Luck Wajananawat, President, Bank for Agriculture and Agricultural Cooperatives: Interview

Interview: Luck Wajananawat

To what extent has the fall in oil prices had an impact on Thai commodity prices?

LUCK WAJANANAWAT: The global drop in crude oil prices has had a knock-on effect on nearly all commodity prices in Thailand, with a significant decrease in the prices of palms, rubber and rice. Cassava prices have, however, remained fairly stable due to a reduction in supply. Moreover, the Cane and Sugar Act includes a price stabilisation mechanism to ensure that sugar cane growers receive a sufficient price to maintain production whenever there is a fall in the market price. This policy is also meant to insulate farmers from global price shifts, as historically, whenever the price of oil has been low, other major producers such as Brazil have tended to switch back to producing sugar rather than ethanol, in turn affecting the dynamics of the Thai market. As a result, the shift in land usage towards growing sugar cane, and away from other commodities such as cassava and maize, has been significant. This price burden has been to some extent shifted to the consumer and prices have been marked up by about BT5 ($0.15) per kg.

However, we must ask how to make industry sustainable in the long run by increasing productivity to the level of other major sugar-producing countries such as Brazil and Australia. This would effectively reduce Thailand’s reliance on consumer subsidisation and reduce price distortion. Other than sugar, commodities must rely on market mechanisms, and intervention in pricing should be kept to a minimum.

How can initiatives such as organic farming help the agricultural sector move up the value chain?

WAJANANAWAT:  Farmers can be shielded from excessive exposure to the effects of commodity price fluctuations by adding value to the agricultural sector. Organic farming presents one such opportunity. Although domestic demand for organic goods remains limited given that the prices of organic goods are relatively high for Thai consumers, we are aiming to increase exports to Europe in particular.

There are several farming communities producing fragrant jasmine rice in the country’s north-east and far northern regions that are ideally positioned to benefit from these trends. These communities grow, collect, process and package their goods under their own brand, subsequently selling these for export, and can command high prices. We are actively identifying communities that produce high-quality rice to fund their shift to organic practices. To date, 210 organic farming communities have been identified across the country, a number that could expand. With the increase in middle-class purchasing power, potential exists for an expanded domestic consumer market.

What challenges will Thai agriculture face in the years ahead, and how can these be addressed?

WAJANANAWAT: The Thai agricultural sector faces a range of challenges that could adversely affect its future competitiveness. As the population ages, community farming and machinery pooling are among the answers to issues facing the sector, such as an ageing population and a shortage of future manpower. Community farming, whereby entire communities are involved in the production process and share ownership, reduces production costs and, in the long run, can also improve the quality of produce.

Communities with access to niche export markets are the best places to implement this model, and this will shield Thai farmers from fluctuations in demand for primary products. Another step being taken is to provide long-term loan facilities for farmers to acquire machinery and to promote mechanisation, and BT15bn ($451m) has been set aside for this purpose. In terms of labour costs, Thailand will find it hard to compete with the likes of Myanmar and Cambodia in the near future. Therefore, improving productivity and value addition is the way forward for the sector.