Bangkok Post, 14 April 2006

Poorest farmers will need more help

WICHIT CHANTANUSORNSIRI

A failure to manage trade liberalisation and agricultural policy could make the financial plight of Thai farmers worse, warns Prapat Panyachatraksa, a former agriculture minister. While prices for key commodities such as rice, sugar and rubber have soared in recent years, the financial plight of Thai farmers remains pronounced.

Commercial banks such as Bangkok Bank, Krung Thai Bank and Kasikornbank have all been hit by large protests in recent weeks from farm groups calling for easier terms on their debt repayments, including principal reductions by up to half.

Local bankers say they will have to take hundreds of millions of baht in losses as a result of the restructuring agreements over the next few months.

The Thai Rak Thai government has devoted huge resources to raise the efficiency and financial position of farmers, through programmes such as the three-year farm debt suspension, One Tambon, One Product (Otop), yield improvement and agricultural research and development.

But anecdotal evidence shows that many farmers remain caught in a debt trap, particularly landless contract farmers who barely survive above the poverty line.

Mr Prapat, the chairman of the Farmers Debt Rehabilitation and Development Fund, warned that the dangers faced by farmers would only grow in the future.

’’I am not against globalisation. But we need to understand that the economic and social structure of the Thai agricultural system, which employs a huge number of people, remains weak,’’ he said.

’’Frankly, we are not prepared for greater competition under free-trade agreements. We should not sacrifice the farm sector just for the benefit of the industrial sector.’’

While industry and services account for the majority of Thai economic output, agriculture remains the primary livelihood for one-third of the population.

Authorities say that trade liberalisation should actually benefit Thai agriculture, given the country’s position as a leading world exporter of commodities such as rice, rubber, shrimp, seafood and sugar.

But others question this claim, particularly as Thai farmers lag behind other nations in crop yields and efficiency.

Northern fruit farmers, for instance, have been hard hit over the past year by cheaper produce from China under a free trade agreement.

’’Problems in the agricultural sector will eventually lead to greater social problems, whether it be prostitution, Aids or migration to urban centres,’’ said Mr Prapat, who last month resigned from the Thai Rak Thai Party.

He said the government had rushed to forge FTAs with countries such as China with the hope of expanding market access for Thai companies.

’’But the Chinese trade agreement is telling. Within just a few months, onion and garlic farmers were left bankrupt. Colder-weather crops, such as broccoli or carrots, also have seen a huge influx from China that has hurt local farmers.’’

He said the theory that countries should cease production in ’’uncompetitive industries’’ was flawed.

’’Agriculture is fundamentally different. It represents the food security for the country. Neither Japan nor South Korea can compete with Thailand in growing rice. But both countries continue to grow and protect their rice trade, for the security of their own societies,’’ Mr Prapat said.

Liberalisation should be taken in gradual steps, he said, to allow Thai farmers time to improve their competitiveness.

State subsidy programmes should also be rethought to better coincide with market realities and reduce existing distortions.

’’Right now, state policies fail to consider long-term sustainability, resulting in farmers being stuck in a debt trap,’’ Mr Prapat said. ’’For instance, farmers in the northeast are encouraged to grow rubber and palm, even though these crops are hardly suited for the conditions in the area.’’

To date, 282,947 farmers nationwide have registered for assistance from the Farmers Debt Rehabilitation and Development Fund with 164,862 approved and carrying debts of 53.56 billion baht.

Of the total, 48,230 farmers are currently in default on their loans, with 4,832 facing legal action and seizure of their collateral by creditor banks.

Creditors negotiating with the fund have agreed to reduce debt principal by half for debts up to one million baht, and by 10% for amounts from one million to 2.5 million baht, with accrued interest forgiven altogether.

The fund, established in 1999, plans to issue government-backed bonds of eight billion baht to finance the purchase of debt from local banks, and then reschedule debt repayments over a 10 year period with a management fee of just 1%.

The fund board had previously set a cutoff date for April 2005 for applications for assistance, to help reduce moral hazard present from the programme.

’’The reality is that the government simply does not have the resources to buyout the 300 to 400 billion baht in farm debt outstanding in the banking system,’’ Mr Prapat said.

’’As a result, the fund was set up to only manage debt that truly belongs to problem cases.’’

Hence the recent street protests in Bangkok, led by farm groups seeking to have their own loan cases transferred to the rehabilitation fund or at least gain similar restructuring terms from private banks.

Some analysts say the populist policies of the Thaksin government have directly increased moral hazard and led to a decline in financial discipline by farmers who have been beneficiaries of state handouts.

Mr Prapat said the fund played an important role in helping farmers, but agreed that more needed to be done to address the systemic problems facing the sector.