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22 Dec 2022

Econ Digest

Farmer’s net income expected to shrink in 2023 due to price pressure


        KResearch predicts that the overall income of Thai farmers may shrink by about 0.8% YoY in 2023, due to the risk of a global economic slowdown, especially in the main export markets of Thai agricultural products such as China. These factors will weigh on demand for Thai agricultural products and could lead to a 1.0% YoY decline in agricultural prices, as prices for major agricultural products such as rubber, cassava, oil palm, sugar cane, durian and maize prices have declined, in line with a likely decline in global commodity prices from a higher base in 2022. As for the cost of production, although it is expected to fall with the global oil price and the price of imported fertilizers, the price is still high due to the Russia-Ukraine war, which will cause most farmers to still face production cost problems.
        According to the degree of impact on farmers’ net income, agricultural products can be divided into three main categories, namely: 1. The agricultural products that face big challenges are rubber and durian, because in addition to labor and fertilizer costs, they are highly dependent on the Chinese market, exposing them to the risks posed by China’s economic uncertainty; 2. The agricultural products that maintain growth are oil palm, maize and sugar cane, because they mainly rely on the domestic market and the prices are at relatively good levels, in line with tight global supply pushing up the prices of energy crops and animal feed, but sugar cane still needs to follow the development of the new draft law; 3. The agricultural products that face minor challenges are rice and cassava, where prices are at good levels supported by domestic and foreign market demand, but will still face high fertilizer costs. In addition, attention needs to be paid to the impact of the La Niña phenomenon on crop growth because it may affect the yield of such agricultural products, especially rice.
        However, it is still necessary to pay attention to the uncertainty of the Chinese economy, especially the direction of the Dynamic Zero-COVID policy after March 2023. If China’s economy improves rapidly, it will support a better-than-expected recovery in Chinese agricultural demand. In addition, global geopolitical issues, including Ukraine and other regions, as well as serious climate change issues, merit close watch because it may affect the global supply and demand balance of agricultural products, and will eventually affect the net income of Thai farmers.

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