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Published on April 11, 2008

 This is one of the biggest surprises because the global economic outlook is rather gloomy. Thai jasmine rice normally sells at US$500 (Bt15,700) per tonne. Now it has reached almost US$1,000 per tonne. Higher

food prices reflect growing demand from emerging markets, declining agricultural resources, unpredictable climate changes, rising product costs and bio-fuel demand.

Is an average Thai farmer better off as a result of higher food prices? Yes, but not much. In the broadest sense, agricultural output accounts for less than 10 per cent of Thailand's gross domestic product. But it employs about 40 per cent of the total workforce. This means that the majority of Thais are sharing a tiny piece of the big cake.

Thai farmers are not richer because of the higher rice price. First, their production costs have also gone up 50 per cent. The prices of fuel, transport and fertiliser have jumped dramatically.

Second, rice still belongs to "traditional trade", in which middle-men, or millers - not farmers - still dominate the scene.

Third, most farmers do not own barns. This has hampered their ability to stock rice and wait for a better time to sell and thus get the highest possible price. After completing their harvest, they have to rush to sell their rice.

Fourth, the farmers are not sophisticated enough to engage in futures trading to hedge the risk from their rice production.

Fifth, they have to shoulder the risk alone if drought descends on their farmland. The government's irrigation system is not broad and effective enough to look after all farmers.

Finally, the productivity of Thai farmers remains very poor compared to those in other countries. Farmers in the US, Japan, Korea and China are the most productive, while those in Thailand, Cambodia, Burma and Nigeria are the least productive.

"Thailand has the fifth largest amount of rice acreage in the world, so if Thailand could move its level of productivity up to that of Bangladesh, it would increase output by 39 per cent, and 83 per cent if as productive as Indonesia," said a recent report by Credit Lyonnais.

"While Thailand's industrial development has greatly surpassed these other very inefficient rice producers, Thai farmers have not benefited."

High food prices are cause for concern.

First, they might trigger social upheaval. Vietnam and the Philippines have already witnessed food riots. Thai farmers have to guard their rice fields for fear of theft. An ugly scene has already taken place with pork. From Bt70-Bt80 per kilo, the price of pork has risen to Bt120-Bt130 per kilo. Similar pork turmoil happened in southern China.

Commerce Minister Mingkwan Saengsuwan has intervened to try to hold the pork price below Bt100. Prime Minister Samak Sundaravej then delivered his famous quote: "If pork is expensive, eat chicken instead."

The average Thai is feeling the pinch because incomes have not risen in tandem with the higher cost of living, particularly food. This is a region-wide trend because the average Asian spends more on food than the average Westerner. Therefore, the food index weighs more in the basket of the consumer price index.

Second, higher food prices drive up inflation. About seven months ago, the Thai consumer price index stood at around 1 per cent. Now it has jumped to more than 5 per cent.

According to a CitiGroup report, food inflation has surged even higher, to around 7.8 per cent. Other countries in Asia are facing a similar problem. Food inflation has soared by 30.6 per cent in Vietnam, 9.3 per cent in Taiwan, 6.7 per cent in Singapore, 8.2 per cent in the Philippines, 4.4 per cent in Malaysia, 2.4 per cent in Korea, 13.6 per cent in Indonesia, 5.6 per cent in India, 12.6 per cent in Hong Kong and 23.3 per cent in China.

Workers are under pressure to demand a rise in wages to meet the rising cost of living.

Third, high food prices might hamper the authorities' ability to handle external shocks. The Thai central bank has made the right decision to hold its policy rate unchanged at 3.25 per cent. But going forward, monetary policy management might be complicated by a need to stimulate domestic demand, while cutting the rates will send a conflicting signal.

We are in for some mini shocks this year, but as a food surplus country, Thailand should sail through the global food crisis.

Thanong Khanthong

thanong@nationgroup.com

The Nation