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28 Jul 2010


Farm Produce and Food: Decreasing Output, Exports Boosted by FTAs (Business Brief No.2224)

In 2010, farm output has been dampened by pestilence and drought, leading to insufficient water to support agricultural activities. Lower output has ensued, particularly during the nominal dry season in 2Q10. Nevertheless, the government farm income guarantee program on the cultivation of rice, cassava and corn has encouraged farmers to increase production.
Meanwhile, exports in 1H10 surged, thanks to the improved economies of trade partners that have helped spur purchasing power there, as well as FTA pacts. That positive factor has induced higher prices for some farm produce, particularly rubber and cassava, to reach record-breaking highs.
Nevertheless, rice seems to be only farm product which is not gaining in price due to competition with Vietnam, so our rice export volume as well as price has dropped.
KResearch expects that Thai exports of farm produce and agro-industrial goods will likely continue to grow throughout 2010 in line with rising demand in the global market and a windfall of FTA pacts that have helped reinvigorate exports. The export value of farm produce in 2010 should increase to USD18.9 billion, equivalent to 15.0 percent growth YoY. Trade partners for such products include China, ASEAN and Japan. Meanwhile, the export value of agro-industrial goods should increase USD13.4 billion YoY, rising 18.3 percent. Our trade partners for these products are ASEAN, the USA, Japan and EU.
In the matter of exports, tariff reductions provided for by FTAs have done well in boosting exports during 1H10, particularly exports to major trade partners and FTA dialogue partners. Obviously, the volumes of crop products sent to China and ASEAN have surged. The export value of agricultural products in 1H10, particularly rubber and cassava products to China increased USD1.89 billion – rising 90.5 percent YoY, while exports value of such products to ASEAN increased to USD1.513 billion – rising 84.7 percent. Meanwhile, the value of exported processed goods (fishery products, livestock and agro-industrial goods) to ASEAN showed visible growth, particularly sugar, canned vegetables and fruit, as well as rice products. The exports of these products in 1H10 increased to USD2.258 billion, rising 68.8 percent YoY.
As for imports, the value of farm produce from ASEAN member countries used as raw materials or intermediate goods here has obviously surged. This highlights our intention to become a processing hub for the region. We are importing a higher volume of products to serve our processing industry by adding value to farm produce before exporting it back to ASEAN and other markets in the region. Thailand's production and sanitary standards are being accepted internationally. The import value of agro-industrial raw materials and intermediate goods from ASEAN in 1H10 rose to USD611 million – increasing 22.4 percent YoY.
For the trade balance (as affected by FTAs) in 1H10, it was found that Thailand has sustained trade surpluses with most FTA partners, except New Zealand, because of our high exports of milk from there. In 1H10, we had surpluses on farm produce and food versus ASEAN, Japan and China, with values of USD2.797 billion, USD2.144 billion and USD1.788 billion, respectively.
After FTA liberalization, some issues that should be monitored include farm produce and other foodstuffs. Tariff barriers are actually not a significant problem for us anymore because FTA partners already grant relatively low tariff rates. Nevertheless, those same partners have adopted other stricter non-tariff barrier measures (NTMs), such as technical barriers to trade (TBT) and sanitary and phyto-sanitary measures (SPS.) Larger producers tend to have a greater ability to cope with such changes than SMEs.
Over the long-term, Thailand should prepare to cope with trade disputes relating to non-tariff barrier measures. Currently, ASEAN is forming a committee to solve the problem of NTMs that is intensifying. Adjustments by Thai businesses to upgrade their product quality to meet TBT/SPS standards will add value to our products. Also, adjusting their production logistics to meet rules of origin will likely gain them greater access to FTA privileges.

Nevertheless, the government sector should urgently develop infrastructure to enhance production efficiency, reduce logistic costs and increase competitiveness. Obviously, equipping farmers with relevant knowledge should help them to brace for any changes arising from FTA frameworks. The government has to encourage farmers to be proactive toward the more intense competition permitted by FTAs, such as improving cultivation yields and upgrading their methods to meet international standards. The authorities should assist farmers by promoting the use of needed resources and facilitating access to new technologies because superior yields and higher standards will help improve their competitiveness in the global arena, as well as bolster their ability to cope with imported produce.