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13 Oct 2006


Flooding 2006: Agricultural Sector Losing THB 1,600 million(Business Brief No.1876)

From the end of 2004 to the middle of 2005, Thailand was faced with drought. As a result, there was not enough water, particularly for cultivation. In the summer of 2006, or the middle of the year, the authorities planned to conserve water in order to reach the next rainy season. Since the end of July up to present, it has rained continuously, especially in Northern Thailand. The volume of water, which was expected to be deficient for the planting in 2006/2007, has turned to being excessive in some areas, and it has damaged the agricultural sector considerably. The Ministry of Agriculture and Cooperatives estimates that the damage from August 1 to October 10, 2006, at THB 927.49 million. Such reported damage is only an initial value. It is expected that the real cost of damage from flooding of this year will be close to that of 2004 which was around THB 1,600 million. Furthermore, it is estimated that other damage may be reported later. At present, the estimates of damage are not comprehensive on every flood-hit province. In some areas, the officials of the Ministry of Agriculture and Cooperatives have not been able to assess the damage, and some provinces have only just begun to be affected. Many provinces will be impacted later on, particularly those on the Chao Phraya, because they will be hurt by floodwater drainage from the Northern region.

Aside from the damage to agricultural products, there will be other continuous impacts from flooding, for instance:

- Prices of agricultural products – Prices of agricultural products will tend to change in the short-term only. The price of paddy, especially in the North of Thailand, will drop to THB 3,300-3,900 per ton, due to a high moisture content, especially any portion not part of the government's brokerage program. Moreover, there is no competition on buying paddy between mills at this time, since many mills have closed down because they had encountered deficits over many years, like the situation with potato prices that moved downward because of high moisture content. However, the news of flooding that has damaged the agricultural sector will cause buyers of Thai agricultural products in foreign countries to begin adjusting their buying tactics. This year, many key agricultural countries are faced with natural disasters. As a result, the volume of agricultural products in the world market has tended to decrease. On the prices of agricultural products that have tended higher at this time, this has mostly been seen with the price of vegetables, particularly leafy vegetables, because some of these were damaged by flooding or simply heavy rains, plus there is the factor of the Vegetarian Festival at the end of October that will of course increase demand for vegetable, thus supporting price increases.

In the long run, it is expected that some important agricultural products will adjust higher than previous expectations, where it was forecast that some agricultural products would fall in value at year-end, toward the beginning of the new crop season. In the damaged areas, agriculturists were aided by government agencies. These agencies distributed new seeds and shoots to compensate for losses, but products will reach the market later than usual by around 1-2 months. Hence, agricultural products will not be bountiful at the end of the year, because they won't be available until some time in Q1/2007.

However, an issue that must be considered is the policy on price intervention into agricultural products by the government, and the government not having announced prices for the next rice brokerage season yet. If the Government accepts the new paddy at a high assessed value, domestic prices of rice will also be high. Then, exporters will lose competitiveness, too.

Agricultural and agro-industrial products that have been affected by flooding include many types of agricultural and agro-industrial produce, such as:

- Rice – The impacts of flooding during the main planting season of 2006 can be divided into the impact on the rice on cultivation areas in the Northeast, and the impacts the lower North and the Central regions. Flooding in 2006 did not damage cultivation in the Northeast at all. It is expected that the Jasmine rice from there for the 2006/07 planting seasons will be more bountiful than usual because they will have enough water for proper cultivation, particularly in the high plateau cultivation areas and areas that are outside irrigated locales who will have thus gained from ample rainfall, now having enough water for a good crop. Nonetheless, the lowland farms will be damaged somewhat. Besides this, it is expected that the price of rice will get higher, attracting farmers to higher yields. For farms in the lower North and the Central region, it is expected that produce will falter due to damage from flooding, especially the white rice and its quantity sold in the market will be lower. The sequence in which produce will come to market in Q1/2007 will cause the price of white rice to rise in 2006. In the summer of 2007, it is expected that the farmers will increase cultivation in order to make up for former damage due to flooding. Therefore, the winter rice crop in 2007 will increase. If the volume of winter rice is too high, it will inhibit prices.

- Maize for Animal Feed – The Ministry expects that maize production for the 2006/07 harvest will be approximately 3.65 million tons, which would represent a 6.0 percent decrease from last year due to farmers switching to cassava for the production of ethanol and sugar cane, the both of which are getting better prices at the factory than maize. This in turn has pushed up maize prices, as well, wherein during 2006 prices have reached record highs, exceeding those of many years past. Therefore, the flooding this year has exacerbated this situation, giving rise to a shortage of maize for use in animal feed and unexpectedly high prices, impacting the animal feed business, especially that for chicken feed. The downstream effect has thus led to higher rearing costs for broilers, and a follow-on impact to the cost of these poultry domestically, as well as affecting the competitiveness of Thai broilers in export markets.

- Fruit Trees – Flooding has affected perennial fruit trees in both losses to trees through inundation and reduced output of surviving fruit-bearing trees, impairing the volume of fruit being placed on the market. This will affect prices on through to the middle of 2007, because those fruit most affected in the North and Eastern Thailand are still some time away their harvest season around the second quarter of 2007. This will cause fruit growers the need to invest in new saplings to replace lost trees or invest in rejuvenation of orchards damaged by flooding.

- Vegetables – Flooding has resulted in serious damage to vegetable cultivation in the Northern and Central regions, which provide produce to the entire country. Added to the fact that the Vegetarian Festival is fast approaching infers that vegetable prices this year shall be quite high and likely to reach record values. However, it is some relief that vegetable growers in Nakorn Pathom and Pathum Thani have had exceptionally good harvests, as they had not been affected by flooding, and are thus enjoying a banner market for their produce.

- Freshwater Fish and Prawn Farms – The mainstay for this cultivation lies in the heart of the Northern region...especially Nakorn Sawan province. It is expected that the flooding will impact the volume of freshwater fish produced and prices for them in the market. However, such farming ion the Northeast will likely receive a windfall, as they were not were not victimized by the floods.

- Agro-industry – The agro-industries most affected by the flooding in 2006 were mostly those located in the Northern region, especially those plants engaged in processing vegetable and fruit. Their losses are in part due to the reduced volume of raw materials received for processing and in part due to damage from the flooding on themselves, causing some to have to suspend production temporarily. Aside from that, losses from flooding are expected to extend from deep in the Northern region and into the Central region because of drainage of the rainfall out of the North into lower regions. There, the agro-industries expected to be hardest hit will be those involved in the processing of freshwater fish located mostly in the lower part of the Northern region. Along with them, the animal feed production industry will also be hurt, due to losses of raw materials needed for production, including maize, soybeans and broken rice and bran supplies will become more expensive.

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