THE CURSE OF THE LOW-INCOME TRAP OF THAI FARMERS
As I write this article, both sides of the political divide in Thai society are still hard at it, flinging insults at each other as they preach about what ails the country. After more than a decade of political unrest, Thailand is still not at peace with itself. Not by a long shot. In fact, the events surrounding the Aug 25 court hearing in the trials of figures from the previous regime epitomise the shambles that Thai society has descended into.
The only good news to come out of all this is that the Stock Exchange of Thailand seems to be able to roll with the punches. It recorded one of its biggest daily gains of the year on the day after our former prime minister did a runner.
I have friends on both sides of the aisle who were high-ranking officers in both the Yingluck Shinawatra and Abhisit Vejjajiva administrations. Both worked on rice subsidy schemes to help poor farmers. Both had good intentions, but sadly both were barking up the wrong tree if they were genuinely sincere about getting farmers out of the low-income trap and not just out to win votes.
Agricultural subsidies, by their very nature, are money-losing schemes and prone to abuses and corruption. As a result, they are highly contentious for their political origins, which involve lobbying from various interest groups.
It is hard to put an accurate number on the losses incurred by rice subsidies. It depends on who is doing the counting. But to be fair to the previous administration, the estimated losses pale in comparison to the lunacy of state agriculture subsidies in other countries.
Since its inception in 1962, the European Union (EU) has already ploughed through tens of billions of euros to feed its Common Agricultural Policy. Over 40% of the EU budget goes into subsidies from agriculture and fisheries. Taxpayers have been paying farmers to produce unwanted dairy produce, sugar, wine, wheat, maize, etc, which ends up being stored at locations across the continent; we frequently hear of “butter mountains” and “wine lakes”.
Over in the United States, $20 billion a year is given to farmers in direct subsidies as “farm income stabilisation” through farm bills. Japan and South Korea also offer subsidies and put up tariff walls to benefit their farmers, at the expense of their consumers having to pay more for their rice.
The original rationale for farm subsidies was to provide economic stability to farmers and to ensure a steady domestic food supply during the Depression and after World War II. Back then, more than 30% of the population in the western world worked on farms but that figure is only 2% today. With the introduction of mechanisation, big industrialised farms now account for over 80% of farm output, producing more than enough food for domestic consumption and export.
In spite of the irrational logic, many governments around the world still give agricultural subsidies to farmers to supplement their incomes. The simple reason is pure pork-barrel politics. In many countries, farmers hold sway over who wins elections. But in Thailand, rice is more than that; it is money, food and culture rolled into one.
Rice cultivation began to really take off in Thailand with the Green Revolution of the 1960s, and since then the country has become the world’s biggest exporter of rice with 25 million acres of rice fields and a 32% market share.
Despite the country’s strong credentials, most Thai farmers are still dirt-poor, forever in debt and stuck in the lowincome trap. Why is that?
There is an old Chinese proverb that goes something like: “If you are planning for a year, sow rice; if you are planning for a decade, plant trees; if you are planning for a lifetime, educate people.” In the case of Thailand, it’s not only the farmers who need to be educated, policymakers and politicians also need to put their heads together and act more conciliatory. What the country desperately needs right now is less political rhetoric and more creative mindsets.
Somewhere along the way, it seems Thai farmers missed out on the benefits of the Green Revolution altogether. This was a period when the productivity of global agriculture increased dramatically as a result of new advances such as chemical fertilisers, synthetic herbicides and pesticides, introduction of high-yield crops and multiple-cropping techniques.
Rice farms in Thailand are, for the most part, fragmented, labour-intensive and uneconomical with poor productivity. What’s needed is a new deal for the farmers via mechanised agriculture and corporatisation of land ownership. In places like the US, Canada and Australia, mechanisation has had a major impact on the demand and supply for farm labour, the profitability of farming and changes in the rural landscape and communities.
The introduction of new technology will invariably result in losers and winners. But change has already occurred in rural Thailand anyway, so there should not be too much resistance to new ideas.
Most farmers have sold their land to investors a long time ago. Now they simply rent back the land to farm their crops. Sons and daughters of rural farmers do not want to work on the farm anymore. They prefer to drive taxis and work in air-conditioned convenience stores.
There is a real opportunity for the new government, whoever it may be, to break away from the old pork-barrel politics and steer the agriculture sector in a more sustainable direction. The time is ripe for a real change to happen, if we are truly ready to make the change for the betterment of the farmers.
Teera Phutrakul CFP® is a certified financial planner professional and a Fellow of the Institute of Directors.