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Thailand farming woes hurt GDP, consumption

Thailand farming woes hurt GDP, consumption

BANGKOK: The worst seasonal drought in decades continues to damage Thailand’s agricultural sector and shrink the incomes of millions of farmers and other agricultural labourers. First-quarter GDP results show a 1.5 per cent annual contraction for the sector. The Agricultural Price Index, a composite of prices for agricultural products, dropped 5.2 per cent. Worse, Thai farmers saw a 7 per cent decline in their incomes. Although agriculture now accounts for just 10 per cent of national GDP, some 40 per cent of working-age Thais are involved in the agricultural sector for at least part of the year.

This means that a huge section of working-class Thais have seen a chunk of their disposable incomes evaporate. The Thailand Development Research Institute (TDRI), a think-tank, estimates that the drought will slash consumption by 66bn baht ($1.8bn) in 2016, mostly in central and north-eastern Thailand.

Of this, TDRI expects 23bn baht to come directly out of the pockets of farmers — and this does not include the effect of the broader slump in prices for agricultural commodities. Consumer surveys by FT Confidential Research, a research unit at the Financial Times, indicate that discretionary spending has fallen in Thailand, especially in the central and north-eastern regions where the drought has caused the most damage to crops (see chart).

Partly as a result of lower incomes for farmers and other workers involved in the agricultural sector, overall consumption rose just 2.3 per cent in the first quarter of 2016, a slower rate than overall GDP growth. Research by FTCR finds that retail spending in secondary cities such as Nakorn Sawan in central Thailand and Surat Thani in the south dries up when the agricultural sector suffers.

Persistently low prices for rubber have also hurt Thai farmers and the broader economy. Prices have fallen below sustainable levels and rubber exports have plummeted from a peak of 3.4 per cent of GDP in 2011 to 1.3 per cent in 2015.

Thailand is the world’s largest grower and exporter of rubber, with about 30 per cent of global production. The Asean region is the source of more than 70 per cent of global rubber exports. The value of Thailand’s two largest agricultural exports fell sharply last year. Rice exports dropped 15.2 per cent and rubber exports 16 per cent. These trends continued in the first quarter.

Despite the weak consumption, Thailand posted 3.2 per cent annual GDP growth for the first quarter of 2016. The result, a modest improvement over 2.8 per cent in the fourth quarter of 2015, beat expectations on the back of increased government spending and booming tourism. Nevertheless, Thailand continues to severely underperform the ASEAN region, which has averaged 5-6 per cent growth in recent years.