source: OAE 2010.

Thai white rice is classified into at least 8 grades of quality. Essentially, there are two types: white rice with different percentages of broken quality and white rice broken with different grades. Of the total export of 2.3 million metric tons of white rice in 2009, the highest share was white rice 5%, comprising 26% of the total, followed by white broken rice A super, 21%; white rice 25%, 21%; and white rice 100%, 17%. It should be noted that the price difference among the grades and quality of white rice is quite significant (Figure 3).

Figure 3: Price Differences Among Hom Mali (HM), White Rice 100% (WR), Broken White Rice 100% (KWR), Parboiled Rice 100% (PBR), and Glutinous Rice 100% (GLR)

Source: Thai Rice Exporters Association 2011.

As far as the food security of member countries of the Association of Southeast Asian Nations (ASEAN) is concerned, the quantity of total Thai rice exports should be carefully

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

HM&WR100% 179 284 177 91 276 235 120 164 223 214 344 580

HM&BWR100% 248 361 227 137 324 271 193 256 283 405 600 376

HM&PBR100% 164 268 161 91 280 232 125 168 219 186 312 541

HM&GLR100% 130 223 78 10 159 143 96 19 -115 330 408 171

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considered. For example, during 2007–2009, total Thai rice exports to the ASEAN comprised around 7%–10%, or less than one million tons (both fragrant and non-fragrant white rice). However, most of the rice trade within the ASEAN is made up of white rice 5% to 25%, of which Thailand’s total exports to the world market are about 2–3 million tons per year. That means, if all of the white rice 5% to 25% of Thailand were exported to ASEAN member countries, Thailand’s annual rice export contribution to rice security in the ASEAN would be around 2–3 million tons of white rice, excluding the high quality fragrant rice and parboiled rice.

Production cost and profitability

Production cost has been rising over the past decade due to rising fertilizer and fuel prices.

The OAE classifies the production cost of rice in 2 categories: variable cost and fixed cost

(e.g., land rent, depreciation). From 2000 to 2009, both the costs of major and second rice crops shared the same upward pattern (Figure 4). However, the average total cost per ton of the second rice crop was about 24% higher than that of the major rice crop. The total fixed cost and the variable cost of the second rice crop were 35% and 22% higher than that of the major rice crop, respectively. The high costs were due to the increased application of fertilizers and other chemicals inputs. The second rice crop consisting of high-yielding varieties that are more prone

to pest and disease also require more fertilizer.

Figure 4: Total Cost of Production Per Ton (TC) of Thai Major Rice Crop (MR) and Second Rice Crop (SR), 2000–2009 (in $/mt)

Source: Centre for Agricultural Information 2010.

Marketing of paddy rice is done through a variety of channels and mostly under modern and highly competitive conditions.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

TC MR 122.41 98.794 107.58 110.56 120.22 139.3 155.88 173.4 265.94 246.38

TC SR 84.503 73.252 79.634 86.324 89.707 109.16 127.01 146.99 200.99 193.66

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The linkage between the farm level and processing level (rice milling and rice product manufacturing) or the upstream activities of the rice industry can be classified as the indirect marketing channel (Figure 5). Farmers can sell their paddy rice either to the local merchants or directly to the rice millers. Farmers can also enroll in the rice pledging program that has been implemented by the government through BAAC since 1987. In 2008, an estimated 45% of the total paddy rice was sold to local merchants/middlemen, 33% to rice millers, and 22% to the government under the pledging program. The processed rice and rice products are sold to

distributors (wholesaler/middleman) who supply these to retailers (traditional and modern trade) and exporters. It should be pointed out that the percentage of paddy rice purchased by each marketing participant changes every year, especially paddy rice purchased by designated government agencies.

Figure 5: Rice Marketing Channels

Source: Thai Development Research Institute Foundation 2009.

Rice millers and traders are the key players in the midstream activities at the paddy processing level of the rice industry. The role of rice millers is in processing, packaging, storage, buying and selling, and distribution. Thailand’s rice conversion rate is 0.66, which is slightly

Farmer

Local Merchants

Rice mill/silo Food manufacturers Farmer group (collecting/milling)

Government (ricemill/warehouse)

Package rice/

trademarks Food products Package rice/ trademarks

Auction /AFET

Distributor

(wholesaler/ middleman)

Retailer (Modern trade)

Retailer (Traditional trade)

Export

Domestic Consumers


higher than that of Vietnam, 0.65; Myanmar, 0.64; and Cambodia, 0.63. In 2007–2008, about 55% of Thailand’s total rice produce were sold in the domestic market and the rest were exported. However, information is lacking on the percentage of rice sold through the traditional market and through modern trade.

Competition among rice millers has been very high due to the overcapacity of the rice milling industry. The Department of Rice reports that as of 31 December 2007, there were 1,729

registered medium and large rice mills with a total daily milling capacity of 177,399 metric tons. Based on the existing total annual paddy production, it would require only 160–170 days for the existing rice mills to mill rice. This would imply that the average milling cost in Thailand is high since the existing rice mills have to compensate for costs as they cannot operate at full capacity. However, this is also the case for other sectors in the primary agro-industry such as cassava and sugarcane factories, most of which do not operate at full capacity (the total days of processing is less than 312 days per year).

The linkage between rice millers and traders in the market terminal (Bangkok) is either through direct business-to-business sales or through indirect transactions with the so-called rice middleman. Although the role of rice middlemen has been decreasing due to direct business transactions, for rice traders, the rice middlemen are still indispensable in facilitating trade

between rice millers and wholesalers, especially for overseeing quality inspection and scheduling delivery and payment (normally, wholesalers pay within 1–3 months). The middleman’s service charge is around 0.75% of the total value of the transaction.

The domestic trade of rice operates through rice wholesalers who buy rice directly from rice millers or through rice middlemen. The wholesalers pack the rice into small plastic bags in different sizes, from 0.5 kg/bag to 10 kg/bag, or they instruct the rice mill to pack the rice under the wholesaler’s brand name for distribution to small traditional retailers or the modern trade retailers. Some traditional rice retailers still buy directly from wholesalers or rice millers, using gunny sacks weighted at 101.5 kg/bag that they repackage in 15-kg paper bags. This type of rice retailing has been in existence in Thailand for more than half a century.

The percentage share of packaged rice in the total domestic rice consumer market is not available. However, a rough estimate of total domestic rice consumption at 7.5 million tons, with the average retail price of white rice 5% at 26,300 baht/ton, gives a total market value of domestic rice at 197.88 billion baht in 2010. This would imply that the packaged rice is about 10% of the total rice supply for the domestic consumer market in 2010.

Strictly speaking, however, wholesale rice is different from rice exports although rice wholesalers and exporters may be integrated. Exporters sell their rice directly or indirectly through three channels: (1) international rice brokers or private rice importers; (2) the government of the importing country; and (3) the Thai government for further export to the government of the importing country. According to a leading exporter, most of the international rice trade takes place through international rice brokers. The 198 firms that are registered

members of the Thai Rice Exporters Association are also potential Thai rice exporters. The export share of the top 10 rice exporters was 67% in 2006; the share of the top 5 firms was more than 52%.

Despite rising costs, the profitability of rice farming has improved due to rising rice prices.

The rice farmer’s profit margin is computed by using the annual average price of

SupanBuree Variety as the approximate paddy price for white rice obtained from the OAE


(Table 8)Table. In 2000–2009, the estimated margin for main crop rice showed an upward trend, starting off with a negative $20.84/ton in 2000 and jumping to $63.81/ton in 2008, the year of the global food price crisis. In the same period, the farmer’s profit margin for the second crop rice also showed a rising trend. The average profit margin for the second crop has been comparatively higher than for the main crop, except in 2007. The cost of production obtained from the OAE includes the opportunity cost of family labor and other non-cash costs such as depreciation. Therefore, the negative margin of rice farmers might not imply the actual loss.

Nevertheless, the time of selling paddy rice and the actual moisture content are also crucial factors that affect the profit margin.

Table 8: Average Profit Margin of White Rice, 2000–2009

Main Crop Rice ($/ton) Second Crop Rice ($/ton)

Price (1) Cost (2) Margin Price (3) Cost (4) Margin

2000 101.56 122.41 (20.84) 82.72 84.50 (1.78)

2001 96.78 98.79 (2.01) 80.11 73.25 6.86

2002 106.35 107.58 (1.22) 89.30 79.63 9.66

2003 112.69 110.56 2.13 96.78 86.32 10.46

2004 135.73 120.22 15.51 117.69 89.71 27.99

2005 164.93 139.30 25.64 152.10 109.16 42.94

2006 177.41 155.88 21.52 155.70 127.01 28.68

2007 186.69 173.40 13.29 159.41 146.99 12.42

2008 329.75 265.94 63.81 284.30 200.99 83.31

2009 284.07 246.38 37.69 237.95 193.66 44.29

Notes: 1. Price = Main crop rice: SupanBuree Variety paddy, 14%–5% moisture content ($/ton) 2. Cost = Main crop rice total cost of production per ton ($/ton)

3. Price = Second crop rice: SupanBuree Variety paddy, 24%–25% moisture content ($/ton) 4. Cost = Second crop rice; total cost of production per ton ($/ton) 5. Margin = Farmer’s profit margin: the average price received minus the total cost of production ($/ton)

Source: Office of Agricultural Economics 2010.

One key factor that has contributed to the upward trend in the profit margin of rice farmers is government intervention in the market price of paddy rice through the pledging program (before 2009) and the income guarantee or price insurance program (after 2009). The rapid increase in the rice profit margin after 2003 was due to the popular policy of the Thai Rack Thai

government that set the pledging price higher than the market price of paddy rice. The pledging price has since increased every year. Trends in prices and marketing margins

Farmgate, wholesale, and retail rice prices have depicted the same pattern of movement (Table 9). Although the price gap of farm and wholesale prices narrowed in 1998–2001, the price gap of wholesale and retail prices slightly widened. The trend slowly continued in 2001–2007. In 2007–2008, prices sharply increased, showing the comparatively big gap in prices. During the 2008 rice crisis, the price spread between farm and wholesale rates, and between wholesale and retail rates, increased from $78/mt to $141/mt and from $68/mt to $169/mt, respectively. After the crisis, the price spread between farm and wholesale rates decreased to


$79 and $54 in 2009 and 2010, respectively, but that of wholesale and retail rates increased to $245 and $357, respectively. The pattern is quite unusual when compared with the average price spread during 2001–2005, which was $57 for farm and wholesale rates and $68 for wholesale and retail rates. Currency exchange rates could not have been one factor that caused the big difference because the Thai baht appreciated about 4% during this period.

Table 9: Paddy, Wholesale, and Retail Prices for White Rice 5% and Corresponding Margins, in Milled Rice Equivalent, in $/ton, 1997–20010

Paddy Price

Wholesale Price

Retail Price

Wholesaler Margin

Retailer Margin

2000 171 251 333 47 33

2001 147 209 288 42 38 2002 165 219 285 32 31

2003 179 240 309 34 29 2004 205 258 353 26 37

2005 250 301 358 21 19 2006 266 332 380 25 14

2007 287 365 433 27 19 2008 485 626 795 29 27

2009 426 504 749 18 49 2010 394 448 805 14 80

Av. 2001–2005 198 255 323 31 28

Av. 2006–2010 372 455 633 23 38

Note: Ratio of conversion from paddy to milled rice is 0.66. Source: OAE for farm price; Ministry of Commerce for wholesale and retail price.

The above price movement reflects the government’s policy changes in marketing and price

intervention. The rather constant price movement in 1998–2001 coincided with the rice pledging program that temporarily postponed farmers’ paddy rice sales during the harvesting season. During this period, the pledging price was set more or less in line with existing demand and supply. The pledging measure was intended to delay the supply of rice rather than institute a price support program. However, starting 2001, the pledging price was set at almost the same level as the guarantee price. In addition, the pledging price was set with the implicit political

agenda to curry favor with farmers.

The computed wholesale margin of white rice 5% showed a downward trend, which decreased from 45% in 1997 to 14% in 2001. In contrast, the retail margin showed an upward trend, albeit fluctuating, during the same period. The retail margin increased from 13% in 1997 to 37% in 2000, and then decreased to 14% in 2006. The trend rapidly picked up subsequently, increasing every year to as high as 80% by 2010. The decreasing wholesale margin was due to increasing competition and the integration of firms at the marketing level. Changes in rice packaging and modern retail trade increased marketing cost at the retail level.

But the paddy and rice conversion ratio, which converts the paddy price into its rice equivalent, may overestimate the value of paddy rice in relation to wholesale white rice 5%. The

paddy conversion ratio of 0.66 published by OAE includes all types of rice such as whole rice and broken rice. The marketing margin, however, should take into account the marketing cost and the difference in rice quality and brand name. Comparison among marketing margins, in some cases, may be misleading. Moreover, the marketing margins have been further complicated by the forward trading between rice millers and the wholesalers or exporters. Under


forward contract trading, the price spread at the same period would not reflect the actual marketing margin. Domestic prices have been heavily influenced by world market trends. The price movement of white rice 100%, 15%, 10%, and 5% free on board (FOB) has showed the same pattern of fluctuation—taking an upward trend in 2001–2007 then making a big jump in 2008 (Table 10). However, a rather sharp decline started in 2009–2010. The price difference between white rice

100% and white rice 15% was more noticeable during periods of price decreases (1999–2001 and 2009–2010) than during price increases.

Table 10: Export Prices by Rice Grade, Bangkok FOB, 2000–2010, in $/t

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Hom Mali grade 2 561 368 316 480 478 410 475 556 920 908 1105

White rice 100% 227 188 201 204 243 294 314 336 698 584 483

White rice 5% 212 175 193 198 239 288 307 327 683 554 465

White rice 10% 207 171 190 194 236 286 305 324 680 551 439

White rice 15% 193 163 184 192 232 274 291 317 647 511 419

Parboiled 100% 243 204 201 200 246 289 310 340 727 617 523

Glutinous 100% 288 286 283 320 335 318 459 673 582 520 892

Source: Thai Rice Exporters Association 2011.

The same pattern in the price movement of white rice implies the close substitution among the different grades of white rice, especially for white rice 100% and white rice 5%. The Bangkok FOB price of Hom Mali or fragrant rice exhibited a downward trend in 1990–2001 like that of white rice but steadily climbed starting 2002, which continued until 2010 and made a big jump in 2008. This reflects the different status of Hom Mali in the white rice market, especially after the 2008 rice crisis. The price difference between Hom Mali and white rice 100% and between Hom Mali and parboiled rice 100% was almost the same. The price difference between Hom Mali and broken rice was the highest at $316/mt, while the price difference with glutinous rice was the lowest at $147/mt. The close price difference and the parallel pattern of price fluctuation indicate their similar utilization and substitution. In contrast, the wide price difference implies the different kinds of markets and utilization of rice.

Food balance sheet

There are at least two existing balance sheets for Thai rice: the first is estimated by FAO and the second by the OAE (Table 11). The OAE estimate of rice per capita consumption includes the consumption of both rice and rice flour, which is based on the National Statistical Office household expenditure data. Therefore, there may be discrepancy in converting expenditure data into quantity of rice consumption.

Both the series of rice per capita consumption have consequently shown opposite trends.

While the FAO series has depicted a steady downward trend fluctuating between 117 kg and 110 kg, the OAE series has reflected an upward trend—from 105 kg in 2000 to 113 kg in 2004, and 110 kg in 2006 to 112 kg in 2007. The upward trend was observed from the preliminary

figures for 2008 and 2009, which are 111 kg and 113 kg, respectively.

ADB Technical Assistance Consultant’s Report The Rice Situation in Thailand | 16

Table 11: Food Balance Sheet for Rice, 2000–2010, and Projections for 2011–2015, in ‘000 t

Supply Demand Discrepancy

Paddy

Production

Milled Rice

Production

Beginning

Stock TOTAL Export Food Seed Feed Processing

Other

Uses

Ending

Stock TOTAL

2000 24,737 16,326 1,553 17,879 7,318 6,506 760 1,117 198 31 397 16,326 1,553

2001 25,375 16,747 397 17,144 7,328 6,562 760 1,145 203 32 717 16,747 397

2002 27,826 18,365 717 19,082 7,527 6,632 775 1,256 223 35 1,917 18,365 717

2003 32,312 21,326 1,917 23,243 8,087 6,696 805 1,458 258 41 3,981 21,326 1,917

2004 30,733 20,284 3,981 24,264 7,612 6,625 798 1,387 246 39 3,577 20,284 3,981

2005 29,772 19,650 3,577 23,227 8,093 6,706 795 1,344 238 38 2,436 19,650 3,577

2006 28,098 18,545 2,436 20,981 9,196 6,817 789 1,268 225 35 215 18,545 2,436

2007 32,822 21,662 215 21,877 8,996 6,926 822 1,481 263 41 3,133 21,662 215

2008 36,637 24,180 3,133 27,313 8,926 6,922 831 1,654 293 46 5,509 24,180 3,133

2009 37,826 24,965 5,509 30,474 9,479 6,921 836 1,707 303 48 5,671 24,965 5,509

2010 34,113 22,515 5,671 28,185 9,797 7,064 827 1,540 273 43 2,970 22,515 5,671

2011 35,190 23,225 2,970 26,196 9,928 7,102 828 1,588 281 44 3,453 23,225 2,970

2012 36,261 23,932 3,453 27,385 10,062 7,143 829 1,637 290 46 3,925 23,932 3,453

2013 37,329 24,637 3,925 28,562 10,201 7,188 830 1,685 299 47 4,388 24,637 3,925

2014 38,394 25,340 4,388 29,728 10,343 7,236 831 1,733 307 48 4,842 25,340 4,388

2015 39,459 26,043 4,842 30,885 10,490 7,287 832 1,781 316 50 5,288 26,043 4,842

Source: Calculated from estimated equations and ratios.

ADB Technical Assistance Consultant’s Report (Draft ) The Rice Situation in Thailand | 17

Both the series of rice for human consumption from FAO and OAE were used in estimating the domestic demand function for human consumption of rice. Only the OAE series provided demand data according to the theory of demand (the estimated coefficient of price variable was negative). The series from OAE was then utilized as the database for further adjusting a new series for the balance sheet for Thai rice. The other usage series was deducted using the feed and processing usage series from FAO. The estimated data were then used to compute the ratios required for projection. A rice balance sheet has been

drawn up with projections until 2015, using all the estimated equations and ratios. Supply and demand prospects

Rice consumption is expected to continue rising, though at a languid pace. However, production is projected to grow at a slower clip than in the previous decade, primarily due to rising yield. The rising surplus will lead to the sustained growth of exports and accumulation of stocks.

In the projection period of 2010–2015, the beginning stock of rice, which is the ending

stock of the previous year, is estimated to fluctuate between 5.7 million tons in 2010 and 2.9 million tons in 2011 (Table 11). The total available rice, which was estimated at 28.18 million

tons in 2010, is projected to decrease to 26.19 million tons in 2011, but may subsequently increase every year and reach 30.88 million tons by 2015. This shows that for the next 5 years at least, the rice total supply will increase, provided that the current government policy and other variables remain unchanged (e.g., rainfall, fertilizer price, and no serious rice pest and disease).

Rice for direct human consumption is projected to increase slowly, from 7.06 million

tons in 2010 to 7.29 million tons in 2015. This would be mainly due to Thailand’s slow population growth rate (0.7%) and the overall per capita income increase resulting from economic growth.

In Table 11, the estimated rice balance sheet for 2011 to 2015 shows an upward trend

for almost every item. This is due to the constant ratio of some variables and the constant average of variables in the projection. Nevertheless, given an annual average in rice production of 22 million tons to 24 million tons and a maximum domestic human rice consumption of 9 million tons and 3 million tons for all other usages for the next 5 years, Thailand is expected to be a rice surplus country. Therefore, rice security or food security may not be a problem for Thailand. Rather, the problem areas for the Thai rice industry would involve rice surplus and rice exportation.

The supply side of rice in Thailand is still dependent on major rice production. In recent years, the increase in rice production has been due to cropping intensity, especially for the second rice crop. In some irrigated areas (mostly in the central region), 5 crops are planted every 2 years. At present, the prospects of increasing rice production in Thailand are quite

bright. One main reason is the government support policy in favor of rice producers. However, the rise in irregular rainfall pattern is causing flooding and drought in some

rice-producing areas. Some areas in the central region have resorted to substituting other crops for the second or third crop of rice to avoid crop failure due to the lack of irrigated water. The possibility of crop diversification is very much dependent on the price of the substituted crops and the government policy on the price of paddy rice.

The unfavorable movement in the price of chemical fertilizer due to world oil price fluctuation is another negative factor impacting rice production, especially for the high-yield varieties of white rice. Thus, rice yields may not further increase unless new cultivars of high-


yielding varieties are produced as a result of research and development, which would however require increased funding and supporting policies.

Given this range of plus and minus factors, it is thus very unlikely that rice production in Thailand will be increasing rapidly. It is anticipated that a rather flat upward trend in rice production will be the likely scenario.

3. POLICY ENVIRONMENT Regulatory environment

Aside from food safety regulations, the rice market in Thailand is liberalized and the government is basically supportive of the rice sector.

Apart from private rice exporters, the government is also involved in rice export through

government-to-government trading that is handled by the Department of Foreign Trade under the MoC. Some of the government-to-government rice trades are initiated by the government, which subcontracts to private rice exporters through special auction procedures. Government involvement in rice trade primarily aims to secure and promote the

Thai rice export market rather than to monopolize rice exportation. Nowadays, Thailand does not have any limitation on the quantity of rice exports.

Policies on regulating rice standards are the same as for other economically important

crops. GAP sets the standards for agricultural products that are controlled at the farm level. This has contributed to the standardization of products to make them safe for both producers and consumers.

The implementation of the policy on agricultural and food standard certification started in 2003. There are 2 types of certification: the certification of products and the certification of the production system. The first type seeks to ensure that certified products follow qualification and safety standards. It also assesses the production process to ensure that

standards are maintained, including for such protocols as GAP, the Code of Conduct, and Organic Agriculture. The second type establishes standards for the production system of agricultural products and foods to make them comply with such protocols as Good Manufacturing Practice and the Hazard Analysis and Critical Control Points (HACCP) system.

A set of regulations has also been designed to control rice trading, including exportation. In the past, the government limited the quantity of rice exports because excessive exports could cause unwanted problems for domestic consumers. Thus, many rice export regulations exist such as the Export License (Rice Trade Act), Quota System, Export Tax, Rice Premium, and Rice Reserve Enactment. These regulate not only the quantity of Thai rice exports but also the domestic rice price, which has consequently been lower than the

world price.

The rice industry is also governed by other enactments that likewise regulate other crops, commodities, and services. These are the Food Act (1979), which imposes food quality control for the safety of consumers; the Agricultural Standards Act (2008), which stipulates controls and tests for all agricultural commodities for import and export; the Industrial Factories Act (1992), which regulates factories and also controls the levels of industrial pollution released through factory activities; and the Consumer Protection Act (1979), which enforces added mechanisms to bolster consumer rights.


Regulations affecting rice production are also the same as for other crop and plant production. These include (1) the Fertilizer Act (1975 and 2007), which safeguards farmers against substandard fertilizers; (2) the Plants Act (1975, 1992, and 2007), which aims to protect farmers from low-quality seeds; (3) the Plant Quarantine Act (1964, 1999, and 2008), which protects and controls the spread of pests that may come from imports and exports; (4) the Dangerous Materials Act (1992, 2001, and 2008), which includes controlling hazardous chemicals used in agriculture; and (5) the Plants Protection Act (1999), which enforces

intellectual property rights for the conservation of local plants.

Research on rice variety improvement plays a vital role in developing the Thai rice industry. However, according to the Department of Rice, which was officially established in 2007, the government budget for rice research in 1988–2007 had a negative compound growth rate of 3.04% (base year 2002). Thus, this calls for greater public and private investment in R&D for the rice industry. Major subsidy programs

Recently, rice production has enjoyed unprecedented public sector support or subsidy through the paddy pledging program. However, the program has raised prices both

domestically and in the world market, and also has introduced other issues such as the fiscal deficit, government excess stockholding, and the concentration of benefits among millers.

Currently, two important policies are being implemented to further develop the rice

industry: the farm income guarantee program and the rice standard control system. The farm income guarantee or price insurance program was initiated in late 2009 to replace the pledging program for paddy rice that was adopted in 1985 to enhance the liquidity of rice farmers. Normally, the pledging price was lower than the market price but this was raised to help farmers quickly sell their produce to pay for expenses or debts. The Bank of Agriculture and Agricultural Cooperatives, the Public Warehouse Organization, and the Marketing Organization for Farmers implemented the pledging program.

However, the pledging scheme impacted the domestic paddy price, leading to market distortions. The scheme benefited mainly the farmers and rice millers who participated in the program and the rice traders that were closely associated who could get a low price from the government auction. But independent rice millers lost ground as farmers chose to join the pledging system where the pledged price was higher than the market price. Thai rice exporters were also affected by the higher rice price in the pledging season and lost their competitive edge in the word rice market.

Given these problems, and still under populist pressure, the government shifted briefly to a price insurance program, which continued to inflict a large fiscal burden. However, this had the opposite effect on consumers, both in the domestic and world market, by reducing rice prices.

There are two key steps for implementing the price insurance or farm income guarantee

program for agricultural products: the registration of farmers and the formulation of the market reference price. The first step involves enrolling farmers into the program without charge. The farmers have to register with the MOAC’s Department of Agricultural Extension to obtain a certificate of registration, and then contact the BAAC for the contract price. Under the second step, concerned government agencies set up the reference market price for selected agricultural products.

Under the price insurance program, the government provided farmers a guaranteed price for selected agricultural products (i.e., rice, maize, and cassava) for crop year 2009–2010. The prices were set at 1.70 baht/kg ($56.67/ton) for fresh cassava root, 7.10 baht/kg


($236.67/ton) for maize, 15,300 baht/ton ($510/ton) for Jasmine rice, and 10,000 baht/ton ($333.33/ton) for normal paddy rice.

For the same crop year, rice was further classified into 5 varieties under the program. Jasmine rice (Kou Hom Mali 105), which is normally grown in rainfed areas and has a comparatively low yield with only one crop per year, commanded the highest price at 15,300 baht/ton ($510/ton).

One advantage of the pledging program is it encouraged farmers to change the types of

planted crops and improve the quality of production.

However, the key advantage of the price insurance program lay in its greater effectiveness in supporting the targeted group in the agricultural sector. Its total coverage of 3.2 million rice farmers that benefited from the program surpasses the number of beneficiaries of the previous paddy pledging program, which is less than a million farmers. Other factors in favor of the price insurance program include (1) less complicated regulations that enable the government not to get involved with the preservation or conversion of the products; (2) marketing mechanisms are not distorted unlike in the case of the pledging project; (3) farmers receive the full benefits; and (4) the price support mechanism does not

contravene the rules of the World Trade Organization since it does not subsidize exports but only supports and maintains the prices of agricultural products within the country.

The price insurance program eventually prevailed because of populist considerations during an election year. Another reason that triggered the policy change was the increasing burden of government rice stocks due to the ever increasing pledging prices of paddy rice in 2001–2006.

It would be inappropriate, however, to compare the two policies in terms of total implementation expenditure and budget on a crop year basis. In the case of the paddy pledging program, the total budget and expenditure do not end at each crop year due to the stocks carried over.

As far as ASEAN rice security is concerned, it is quite clear that Thailand’s price

insurance or farm income guarantee program can generate favorable impacts as it provides more available rice exports at a lower price. The magnitude of exports and the decrease in price would depend very much on the target price and the intervention price of rice that are determined by the government program. However, the lower world price of rice will have negative impacts on rice farmers in Vietnam and emerging rice-exporting countries such as Cambodia and Laos.

4. PROBLEM ANALYSIS Food security issues

The priority issues for food security in Thailand are general food safety, proper household utilization and nutrition, and the eradication of remaining pockets of poverty.

Thailand has great potential for food production, and it strives to promote food

production and food safety at the same time so that these can contribute to overall food security and the people’s health. The per capita dietary energy supply, number, and the proportion of the undernourished population increased from 2,390 kcal/person/day in 1997–99 to 2,510 kcal/person/day in 2004–2006, or 4.78% (Table 12Table). During the same period, the number of undernourished decreased from 12.3 million people to 10.7 million people, or 13%. As a result, the proportion of undernourished in the total population declined


from 21% to 17%. However, it is interesting to note that although Thailand has become a major food exporting country, the proportion of undernourished in the total population was higher than that of the Asia and Pacific region (16%) and the world (14%).

Table 12: Per Capita Dietary Energy Supply, Number,

and Proportion of Undernourished Population in Thailand

1997–1999 2003–2005 2004–2006

Dietary energy supply 2,390 2,490 2,510

Undernourished

Millions 12.3 10.9 10.7

Share in the population (%) 21 17 17

Source: FAO Regional Office for Asia and the Pacific 2009.

The percentage share of household food expenditure in total income is still high. Survey

data of the Ministry of Public Health on food and nutrition in 2003 showed that more than 26% of total households used 41%–60% of their total income for food while more than 35% of total households spent around 60% of their total income on food. The most vulnerable group lives in the rural areas, spending more than 80% of their total income for food. This

would imply that food price increases have greater negative impact on the rural sector. Table 13 shows that the northeast region, which is Thailand’s largest rice-producing

region, has the highest percentage of the poor, followed by the north, south and central regions. The central region is Thailand’s second largest rice-producing area, especially for the second crop and third crop (irrigated rice). The figures indicate that poverty issues in the rice-producing areas need to be addressed.

Table 13: Poverty Statistics for Thailand, 2000–2009

2000 2002 2004 2006 2007 2008 2009

Total poor 12,555 9,135 7,019 6,057 5,422 5,772 5,279

Share in population 21.0 14.9 11.2 9.6 8.5 9.1 8.3

Percent urban 12.7 13.8 13.3 11.2 11.7 10.0 11.5

Percent rural 87.3 86.2 86.7 88.8 88.3 90.0 88.5

Percent by region

Bangkok 0.9 1.6 0.7 0.5 1.2 0.7 0.9

Central 9.9 11.9 9.5 8.7 9.2 8.4 7.7

North 20.6 25.1 26.2 23.3 28.0 27.8 25.6

Northeast 58.0 52.8 56.3 59.8 52.2 56.3 57.9

South 10.6 8.6 7.2 7.8 9.5 6.7 8.0

Source: National Economic and Social Development Board 2010.

For one of the world’s major food exporting countries, the key to resolving food insecurity is addressing rural poverty and food safety and quality standards. Rural poverty is a high priority agenda of the government.

The MOAC and the Ministry of Public Health (MOPH) are entrusted with formulating and

implementing policies and programs on food security. The MOAC attends to increasing the efficiency of food production, while the MOPH addresses food safety to ensure hygienic food production.


The MOAC, in particular, seeks to ensure that the planting of energy crops will not have adverse effects on food production. It sets policies that will add value to agricultural products, protect farmlands, and institute zoning regulations for planting areas to certain crops. To cope with climate change and natural disasters that have resulted in several farmlands being unproductive, Thailand needs to increase agricultural output and reduce production costs. In this regard, scaling up research and development will ensure continued productivity. The country is also set to improve soil and crop varieties, further develop water

sources, and advance food processing to add value to agricultural products. The production system is also being developed toward raising the quality of products in line with local and international demands. Contract farming and crop insurance are being studied to help stabilize prices of farm products.

The MOPH has been working with the Thai Restaurant Association to raise the quality of Thai restaurants and food shops to international standards. Target objectives were set in 2009 to develop 150 local restaurants and food shops to meet international standards.

The Thai government has also given increased priority on developing organic agriculture for more than a decade now. A strategy plan for organic agriculture development was established in 2006–2009 through the cooperative effort of departments and agencies

within MOAC. After two years of implementation, the National Economic and Social Development Board replaced this plan with the Strategy Plan for National Organic Agriculture Development 2008–2011. The Thai private sector is much aware of the organic movement and has long been playing a continuous role in developing this even before the Thai government formulated the strategy plan.

Looking back at the 2008 crisis

The Thai government intervened in the domestic market to cushion the impact of price volatility but managed to avoid destabilizing policies adopted by other major rice exporting countries.

The domestic rice market was extremely volatile during the early period of the global food price crisis in 2008. The price of 100% white rice at the wholesale market and Bangkok FOB increased by 100% and 90%, respectively, while its domestic retail price rose by 105%. However, during this period of high rice prices, the government intervened with rice programs utilizing government rice stocks that were quite effective in depressing the retail price.

As the world’s leading rice exporting country, Thailand helped ease the global crisis by firmly maintaining the free trade environment and spurning stringent protectionist measures such as banning rice exports.

In a normal year of the rice crop calendar, the major rice cropping transpires from

August to April. This would imply that the rice price increases in February–April 2008 occurred at the tail-end of the crop year when only some farmers were able to sell their paddy rice at a good price. In the domestic market, retail and wholesale prices go up and down in the same direction during volatile market conditions, while during normal market conditions, the retail price is rather constant although the wholesale price fluctuates. Most rice farmers buy their rice at the retail level, and only a few keep some of their paddy rice for their own consumption. Therefore, during the time of the crisis, the impacts of high rice prices had huge negative effects on farmer-consumers, especially the rural poor.

The situation was also greatly difficult for the rest of the supply chain in 2008. There were cases of rice millers that could not deliver on their forward contract and were forced to declare bankruptcy. As a result, some commercial banks had to take over rice mills after the


2008 crisis. Rice exporters also suffered substantial losses although no incidents of bankruptcy were reported in their sector.

Following the 2008 crisis, a number of challenges now face Thailand: (1) how to avert

another rice price crisis; (2) how to mitigate the negative impact of a price crisis should this arise; and 3) what kind of regional coordination and cooperation would be needed to avert a crisis.

One bright spot in Thailand after the 2008 rice crisis was the introduction of the futures

contract. In April 2010, white rice 5% FOB (WRF5) was traded in the Agricultural Future Exchange of Thailand (AFET). The WRF5 has a bigger size contract of 50-metric ton trading unit and an FOB delivery term, which is appropriate in relation to the nature of rice exportation in the current market situation. It may be too early to tell whether the rice futures market in Thailand is going to be as successful as other rice futures market in the Asian region. At present, the AFET FOB rice futures market has yet to take off due to government price interventions. Nevertheless, the current government is still promoting AFET to be the leading futures exchange market in the region.

4. RECOMMENDATIONS

The decreasing role of rice in the Thai economy and the increasing dynamism and complexity of both the domestic and international markets call for a rethinking of the general direction of the rice industry.

On the issue of domestic production, the productivity of the Thai rice industry should be

enhanced through research and development of appropriate high-yielding varieties. Sufficient budget should be allocated to fund ongoing research programs in cooperation with regional and international agencies. Increasing rice cropping intensity, which takes advantage of government intervention programs, should be closely scrutinized in terms of efficient resource utilization and sustaining the competitiveness of Thai rice production.

On the marketing side, concerned stakeholders in the rice industry, especially the private sector, should work in concert to map out the ways and means to promote the rice futures trade in Thailand and provide hedging opportunities for producers and traders as well as timely market information.

Finally, the role of Thai rice in the world market should be further strengthened. Thailand should take an active role in regional and international forums and cooperative efforts such as information dissemination and research and development, and improve the coordination of government agencies and policies on rice and food security.


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