Thailand’s global reputation as a leading rice producer has enabled successive governments to finance development projects through foreign exchange earned from the lucrative commodity. The country consistently ranks among the top 10 rice exporters, with the central, northern and northeastern regions as major contributors.


Export receipts from rice totalled BT156 billion in 2015, accounting for 29% of agricultural exports – only second to that of rubber. As a staple food item consumed by the majority of Thais, as well as being a sector which employs a significant number of rural citizens, any volatility in the industry affects the entire country.


Rice: Where drought and politics collide

Thailand has been grappling with its worst drought in over 20 years. The country’s rice producing areas have been affected badly, prompting the government to suggest that farmers divert to other crops for more sustainable incomes. According to Prime Minister Prayut Chan-o-cha has, rice is no longer a viable crop, saying that Thailand “…must find a way to motivate rice producers to switch to other crops.”


In April of 2016, more than a third of the country’s 76 provinces had been officially categorised as drought-stricken. Thailand’s largest dams reported water levels under 10%, with the Ubolrat Dam on the verge of “dead storage”. Thai authorities have approached Chinese officials to release water from the Mekong River, to improve the situation.


Thailand’s Office of Agricultural Economics reported a 17% contraction in rice production in the first two months of 2016. A sluggish global economy and weak commodity market have driven the international market price of Thai rice down from $587/tonne in 2012 to $357/tonne in January of 2016. Plunging oil prices have affected Thailand’s emerging market trading partners, such as Nigeria, who have cut down on imports after falling revenues of their own.


In 2016 it was predicted that Thailand’s drought could slow GDP growth down to between 0.5% and 0.8% and that annual rice production could drop by 30%. The Thai Rice Exporters Association expected exports to fall to 9.6 million tonnes, down from 9.8 million in 2015.


Rice played a significant role as a political tool as a new referendum approached in August. In the past, Thai politicians used populist rice policies to swing into power, such as Yingluck Shinawatra. Her bungled State rice repurchasing scheme cost the country between $5.9 billion to $7.1 billion in its first year, according to the Thai Development Research Institute. She also implemented a strategy of buying rice from local farmers at inflated prices and withholding it from international markets to up the price; this backfired when India and Vietnam filled the gap with their exports. Between 2011 and 2013, the country suffered a massive dent in export earnings and had never recovered from the economic misstep.


Rise of the food processing industry

As more people migrate to cities and transition into urban life, demand for processed foods such as poultry, tea, coffee, seafood, and processed vegetables are continually on the rise.


Thailand was the first country in South East Asia to experiment with biotechnology in the food and agriculture sector. The country boasts almost 10,000 food and beverage factories, which include local and international players such as Nestle, Procter & Gamble, Ajinomoto, Thai Beverage and Charoen Pokhand Group.


The industry has grown at a rate of 9% per year with a yearly production of more than 27 million tonnes. According to the National Food Institute, 80% of the raw materials used in the industry can be sourced locally, which gives Thailand a competitive advantage regarding cost and availability.


In March of 2015, a delegation of US food and agricultural companies met with Thai officials to discuss US participation and support of new agri-innovation technologies. Bruce Blakeman, VP Corporate Affairs for Asia Pacific at Cargill, led the delegation and said, “We want to continue to work together with the Thai government to ensure they do not miss out on agri-innovation technologies which can propel the industry to even higher levels of productivity and yields.”


The US is Thailand’s second biggest trading partner in the food sector, accounting for 11% of Thai exports, close behind Japan’s 13%. The establishment of the AEC means increased trading opportunities within the SEA region, particularly with Indonesia and Malaysia, where the default demand is for Halal food products. Thailand is already a leader in Halal food exports, shipping $5.8 billion worth of products in 2014, and will look to increase its cooperation with neighbours in this sector.


Phairoj Wangthamrongwit, MD at Grand Foods Asia, believes Thailand is on the right track for development of the food industry. His company has been involved in the food export sector since 1986 and supplies to major retailers such as John West and Walmart. In an interview with FDI Spotlight, Mr Wangthamrongwit said, “In the factory, we have a quality system that we employ, and it is one of the first fruit and vegetable factories in Thailand to use these standards. We use an international set of standards above usual Thai standards.”


To maintain its “Kitchen of the World” reputation, the Thai government has enforced active compliance regarding quality control. According to the National Food Institute, many food quality agencies ensure adherence to Good Manufacturing Practices (GMP), which is a requirement for manufacturers and importers of 54 different food products. QA systems such as ISO, TQM and HACCP have also been implemented in factories.


Future opportunities

Thai business leaders have urged the government to create policies for sustainable and long-term growth, aimed particularly at the agriculture sector.


The decline of rice as an export crop has led many to suggest the adoption of “green agriculture” as a viable alternative. It would mean restructuring farming practices to reduce its environmental impact, cut water usage, and move away from the use of chemicals.


Pornsilp Patchrintanakul, adviser to the Board of Trade, explained in an interview with The Nation, “Since Thailand is still based on the agricultural sector, the government should focus on enhancing green agriculture from upstream to downstream to ensure sustainable growth of the farming sector and to serve rising concerns over the environment, food safety, and food security.”


The creation of the AEC will also help in regional coordination and movement of professionals across the region. Thailand can aim to attract individuals with research and development credentials to aid the growth of the biotech and food processing industries.