Food Security in Thailand: Status, Rural Poor Vulnerability, and Some Policy Options 1

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1 Food Security in Thailand: Status, Rural Poor Vulnerability, and Some Policy Options 1 Somporn Isvilanonda 2 and Isriya Bunyasiri 3 Department of Agricultural and Resource Economics, Faculty of Economics, Kasetsart University Abstract Agricultural development policy in Thailand over the past few decades has been importantly concerned not only with the country s food security, but also with its export earnings. Thailand is a food surplus country at the macro level. In terms of food accessibility, however, especially at the household level, it remains a problem, particularly in the rural remote areas. A recent increase in food price and production cost has inevitably impacted on Thailand s rural poor. With a declining purchasing power, these poor households face the risk of food insecurity as they may reduce the food intake of more nutritious food. The impact of rising food prices on agricultural households depends on whether they are net buyers of food. In the case of rice farming households, the share of net buyers was higher for households with smaller land holdings. Also, the poor rice farmers in Thailand were hardly hit by the higher production cost and input prices since their net profit largely declined. It is found that while nearly two-thirds of their operating cost was paid, they only received one-tenth from the rice sold. For overcoming future impacts of high food price and rising production cost on rural poor, a provision of off-farm employment and micro-credit facilities with technical assistance and proper farm management plans should be targeted to small farmers and the rural poor. In the longer-run, it is suggested that empowering small-scale farmer capacity building based on sufficiency economy concepts is necessary for further development. This can work if it is coupled with farm productivity enhancement through agricultural research investment and improvement of village-pool water resources including on-farm water resource management and investment. Key words: Thailand, food security, agricultural policy, rural poor vulnerability, policy options. Introduction Despite remarkable success in economic growth and poverty reduction in Asia, a large proportion of the Asia-Pacific region has problems with food. In , million people in the region were undernourished (FAO Statistics). Many countries inevitably manage policies for ensuring an adequate availability of basic food products, particularly staple food grains, on the national level or enhancing access to the minimum food requirement at the household level. Agricultural development based on increases in productivity and incomes, is a key driver to achieve these elements of food security. In Thailand, agricultural development policy in the past has importantly been concerned not only with the country s food security, but also with global food security. The production of food supply in Thailand, particularly rice, has enormously increased for more than the domestic demand and the surplus was exported. Being a food surplus country at the macro level, food accessibility, however, at the household level still remains a problem, particularly in rural remote areas. The food availability and accessibility have been challenged by the global economic crisis, by climate change and by food-fuel crops. In addition, the rise in global food prices in recent years has inevitably induced a sharply increase in the domestic food price, causing a high inflation rate. For the poor, food constitutes a considerable portion of the expenditure. The high food price and inflation rate directly affect their livelihood status. In addition, the small-farmers are the ones who 1 A paper presented at the international seminar on Agricultural and Food Policy Reforms: Food Security from the Perspectives of Asian Small-scale Farmers held in Seoul on August 24-28, Associate Professor, Department of Agricultural and Resource Economics, Faculty of Economics, Kasetsart University. 3 Ph. D and Lecturer, Department of Agricultural and Resource Economics, Faculty of Economics, Kasetsart University. 1

2 are hardly hit by soaring input prices and rising production cost. This paper aims to present the status of food security in Thailand and some of its policy options. The paper is divided into 7 sections. After introduction, we describe the current status of food security in Thailand. Then, we discuss factors influencing changes in agricultural structure. Recent agricultural and price policy are also discussed in the section. We also examine factors influencing instability and volatility of food prices as well as analysis impacts of soaring food prices and production cost on rural poor. The last section is conclusion and policy suggestions. Current Food Security Status Thailand has made steady progress in economic development and in food production since their first National Economic and Social Development Plan 4 ( ). Improvements in agricultural infrastructure by that time, particularly irrigation system and road network, coupled with a rapid dissemination of green revolution technology during early 1970s till 1980s have significantly accelerated the growth in agricultural sector as well as the country s food supply. However, the higher growth of non-agricultural products in a later period inevitably reduced the share of agriculture in the national economy. Thus, the agricultural share in the country s gross domestic product has continuously declined from one-fifth in 1980 to around one-tenth in Nonetheless the country s resources, particularly land and labor, are still largely allocated for agriculture and food production. Agriculture is not only for an income source of farm households, but also as a source of the country s export earnings. In 2007, Thailand exported agricultural and food products to international market at a value of trillion baht (17.76 trillion US$) and imported those from the international market to the domestic at the value of trillion baht (5.26 trillion US$). As a result, Thailand is not only a net exporter of agricultural and food products, but also one of the tenth major suppliers in the world food trade. An overview of Thailand agriculture Thailand is a small country with a total area of million has. Of this area, about 40% is allocated to crop production. Important crops grown are rice, maize, cassava, sugarcane, and palm oil. In terms of crop area, rice constitutes nearly 60% of the total cultivated area in Other grains and upland crops, tree crops, and vegetables accounts for 20.84%, 19.31%, and 0.32%, respectively. Vegetables got a minor share because its production is mainly for domestic consumption (Table 1). Crop structure in Thailand has slightly adjusted toward a declining trend of rice area and the increasing trend of tree crop areas as a result of better net returns compared to rice. The share of upland crop area increased during 1980s but this has continuously declined since 1990s due to high production cost and low output price. Farming sector in Thailand comprises of small-farmers or 4.7 million farm households with an average land holding of about 3.6 has. per farm household and a family size of 3.95 person per household (OAE, 2008). Their average annual Table 1. Share of cultivated area by crops, from Period Share of planted area (%) Average total cultivated area Rice Upland crop Vegetables Tree crops Total (million ha) Source: Calculated from a data set of Office of Agricultural Economics. 4 The 1st plan was started in Only the 1st plan is a six year plan. The other following plans are a five year plan. 5 The value of Gross Domestic Product at 1988 prices is 4, trillion baht or approximately trillion US$. 2

3 income in 2006 was 196,389 baht (5,692 US$) per household or about 49,719 baht (1,441 US$) per capita. This amount of income is 1 time lower than the self-employed non-farm workers and three times lower than that of the blue collar workers. The low income of farm and rural households have inevitably led them to living a poorer quality of life. Moreover, many are affected by household food poverty and malnutrition (See section 2.4 below). Food supply production Rice is the major staple food in Thailand. It is grown throughout the country, particularly in low land areas. The Northeastern part of the country accounts for the largest share of both rice area and production (50.21% and 34.68%, respectively). Since the region is located in a plateau, rice area in this region adopts to the rain-fed ecology with mainly one rice crop a year. Household rice production in the region is mostly for food selfsufficiency. The surplus will be sometime sold to the market. The Central Plain and Lower Northern parts are the commercial rice bowl of Thailand. With a good irrigation system in this rice bowl region, farmers could grow 5 rice crops in two years by using a non-photoperiod sensitive varieties. Rice for export mostly comes from this region. During the past few decades, the cultivated areas of rice slowly increased from 8.15 million has. in to million has. in , an average increase of 1.01% per annum (Table 2). An exhaustion of agricultural land in the early 1980s and the water scarcity in early 1990s have consequently reduced the expansion of cultivated land area despite the rising share of dry season crop area. Both the increase in rice cropping intensity and the adoption of modern rice varieties (MVs) since the early 1970s have generated the growth in production, even though there was a diminishing growth in the cultivated area. From to , rice production has increased Table 2. Average and growths of paddy production, area, and yield, classified by wet and dry seasons, Period Wet Dry Annual Wet Dry Annual season season Ave. season season Ave. Average area (million ha) Growth (%) % Share Ave. annual growth Production (million ton) Growth (%) % Share Ave. annual growth Note: calculated from Agricultural Statistics of Thailand, various issues 3

4 considerably from million ton to million ton at the rate of 3.06% per annum. This is higher than the rate of cultivated area growth as a result of increasing rice cropping intensity in flood prone environment. Other food grains produced were corn and soybeans. Corn is used for flour and the animal feeds industry. In , the annual production of corn is 3.69 million tons. This amount of production is mostly for domestic use. The annual production of soybeans is around 0.21 million tons, which is less than the domestic demand. The domestic demand for soybeans is not only for the food industry but also for the feed industry as well. Consequently, Thailand is a net importer of soybeans which is about 1.5 million tons annually. Beside those grain crops, cassava, sugarcane and palm oil are also sugarcane of paramount importance. The production of sugarcane is about 6.54 million tons in terms of raw sugar. For cassava and palm oil, production is about million tons (Table 3). Corn, soybeans, and cassava are used for domestic food and feed industries. Palm oil is mainly used for food industry and for bio-energy production. Livestock and fisheries production are among the country s major protein food source. A development of large scale poultry production in the recent past has significantly made the surplus of its domestic supply for both poultry and fisheries. In recent years, Thailand is self sufficient in terms of beef, pork, and fresh milk production but not for powder and infant milk. Population growth and domestic food grain consumption Population growth in Thailand has continuously declined annually from 2.64% in to 1.32% in It further annually declined to 0.70% in From to , the population increased from to million or nearly double over the past four decades (Table 4). The increase in population inevitably led to the rise of the country's food demand. The total domestic rice availability increased from 7.72 million tons of milled rice in to million tons in According to Isvilanonda and Kongrith (2008), the average per capita rice consumption of Thai households is 101kg. Using this data to Table 3. Production of other important food crops Average year Corn Soybean Sugar cane Cassava Oil palm Million ton Source: Calculated from OAE Statistics Table 4. Average rice production, consumption and export, (in term of milled rice) Period Population Total rice Domestic Export % of Per capita production availability export to domestic Million Growth (million (million (million total availability head (%) ton) ton) ton) production (kg) (1) (2) (3) (4) (5) (6) (7) Source: Column from Office of Agricultural Economics; column. (3) from Department of Custom; column.(4) obtained by minus column(3) by (5); Clumn (7) obtained by dividing (4) by (1) 4

5 calculate the rice consumption at home, it is about 6.6 million tons 6 of milled rice. The rest is utilized for those consumed outside the home, industrial use, seed use, and animal feed use. In addition, as the economy grows, household income increases. People will consume less staple food but there will be more demand for meat. During , bread and cereal expenditures (at constant price) grew by 1% whereas meat expenditures (at constant price) grew by 10% (NESDB 2008). This will increase supply for meat as well as demand for rice for animal feed use. About 42 % of rice production was exported in The amount of annual rice export increased from 1.31 million tons in to 8.14 million tons in (Table 4). A large surplus of domestic rice supply has recently pressured the government to switch from the consumer-oriented food policy to the producer-led food policy in the past few decades. The consumption of other food grains is shown in Table 5. The domestic consumption of corn and soybeans are larger than the country's production supply, particularly soybeans. Thus, the deficits are imported. The net import of corn and soybeans in were 0.22 and 1.51 million tons, respectively. Since sugarcane is mostly used as a raw material in the sugar industry, the conversion of sugarcane into sugar products is about 6.54 million tons. The domestic uses of sugar was 2.1 million tons or 32% of the total production supply. Thus, the sugar exported was around 4.4 million tons. About 65% of cassava root production was exported in the form of cassava chips, pellets and starch. The domestic consumption in terms of cassava root was about 8.75 million ton. Food access While Thailand is able to produce enough rice to support the population, some vulnerable households still have inadequate consumption to meet the energy and nutritional needs, particularly in the rural area where food production originated 7. In Thailand, the household food poverty line, on average in 2007 was at 779 baht (22.58US$)/ person/month, or approximately 54% of total poverty line. Using the official food poverty line, 416,410 people in Thailand, accounted for 0.65% of Thai population were affected by food poverty (Table 6). The problem of food poverty in Thailand is highly concentrated in the rural North and Northeast parts. Even though the poorest subsistence farmers generally consume more than half of their own production, all food needs cannot be met by their production 8. Regarding food stability, some vulnerable households in Thailand have not had access to adequate food at all times even though Thailand has made an enormous success in reducing food Table 5. Domestic consumption of other food crops, Sugar cane in Oil palm in term Average year Corn Soy-bean term of sugar Cassava root of crud oil Million ton Production Net export Domestic demand Note: 1/ about million ton of sugar cane. Source: Center for Applied Economic Research. 6 Multiply 101 kg per person by million person. 7 The official food poverty line is defined as the amount of money this particular household needs to buy foods that give exactly the minimum amount of calories and protein (Jitsuchon et al, 2004). The calories and protein requirements are based on differences in age and sex of the household member (See Appendix tables A1 and A2). 8 For example, while purchased rice expenditures of the poorest subsistence farmer accounted for 12% of total rice expenditures, purchased meat and vegetable expenditures accounted for 92% of total meat expenditures and 86% of total vegetable expenditures respectively. Overall purchased food expenditures of the poorest subsistence farmers accounted for 59% of total food expenditures and 47% of the total money income. Where prices of other foods, such as meat increase dramatically relative to staple grains, some farmers cannot afford to purchase what they do not produce. 5

6 poverty during (Table 6). Numbers of people affected by food poverty increased during (after the financial crisis in 1997) and during (after the rise in food inflation). Agriculture can play a significant role in enhancing food security. About 87% of those who were affected by food poverty in 2007 were agricultural households who relied in 37% of their total current income on monetary farm income and 43% on income in-kind 9. Among agricultural households, the farm operator, who mainly rents land less than 1.6 has. and engaged in fishing/ agricultural services/forestry in rural areas are the most vulnerable group affected by food poverty (Table 7). Surprisingly, while Thailand is a world leader in rice exports, a significant proportion of the Thai population affected by food poverty depend on rice farming, particularly subsistence farming, for livelihood (Table 8). Drivers of Change in Thailand Agricultural Structure Expansion of Thailand s agriculture and food production in the past has been accompanied by a massive investment in public infrastructure. The government has invested heavily in irrigation projects as well as road networks. In addition, a significant government effort has been made to develop new technology. Irrigation The development of modern irrigation system in Thailand began when the Chao Phraya Project was constructed in The project was to benefit the lowland rice farmers in the Central Plain (Isvilanonda and Poapongsakorn, 1995). In Thailand, most large and medium-scale irrigation projects were implemented by the government under the economic and social development plans. From the 1 st to the 5 th plans 10, the expansion of irrigated areas has taken place at the significant rate (average 7.53% annually), or increased from 1.56 to 3.91 million has. (Table 9). High investment costs, long gestation period and low rates of return on investment in a later period led to the shift in investment priorities to small scale projects during 1990s and 2000s, resulting in a slower growth in irrigated area since the 6th plan. Currently, the irrigated areas shares about 23.9% of the total cultivated area. A potential for further expansion of irrigated area is limited because of rapid increase in the cost of irrigation development, and the growing concern for adverse environmental conditions of irrigation projects. During the 7th and 8th National Economic and Social Development plans ( and ), the Royal Irrigation Department did concentrate on improving water distribution system for both state owned and private irrigation projects Table 6. Numbers of people who are affected by food poverty (Thousands) Region Area Whole Urban Kingdom Rural 2, , Total 2, , , Central Urban Rural Total North Urban Rural Total Northeast Urban Rural 1, Total 1, South Urban Rural Total Sources: NESDB 9 Agricultural households are defined as those who are farm operators, or those who are involved in fishing, forestry, and agricultural services. 10 Thailand implemented the first economic and social development plan during 1961 to Except for the first plan, which is a six year plan, other subsequent plans form part of a five-year plan. Currently, the tenth plan has been implemented ( ). 6

7 Table 7. Numbers of households affected by food poverty (thousand households), 2007 Types of households Area No. of households % of total affected by food poverty population (thousand households) Non-Agricultural Total Urban Rural Agricultural Total Urban Rural Owned Land Less than 1.6 ha to less than 3.2 ha to less than 6.4 ha ha and more Rented Land Less than 0.8 ha to 3.19 ha ha or more Fishing, Agricultural services, Forestry Sources: Computed from Socio-Economic Survey, Table 8. Agricultural households affected by food poverty (thousand households), 2007 Type of farm occupation Level of farming No. of people affected % of total by food poverty (thousand households) Rice Farming Non-subsistence Subsistence Total None-rice farming Non-subsistence subsistence Total Agricultural services Non-subsistence subsistence Total Total farm households Non-agricultural households Total Sources: Computed from Socio-Economic Survey, Table 9. Irrigated areas and shares by region from 1961 to 2006 Region 1st Plan( ) 5th Plan ( ) 9th Plan( ) Area % Area % Area % (million ha) share (million ha) share (million ha) share Northeast North Central South Total Source: Office of Agricultural Economics, various issues 7

8 rather than constructing new ones. Improving the efficiency in water management and collection of water charges were also mentioned as its key objectives. Road networks The government has made massive investments in road construction during 1960s and 1970s. This helped to facilitate the reclamation of new farmlands and improve the marketing efficiency of agricultural products. Such investments have later facilitated rural-urban and rural-rural migration to take advantage of the seasonal and spatial variation in employment opportunities. It was reported that during and , the average budget for road construction and improvement had increased from 11,000 to 74,000 baht per ha (Isvilanonda and Poapongsakorn, 1995). Agricultural research Government investment in agricultural research induced the changes in agricultural structure. The Department of Agriculture was the lead agency for agricultural research and development of new technologies. During the periods of and , funding for research by the Department of Agriculture 11 grew from to 2, million baht (Isvilanonda 2002). The task of rice research since the late 1960s was focused on improving the yield per hectare in irrigated areas by using the outputs from the international research, particularly the International Rice Research Institute (IRRI). However, the impact of this research was small due to the small ratio of irrigated area. Research on rain-fed rice production was limited. The real budget value of rice research at the constant 1988 price simultaneously rose from million baht during to million baht in (Table 10). A declining rice price has resulted the government in spending less investment in rice research. Thus, during , the budget declined to million baht, resulting in a negative growth for rice research during this period. Although it is difficult to separate the research budget from the institution budget, around 50% was however used for conducting the research. The major focus of rice research has been on increasing the yield for irrigated ecosystem, as well as for developing resistance against major insects and diseases. Impacts of rice research on productivity growth in irrigated areas were observed. With a larger share of rain-fed ecosystem in rice production, the rice research policy should also pay more attention to the welfare of rain-fed farmers. RECENT AGRICULTURAL POLICIES The major change in government agricultural policy occurred in 1986 when the pro-consumer policy was replaced by the pro-producer policy. The export taxes and export restriction 12 which penalized the farmers were eliminated, resulting in the more or less neutral nominal rate of protection Table 10. The real budget allocation for rice research and institution (at 2002 price) Periods Rice research Rice research budget per wet Annual growth rate budget(million baht) season rice area (baht/ha) (%) Note: Rice Research Institute formerly under the Department of Agriculture. In 2007, the Department of Rice was established by separating its function from the Department of Agriculture in Source: Rice Research Institute. 11 Before 2007, Rice Department was under the Department of Agriculture 12 Export taxation was implemented before The purpose was for controlling the export flow. It was abolished in

9 for most exportable crops, except a few imported competing crops such as palm oil and soybean (Poapongsakorn, 2009; Warr and Archanun, 2007). Since then the governments have increased the agricultural subsidy through the agricultural price support program with the aim of improving farmers income. The Paddy market intervention policy The paddy price support program In the early 1970s, the farm support program was launched by the Farm Price Stabilization Committee 13 to intervene with the paddy market. However, the operation scale was very small and could not support the farmers due to lack of budget. Siamwalla and Na Ranong (1990) criticized that a maximum guarantee price was even lowered than the market price when it fell. The program was later replaced by the paddy pledging program. The paddy pledging program The paddy pledging program 14 had an initial objective to provide a soft loan at low interest rate for farmers who needed cash at the early harvesting season so that the farmers can keep their products from the market at harvest and delay sales until prices rise later in the season. The farmers choose to pledge their paddy with the BAAC 15 at the price of 80% of the target price 16. The paddy was kept at the on-farm storage which is rented by the BAAC (Poapongsakorn and Isvilanonda, 2008). The program was later extended to cover farmers who do not have their own rice barn by allowing them to pledge their paddy either at the Farmer Market Organization or the Public Warehouse Organization (PWO). The farmers receive the loan for their pledged paddy at the net interest cost of 3% per annum but applied only pledging period normally not beyond 7 months. However, the government needs to subsidize 5% interest to the BAAC to make up for a total loan rate of 8% per annum. Farmers are given 5-7 months to redeem their pledged paddy. Otherwise the mortgaged crops go to the government. The government hires the PWO and other private warehouses to stock the paddy until it can sell the rice either domestically or in the world market. The government also subsidized for the operation of the paddy pledging program and provided interest subsidy for farmers. The major change in the schemed occurred in 2001 when the government by that time drastically raised the pledge price to 120 to 130% of the market price, thus changing the program to the price support one. As a result, the budget expenditure for the program rose from 8.2 billion baht(or 0.24 billion US$) in 2000/01 to billion baht(or1.31 billion US$) in 2005/06. The amount of pledged paddy also jumped from 1.6 million tons in 2000/01 to the peak of 8.65 million tons in 2005/06 (Isvilanonda and Naivikul, 2006). After a military coup in 2006, the pledge price was reduced to below the market price, thus substantially reducing the amount of pledged paddy to 1.8 million tons. In the early 2008 during the rice market volatility, the pledged price was again set at the very high record of 14,000 baht (or 406US$) per ton, causing the government's rice stock to jump markedly. Despite the wet season crop 2008/9, the pleded price was scaled down to 12,000 baht (or 348US$) as a result of declining market price. But, the pledged price was still 20% higher than the market price, causing the government's rice stock to jump markedly. Recently, the government has become the largest domestic rice trader. Poapongsakorn(2009) indicated that the program only increases the farm price in the harvesting period but depresses the market price later in the season when the government releases the rice in the market. Furthermore, the increase in the share of pledged paddy has reduced the supply of paddy to be handled by the market, thus, reducing the number of local rice traders and central paddy markets which are operated by private sectors. It would certainly create the instability of food supply and food price in the longer-run as a result of market inefficiency. Agricultural credit policy Previously, the agricultural credit market in Thailand was dominated by informal lenders, particularly land owners, middlemen, and millers (Thisayamondol et al., 1965). A drastic change 13 The Farmer Aid Fund was appointed when the government set up the Market Organization for Farmers (MOF) for undertaking the price support program in It is similar to the US loan rate program. 15 Bank of Agricultural and Agricultural Cooperatives. 16 It was later adjusted to be 90% of the market price in 1990/91 and to 95% in 1998/99. 9

10 in agricultural credit market occurred in 1975 when the Bank of Thailand (BOT) instructed all commercial banks to allocate 5% of all commercial loans for agriculture at an interest rate which is lower than the market. As a result of such policy, the supply of agricultural credit expanded from 2.9 billion (0.08 billion US$) in 1975 to 5.5 billion baht (0.16 billion US$) in Between 1985 and 2003, the BAAC s loans to individual farmers jumped by more than 17 times from 14.9 billion baht (0.43 billion US$) to billion baht (7.48 billion US$) (Poapongsakorn and Isvilanonda, 2008). The success of BAAC is attributed to an innovation of group liability guarantee which enabled small farmers to access the short-term credit without any land title deeds and collateral. The credit policy has significantly impacted on the farmers adoption of modern technologies as well as crop diversifications, particularly in irrigated areas of Central Plain. Because farmers in irrigated areas have a better cash flow and less production risk, a large proportion of credit goes to commercial farmers. Even though group liability guarantee could help small-farmers to access formal credit, the amount of loan for these poor farmers obtained is very small and limited. Thus, small-farmers are more difficult to improve their household food supply, particularly when facing with the food price increase. Agricultural input policy In Thailand, the agricultural input markets are mostly free from government intervention. Public policies on chemical fertilizers mainly involved their distribution to the farmers at the prevailing marketing price or at reduced costs. The loan was financed by Farmers Aid Fund. The government has previously used the Market Organization for Farmers (MOF) and agricultural cooperatives as a network to distribute the fertilizer with a subsidized transportation cost. Due to limited funds, a small number of farmers could access this program and most of them are farmers in irrigated environment. The program had no impact on the small-farmers in remote areas since their eligibility was not met. As a consequence of rising fertilizer price and production cost, it is inescapable that the food production of small farmers would be affected most. Factors Influencing Instability and Volatility of Food Price Trends in rice prices and the 2008 price volatility During 1980s and 1990s, Thailand faced a continuously declining trend of rice price despite some years of interruption as a result of the green revolution technology impact. A decline in export price inevitably transmitted to the domestic and farm prices (Fig. 1). Thanks to the productivity improvement and increasing cropping intensity from the green revolution technology that helped maintain competitiveness in the Thai rice industry over the past few decades. A concern of declined world rice stock appeared in early 2008 which immediately drove the rice price in the international market. The situation by that time led some major rice exporting countries, such as India, China, and Vietnam worried with their own respective food security. Later exports were banned and this created a rice market volatility. Thailand was not banned from the rice export. However, the increase in export price has inevitably resulted in the volatility of the domestic rice price, causing the country s high inflation rate. Small farmers, rural poor households, and wage earners who had very low income would inevitably be vulnerable to confront the issues of food insecurity and food poverty. In Thailand, it is a sign of concern that the impact of the green revolution technology would soon fade out since the technology has already been fully exploited to favor production environments. It is likely that the potential rice supply in Thailand would also soon level off. A rising production cost Production cost generally reflects the amount of input use in a production process and their input prices. Land, labor, machinery, and cash inputs are among factors used in food crop production. Cost of rice production in Thailand has significantly risen. From 1980 to 2007, the wet season rice production cost in irrigated area (in real term) increased from thousand baht (509.56US$) per ha in 1980 to thousand baht (946.96US$) per ha in 2007or about 86% (in term of per unit kg from The rice production cost in 1980 was adjusted to be the value in 2007 by using the consumer price index. 10

11 baht to 6.86 baht (about 43%) (Isvilanonda and Kao-ent, 2009). Labor and machinery, fertilizer, and land are among the factors that cause major changes in rice production cost components. Particularly, when the rice price hikes, the rental rate of land increases due to fixed payment in paddy per ha. The fuel cost is implicit in the rental rate of machine which is mostly in terms of a piece rate contract and adjusted according to the fuel cost. During the 2007, rice price hike, the total rice production cost rose to about 40% (Isvilanonda and Kao-ent, 2009) and shifted up to a new base. Most chemical fertilizers used in Thailand are imported. During 2003 to 2008, average fertilizer price at the farm level dramatically rose. For Urea (46-0-0), it rose from 7,593 baht (220.09US$) per ton in 2003 to 26,503 baht(768.20us$) per ton in 2008 or about 2.5 times. Between 2007 and 2008, the price increased more than once (Table 11). The average chemical fertilizer applied in the wet season is 200 kg per ha. The fertilizer applied for the dry season crop is nearly double that of the wet season. High wage rate is also an influencing factor in driving up the production cost. The country's economic development, particularly a higher growth in non-agriculture items over the past few decades, have consistently stimulated young farmers to leave farm areas as industrial workers. Siamwalla (2004) shows that those who left agriculture did not return to their farm land, particularly male workers, leaving their old aged parents at the farm. The Thai agricultural population has also been aging rapidly. The rural real wage rate had dramatically increased, inflating the cost of producing rice (Fig. 2). The rice farmers responded to the labor shortage by adopting the machinery in farm operations. Custom service Fig. 1. Real FOB price of milled rice 5% and real farm price of paddy Table 11. Average urea price at farm level, (baht/ton) Type of % change % change between between 2008 and 2008 and ,593 9,563 12,349 12,383 12,538 26, Source: OAE, 2008 (online) 11

12 Fig. 2. Real wage rate in agricultural sector (at 2002 price) Source: Labor Force Survey, various issues for combined harvesters is commonly found in the irrigated areas for harvesting and threshing. In the commercial rice bowl, almost every step in the procedure of rice production is mechanized and the rice production employs minimum man-hours of labor. Isvilanonda and Kao-ent (2009) finds that the labor use in rice production has declined from 392 man-hours per ha in 1980 to 56 man-hours per ha in At the same time, the use of machinery has risen from 7 machine-hours per ha to 46 machine-hours per ha. Since farmers are more dependent on farm mechanization, a recent sharp increase in fuel price inevitably led to the shoot up of production cost. A subsidized policy for bio-fuel A scarcity of fossil fuel becomes more apparent and alarming by the rising price trend of fossil fuel. Many countries are aware of the future threat to the energy crisis and prepare for a development of alternative energy source. A policy toward renewable bio-energy has strong endorsement in many countries, particularly the USA, the EU, and Brazil. Different forms of subsidies to promote and encourage the use of gasoline and biodiesel stimulated the rise in demand for bio-fuel, creating an alternative use of food crops for energy production, particularly, corn and soybean in USA and sugarcane in Brazil. In Thailand, government also subsidized the use of bio-fuel by reducing the excise tax on both gasohol and biodiesel, causing the price distortion between renewable energy market and fossil energy market. Thailand produced ethanol for gasohol by using molasses from sugar production and using cassava chips from cassava roots. Recently, the production of biodiesel largely came from palm oil seeds. The fuel demand for both gasohol and biodiesel has sharply increased due to the high fossil fuel price. The use of food crops for energy production is one of the major causes of concern to stimulate the food price volatility. The higher price of energy crop has recently induced the change in crop structure toward the increasing cultivation of bio-energy crops, particularly palm oil and cassava due to a relatively higher return from these grown crops. In Thailand, the country s energy crop area increased from 2.98 million has. in 2002 to 3.57 million has. in 2007 (Table 12). Mostly, the increase stemmed from the production area of palm oil and cassava but not for maize, soybean, and sugarcane. The sugarcane is a protected crop for area expansion since farmers have to register to the government for their planted area. Does the higher relative energy crop price affected the rice production supply in Thailand? It is a sign that the marginal rice land will shift to grow cassava and palm oil since the net return from those crops are more advantageous than growing rice. 12

13 The challenge of climate change One of the most serious challenges that Thailand agriculture may have to face is the adverse impacts of climate change. While this is not the place for detailed discussion and analyses of the issues involved, what might happen is that the water regime may drastically change with years of too much abundance (heavy floods) and too little (severe droughts). Both scenarios may be much more frequent. Isvilanonda and Praneetwatakul (2009) reports that the impact of climate change would reduce rice yield in Central Plains to about 0.41 ton per ha or about 6.85% of the current yield. A reduction in yield would probably reflect by the rise in production cost per unit output. A frequent drought or flood would result in uncertainty of production supply, creating a variability of the food price. Impacts of Rising Food Prices and High Production Cost on Rural Poor The impact of rising food price on rural poor In Thailand, food and beverage in 2007 accounts for 33% of the consumer price index, 41% of the low income consumer price index and 47% in rural consumer price index 18. Since 2003, the rural food inflation seems to increase higher than the overall food inflation. The substantial increase in agricultural commodity prices, particularly the price of rice in drove up inflation on food and beverage to double-digit rates. During , food price index increased by 11.6% for all households, by 12.6% for the low income households and by 16.9% for rural households. Rural food inflation was generally higher than overall food inflation since 2004 as households in rural areas spent higher proportion of food in their consumption baskets compared to those in urban areas (Fig. 3). Considering the staple food inflation, the rate of rice inflation accelerated sharply for low income households in municipal areas (Fig. 4). This indicates that rural households have been susceptible to the increase in non-rice food price, where as the low income households in urban areas are more prone to the increase in the price of rice. Rising food prices will increase total consumption expenditures of households. The effects of rising food prices will differ across households. Non-agricultural households, who are less likely to be food producers, are inevitably to be adversely affected by rising food prices because the poorest non-farm households spent 83% of their total money income on food 19. With a declining purchasing power, poor households face the risk of food insecurity as they may reduce food intake of more nutritious food. The impact of rising food prices on agricultural Table 12. Cultivated areas for some energy crops, Year Maize Sugar Soybean Cassava Oil Total energy % of Total cane palm crops Agricultural land Area (Million ha) Source: Office of Agricultural Economics (2008) 18 The ministry of commerce has constructed the general consumer price index (CPI) by using weights derived from socio-economic survey conducted in municipal areas in 2007 among families of two or more persons but not over six, with monthly current income ranging from ,000 Baht/ month. The weights of the low income consumer price index are derived from socio-economic survey conducted in the municipal area among households with monthly current income ranging between 3500 and 18,000 Baht/ month. The weights of the rural consumer price index are derived from socio-economic survey conducted in the non-municipal area. 19 Computed from SES data in

14 Fig. 3. General food inflation, low income inflation and rural inflation Source: Ministry of Commerce (2009) households depends on whether they are net buyers of food whose prices increase. As a consequence, the impact on food poverty can be analyzed only in the case of non-farm items. Because of data limitation, it is assumed that a 10% increase in food price will increase the household food poverty line by 10% whereas per capita expenditures remain constant. Given the distribution of expenditure in 2007, a 10% increase in food prices will result in an additional 6.79 thousand food for the poor people. The impact of rising food prices will be greater in non-municipal areas (Table 13). In investigating the impact on agricultural households, rice farming households were chosen as the case study since they appear to be the most vulnerable group affected by food poverty. Using the SES data in 2007, it is indicated that 22.3% of the rice farming households in Thailand rely on 22.3% of their total current income, 32.6% on income "in-kind" which was generally produced and consumed by them. Wage and salary, business profit, and remittance share 19.8, 10.0, and 13.4%, respectively. Households in Bangkok vicinity and central regions have higher farm income share compared with other regions (Table 14). On average, 37.8% of total value of production distributed to their home consumption and 45.5% of that to their crop sales in A majority of food production is for crop sales in almost all regions except for the south and northeast regions, particularly in urban areas (Table 15). Thus, a smaller percentage is purchased for total grain and cereal products. In 2007, the share of net sellers rice farming households were greater as the average size of landholdings increased for both owning and rented lands. On the other hand, the share of net buyers households were significant for households owning land less than 0.8 ha (Table 16). In addition, the value of net monetary surplus were distributed more proportionately to large scale farmers. By regions, rice farmers in the south will be the most vulnerable groups to price increase as the proportion of net buyer households was greatest (Table 17). However, the net monetary surplus were not equally distributed as the northeast received only small proportion of total surplus. The impact of higher production costs on small-scale farmers The impact of higher cost of production resulting from soaring prices of major agricultural inputs on rice farming households was analyzed using household economic survey data in The effect of rising cost will differ across households depending on the proportions of operating cost paid in cash and the distribution of production that was sold. The data from household economic survey in 2007 has shown that subsistence rice farmers had to pay 62.9% of their value of production for operating cost while receiving only 10.9% for rice sold (Table 18). It is hypothesized that subsistence farmers/ small-scale farmers have been hard hit by rising input prices as they have higher cash expenses without being benefited from rice sold in the market 20. It can be observed that the share of operating expenses decreased with higher size of land owning/renting whereas the share of rice sold 20 Subsistence farming is defined as a type of farming in which more than 50% of production is consumed by households. 14

15 Fig. 4. General rice inflation, low income rice inflation and rural rice inflation Source: Ministry of Commerce (2009) Table 13. Impact of Food Price Increases on Food Poverty in Non-Agricultural Households Results under Number of Food Poor Number of Food poor Change in Number different groups in 2007 (in thousands) with increase in food of food poor price (in thousands) (in thousands) Total Municipal Non-Municipal Source: Computed from Socio-Economic Survey (2007) Table 14. Shares of rice farming household s current income from various sources. (%) Region Farm income Wage & salaries Business profits Remittance Income in kind BMR Central Plain North Northeast South Total Source: Computed from Socio-Economic Survey (2007) increases with higher size of land owning/renting. Hence, it is expected that the increase in production cost will have a larger impact on farmers with smaller size of land holding as they spend a larger share of their total value of production on operating expenses but receive a smaller share on rice sold (Table 19). Geographically, it is likely that rice farmers in the south will suffer most as their operating cost accounted for 140% of their value of production whereas their rice income accounted only for 33% followed by rice farmers in the northeast (Table 20). To assess the impact on household net profit on rice farming, the simulation of increasing operating cost by 10% was adopted. As shown in Table 21, a 10% increase in operating cost paid in cash will result in a 15% reduction in net profit income. The simulation results also confirmed the hypotheses that subsistence farmers/small-scale farmers have been hard hit by rising operating costs and farmers who owned or rented land less than 0.8 ha are particularly vulnerable to rising costs. Comparing the impact among regions, the largest impact of the operation cost increase can be seen in the south and the northeast is the 15