We Need Sober, Objective Consideration of Thailand’s Agricultural Abilities

Small and Medium Enterprise, or "SMEs", have been making national headlines with incredible regularity of late.  The government is seemingly trying to set up a policy environment where it will hand over so called ‘agricultural development’ to private enterprise. With 55 billion baht of public investment in the SME idea and growing, SMEs will certainly be given the green light to do whatever possible to make it ‘work’.  But with no foreseeable means of enforcing SMEs’ answerability to the rural communities, there is an incredible moral hazard brewing in rural Thailand - which holds no small negative implications for Thai farmers, Thai savings and social calm.

So is this SME excitement going to prove to be another wild goose chase?  Why is the Thai government so enthusiastically committing over 55 billion baht to their support?

Firstly, with the Bank of Thailand admitting that a "huge contraction" of credit in the Thai economy is a result of "...a continued reluctance on the part of institutions to extend fresh loans..."(1), it is very unlikely many start-up ideas will ever get financed.

Then with an irony that reflects the lack of a coordinated national development plan, Thailand’s free trade trail-blazing itself presents the second large hurdle any domestic SME will stumble across.  In today’s global markets, SMEs need all the domestic support possible to see them on their way, yet by embracing free trade, Thailand cannot give its SMEs the support they need.

In fact this was at the heart of quite a policy stir over the introduction of a Bill limiting market domination of any one company over a certain product or sector(2).  Many technocrats argued, however, that already established Thai business cannot make a go of it in international markets without monopolies in the domestic market; they need that headstart provided by favourable economies of scale to enter the global arena.

So it is unlikely that many domestic SMEs will ever get off the ground.  The SME dream is already looking rather confused.

It would not be unfair ask just how much planning and inter-Ministry consultation took place in the development of the SME policy framework - or was it just taken, pre-packaged, right off the shelf at the APEC store?  It would seem the latter is more likely than the former as Thailand’s SME plan is playing right into the hand of Western business.

Why have SMEs suddenly grabbed national attention?

Thailand has been under incredible pressure to show an ability to pay off debts and thereby get favourable credit ratings from foreign investment houses.  So once again the Thai government has turned to good-old agriculture, hoping to tap its strong foreign exchange earnings and thereby ‘save the nation’.  But the Thai government feels that only business has the brains to make agriculture more profitable.  Hence the effort to push agricultural SMEs.  As already argued, however, it is unlikely a domestic SME will be a part of any celebration.

SMEs are a vision of the Western world; it feels that SMEs are the heart of a Nation’s economic growth.   They wrote this idea firmly into the Osaka Action Agenda of APEC with incredible tactical support from its godfather, the WTO.  The economic playing fields of these countries had reached their limits some years ago; they needed to access capital-rich Asia to continue to grow.  But how?  APEC, WTO and The Trojan Horse of Free Trade was the answer.

It is their economies that will benefit from the SME focus of APEC and the liberalized foreign investment strategies of the WTO.  With their imported economic leverage along with free trade and the SME portal developing in Thailand, they can grab those Thai market ‘externalities’ and make them work in their favour.

It is quite disconcerting, then, to see the dogged enthusiasm and the exactitude with which Thailand is so readily accepting and incorporating the desires of APEC and the WTO.  We find ourselves asking whether Thailand has forsaken its own interests out of fears of accusations of abuse of its new-found WTO power.  Is Thailand being expertly played  by Western nations on precisely this premise?

The small farm needs sober, objective consideration

The agricultural "Master Plan" of the Ministry of Agriculture is now dusting off the old idea of encouraging more contract planting through increased participation of SMEs.  Unfortunately, that very Ministry has itself already proven - by its own catastrophic attempts - that such contract planting is wrought with disaster for Thai farmers.

Only very few sub-sectors of the agricultural market have succeeded in engaging in contract farming - and this is under very strict conditions of regular pesticide use and increasing use of patented plant varieties.  This does not bode well for any goal of Thai sustainable agriculture - but it certainly will please the Western-based companies like Monsanto who sell the patented seeds and the accompanying pesticides.

Furthermore, while such contract opportunities hold little in the way of profits for the farmers, they hold great profit opportunities for those highly leveraged, foreign joint ventures that are able to tap Thailand’s agriculture through these SME ventures and send the profits home.

In this light, it is indeed strange to hear Deputy Minister of Agriculture Newin Chidchob say that with the introduction of SMEs into agriculture, middlemen will no longer exploit farmers by putting pressure on prices(3).  The truth is the face of the middleman will simply change to be that of the SME and this will only introduce even stronger downward pressure on farmgate prices as those SMEs are playing in the much more cut-throat global market!

Finally, in the era of free movement of capital and business operations across borders, increased contract planting means greater instability for the Thai farmer.  The effects of currency devaluations on Thailand’s comparative advantage (meaning its attractiveness to buyers) in sugar, broiler-chicken and animal feed markets, to name a few, is stark evidence of the here one day - gone the next nature of contract planting and free trade.

Where, then, in all of this great Master Plan and SME focus, is the benefit for the Thai farmer?  The Thai government is tripping over itself in an effort to clean its financial house and please foreign investors.  In its haste it is throwing the baby out with the bath water.

The government is still blind to the fact that it is precisely the millions of Thai farmers - the majority of its population - that is the key to escaping the present economic mess.  The government need not mollycoddle the farmer nor certainly ‘deal’ with the farmer through some firewall several economic levels removed like these SMEs.

Thailand simply needs to enact thoughtful, intelligent and creative policies that tap the power of the small-holder farm.  The government needs to focus on the Thai farm’s potential, instead of always trying to dampen it by imposition of foreign measures of success.  The ever-heralded Western agricultural unit of measure - yield - needs to be factored with diversity of production; a factor Western nations, because of their own agro-industrial management incapacities, have never thought to implement.  If this is considered, the Ministry of Agriculture will be able to clearly see Thailand’s rural comparative advantage.

The seed has been sown for years, it just awaits a proper policy environment to flourish.

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1. The Nation, 19 October, 1999  Concern over sharp drop in lending.

2. The Nation, 31 August, 1999 Easing of Competition Law urged.

3. The Nation, 11 January, 1999 Master plan to halt fall in farm produce prices.
 
 
 

(c) J.D. Comtois
October 1999
Bangkok