RETUIP1 Tz ' RESTRICTED REr r P0:'< Report No. EAP-28 ONE VEEK This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION CURRENT ECONOMIC POSITION AND PROSPECTS OF THAILAND (in six volumes) VOLJUk4E III ANNEX 1. THE AGRICULTURAL SECTOR ANNEX 2. EXPORT PROJECTSIONS ANNEX 3. THE MINING SECTOR ANNEX 4. INDUSTRIAL ESTATES January 11, 1972 East Asia and Pacific Department CUJRRENCY EQUIVALENTS Currency Unit - Baht U.S. $1.00 = 0 20.80 0 1.00 U.S. $ 0.048 ) 1.00 million = U.S. $ 48,077 Foreword This report is based on findings of an economic mission, which visited Thailand from early July to mid-August, 1971. Its members were: Mr. David Kochav Chief of Mission Mr. Christian Merat Deputy Chief of Mission Mr. Peter Streng Chief Economist Mr. Jaymie Garcia dos Santos Econometrician Mr. Madhiusudan Joshi Fiscal Economist Mr. Toshikazu Nasu Economist Mr. George Perazich Industrial Economist Mr. Carl Goderez Industrial Engineer Mr. KlGaus Bahr Education Economist Mr. Raif Savas Rural Educator Mr. Kenneth A. Bohr Urban Economist Mr. James Bogle Town Planner Mr. Kunio Kikuchi Urban Economist Mr. Charles D. Spangler Water Supply Engineer Mr. Eric Greenwood Water Supply Financial Analyst The report also incorporates major conclusions of the following missions headed by: Mr. Nathan Kofflsky Agricultural Sector Review Mission Mr. Heinz Vergin Northeast Regional Review Mission Mr. Andrew Hayman Tourism Sector Review Mission Mr. Sei-Young Park Transportation Sector Review Mission Secretarial assistance for the mission was provided by: Aurora 0. Aroso Pontipa Vachanasvasti Vichitra Tanphiphat Sununta Wipuchanin ANNEl I THE AGRICULTURAL SECTOR Table of Contents Page No. Io OVEKvMs ......o..........................0.....0.......000 1 Introduction oo...o.o........e........ ooo........o.o...o.... 1 The Role of Agriculture in the Econogy ..... ........... 1 Recent Performance ........... ...................*.. .. . 3 Major Problem Areas ........ eeec .. *..... . ............ 6 The Third Plan ..........e...eeeeo...eeeee.eeee.e. 7 Production Targets and Prompects ...... ................ 7 Export Targets and Prospects .. ........................ 8 II. DOMESTIC DIMAND FOR FOOD .......e......eeee.ee...eeee... . 10 III. MAJOR STRATEfIES AND POLICY MEASIRES ........... ......... 11 Policy for Rice .... ....... &.... .a.......... ..... . ............ 11 The Role of Irrigated Agriculture .......e........ 14 Land and Tenure Policies .........******.*****.....*. 16 Fertilizer Price Policy ... ........................... 18 Quality Seeds ......................... 19 IV. OTHER CCOSTRAINTS TO DEVEIOPNMT ....................... 19 Agricultural Research .......... *..***.. .............. . 19 Extension ........... 20 Agricultural. Credit .......... ........................ 21 Marketing and Prices ......................*.......... 22 Government Organization and Administration ............ 23 Development Institutions .24..............e.. ........... 24 V. THE RESOURCE IIASS ......eeeee.eee..eeeeee.eeeee........ 25 Natural Resources .. *0*O@**S..........*o***** e ........ 25 Human Resources ......................... 25 Government -- Private Sector Relationships ......... .... 26 VI. DEVELOPMf T PROGRAMS FOR CROPS .......................... 26 Tree Crops .. ......... ...... ............ 26 Field Crops ......... 28 VII. DEVELOPMENT OFP THE LIVESTOCK 3MDUSTRY ................... 35 VIII. DEVZEIPMBNT OF SERICULTMR eeeeeeeeeeeeeeoeeeeeeeeeeeeeee 39 IX. DEVELOPMENT OF FISHERIES .......................eeeeeeeeeee... 40 X. DEVELOPMKT OF POREST RESOURCES ........................ 42 XI. INVESTKENT OPPORTUNITIES IN AGRICULTURE, 1972-76 .. ...... 43 TABLES AND MAPS ANNEX 1 THE AGRICULTURAL SECTOR I. OVERVIEW Introduction 1. This is the report of the Agricultural Sector Survey mission which visited Thailand during the period July 5 to August 11, 1971. The major purposes of the mission were to review with the Government of Thailand the Third Plan proposals for the agricultural sector (1972-76), to identify major constraints on agricultural development, and to examine the means of accelerating agricultural output and improving the incomes of rural people. This mission was coordinated with visits at the same time of an overall Bank economic mission and a Bank Northeast economic development plan review mission. 2. In reviewing the agricultural sector, the mission found it most difficult to arrive at a realistic assessment of the current state of agri- culture. There have been many reports on Thai agriculture in recent years. With few exceptions, these reports have referred to the poor state of statistics relating to their subject matter. There are few agricultural statistics that go beyond 1968 and much that goes before is suspect. Even for rice, upon which much of the economy hinges, there is dissent as to the level and trend of production and consumption, and changes in stock in- ventories. For most other commodities, the situation is even less satis- factory. Export statistics are reasonably accurate but it becomes a matter of conjecture to translate t:hese residuals into an evaluation of changes occuring at the farm level amd in marketing channels. A major survey of land capability and land use covering the Kingdom, essential for evaluating the agricultural production potential, was in process but the results were not yet forthcoming. 3. Obviously, the lack of reliable current statistics is a serious handicap to the Government of Thailand in developing the Third Plan. It is particularly disturbing at this time since the Third Plan comes at a critical turning point for Thai agriculture. Depressed world markets for rice, Thailand's traditional crop, have adversely affected export earnings and incomes of the farm community, which were low in any case. Hence, the Plan looks to a substantial reshaping of the sector from extensive toward intensive agriculture and toward other commodities which have more favor- able prospects, particularly upland crops. To guide agriculture effectively in these directions and to improve planning in the future, immediate attention to strengthening the statistical base is a first priority. The Role of Agriculture and the Economy 4. Agriculture made an impressive contribution to Thailand's economic growth. The country has been spared the difficulties of finding food enough for its people, who are well-fed by Asian standards. Rather, agricultural Annex 1 Page exports provided most of total merchandize export earnings. Nor, with sub- stantial forest areas available for settlement, has Thailand had to face the extreme pressures of people on land and the overwhelming problems of unemployment which pervade much of the developing world. 5. In the past decade, the economy grew almost eight percent a year. With population increasing a little over three percent, real product per capita rose 4.7 percent a year. The data below give some insight into the changing role of agriculture during this period. Agriculture's Share of the Economy Rice Exports as Percent of/l Percent,1 Percent of Total Percent of Total Year Employment'-L of GDP -/ Exprort Value /2 Vale 2 1960 83 40 91 31 1965 80 35 82 33 1970 78 30 70 17 /1 NEDB /2 Bank of Thailand Source: These trends are encouraging in that the nation's economic base is broaden- ing beyond agriculture quite rapidly, a characteristic of advancing econo- mic development. Further, the nation's export earnings are becoming some- what less vulnerable to changes in the agricultural sector, although the sector is still the main source, even with a substantial falling off in rice exports. On the other hand, the relative shares of agriculture in employment and gross domestic product indicate pressure from the agricul- tural labor supply, and a severe and increasing imbalance between the incomes of those engaged in agriculture and those any other sectors. Although the non-agricultural sector has grown rapidly, most Thai workers are still employed in agriculture. Employment 1960-70 (in thousands) Sector 1960 1965 1970 Agriculture 10,443 11,569 12,810 Non-Agriculture 2,151 2,821 3,676 Total 12,594 14,390 16,486 Source: NEDB During 1965-70 the working force increased on average about 420,000 persons a year, of whom roughly 250,000 entered agricultural activities. Many of these turned to unorganized settlement in forest areas, engaging in slash and burn agriculture. Even though non-agricultural employment is likely Annex 1 to absorb a larger share of the labor force in the next 5 years, the agri- cultural sector will need to provide employment for an additional 300,000 workers a year. 6. Productivity and incomes per worker in agriculture lag far behind the rest of the economy. Gross Domestic Product per Worker (baht, 1962 prices) Sector 1960 1965 1970 Agriculture 2,050 2,340 2,750 Non-Agriculture 16,100 18,600 22,800 All Sectors 4,450 5,520 7,220 Source: NEDB Between 1965 and 1970, GDP per worker in agriculture rose 13 percent whereas GDP per worker in the non-agricultural sector rose 22 percent. In 1970 (current prices), the average product per worker in agriculture was about US$150 and in the non-agricultural sector, US$1,250. 1/ GDP per worker varies widely by regions, with the Northeast, which contains one third of the working force, particularly low. GDP per worker GDP per worker as percentage of annual growth Region national average rate 1961-66 (Percent) Central 165 4.2 Northeast 51 0.8 North 74 3.8 South 11t 1.4 Nation 100 3.7 /1 For the year 1966 (1962 prices) Source: NEDB These large gaps in income between agriculture and the rest of the economy have some unfavorable connotations as to the development of a broad base of demand for goods and services which a more vigorous agriculture would generate. Recent Performance 7. The sector maintained a high rate of output during 1966-70, averaging 5.6% a year, substantially in excess of the annual population increase of 3.1%. Furthermore, the rate was significantly higher than 1/ GDP per worker in agriculture is undervalued due to the effect of the rice premium which reduced prices received by farmers below the world market prices for rice. Annex 1 Page 4 was realized in the preceding 5-year period. Forestry was the only sub- sector to show some slowing in the recent period, largely in items other than teak. Fishery output maintained a very high growth in marine fisheries, particularly in shrimp which increased output threefold. Some slowdown has occurred in recent years as nearby shrimp resources are apparently declining. Annual Growth Rates in Agricultural GDP 1961-65 1966-70 Percent of GDP Subsector Percent Percent 1970 Crops 4.5 4.9 19.6 Livestock 2.6 2.9 3.9 Fisheries 18.3 18.6 3.6 Forestry 5.8 4.5 2.5 Total Agriculture 4.8 5.6 29.6 Source: NEDB 8. Based on available statistics, overall performance for the sector is apparently exceeding expectations of growth for the Second Plan period 1967-71, projected at 4.3%. Production levels of some major products were substantially higher in 1970 than projected for 1971 in the Second Plan, notably maize and cassava of which otuput doubled since 1965 and rubber, which rose by 30%. Output of rice of 13.3 million tons estimated for 1970 was only about 3% below the 1971 target. Shortfalls occurred for kenaf, largely a response to sharply lower prices, and for sorghum for which major production and marketing problems were unresolved. 9. Despite the lack of current data, it seems clear that area expansion was by far the major factor in increased crop output. Average yields of most crops were either more or less unchanged or were lower in 1966-68 (1967-69 when available) than in 1960-62 (Figure 1). The major exceptions were rice and cotton, the former apparently benefitting from better control of flood waters and the latter reflecting a spetial situation whereby planted area was sharply curtailed by heavy incidence of plant diseases. It is notable that yields of maize, cassava and rubber, upon which attaining the Third Plan export targets substantially depends, declined about 6%, 13% and 20% respectively, in a time span of only 6-7 years. 10. In the last 5-7 years the area of forest land was reduced by some 20 million rai (over 3 million hectares) of which a substantial portion was cleared for slash and burn cultivation. Even which the usual practice of shifting cultivation every two or three years, an appreciable expansion of cultivated area must have occurred. Additionally, lands outside of forest reserves were also brought under cultivation. These developments are confirmed to some extent by an increase of almost 20 million rai in planted area between 1960 and 1968, as estimated by the Ministry of Agriculture. Less than 8 million rai went to extend the paddy area and the remainder to other crops, notably maize, rubber, mungbeans, coconut, kenaf, cassava and cotton. Annex 1 Page 5 11. Thus (as Table 1 shows), a considerable diversification of the agricultural base occurred in the past decade. Paddy still accounts for some 70 percent of the cultivated area, roughly half the value of all crop output and close to 10 percent of the nation's gross domestic product. But maize and cassava outpuit increased very rapidly in the rainfed central region, kenaf in the Northeast and rubber in the South. The development of maize, cassava and kenaf is; a prime example of the contribution to agricul- tural growth that an alert private sector can make. These commodities were scarcely produced 15-20 years ago. The linkage of exporters, traders and farmers brought rapid response to the opportunities in export markets for these products. 12. On the whole, Thailand withstood the sharp decline in world demand and prices for rice quite well (Table 2). Despite a drop of 40% between 1965 and 1970, in the export value of rice, the total value of agricultural exports was reduced only 4%. Declines in earnings from rice and kenaf were largely offset by increases in exports of maize, cassava and rubber. This period also witnessed the emergence of shrimp and tobacco exports in significant amounts. In the previous period, 1960-65, increased exports of kenaf, maize and cassava added as much to export earnings as did rice under conditions of a fairly favorable export market situation. 13. Although Thailand's agricultural trade is heavily surplus, there are some significant trade deficits in dairy products (largely sterile milk and dry skim and butterfat for reconstituted milk), animal and vegetable crude materials (principally soybean oil), textile natural fibers (a reflection of declining domestic cotton production), tobacco leaves (mostly of the Virginia type) and pulp and paper. Altogether, the value of imports of these items increased about US$35 million between 1965 and 1970. 14. Public investment in agriculture has been largely in irrigation, predominantly in the Chao Phya project area of the central plain. Central Government Expenditures (million bahts) Capital Account 1966 1971 est. Agriculture 784 1,768 Irrigation 687 1,580 Other 98 188 Agri. of total 21X 25% Source: IBRD Economic Mission Private investment on the farm is apparently small, reflecting low incomes in agriculture and traditional methods of farming which requiire few pur- chased inputs. For the most part, farm investment takes the form of Amnex 1 Page 6 purchases of draft animals and other livestock. To an increasing extent, animal power is being supplemented by custom hire of tractor plowing for paddy, maize, and cassava. There is little land improvement except under government auspices for land settlement or land consolidation schemes. 15. At this time, there is little evidence that farm mechanization has contributed to farm unemployment or underemployment. In fact there are frequent situations where the soils cannot be worked with animal power and the use of mechanical power becomes a necessity. The system of custom hiring of tractor plowing is well adapted to the small farmholdings, frequently with fragmented field plots, which characterize Thai agricul- ture. There may well be need to expand its use if there is to be substan- tial progress in multiple cropping with its stringent time schedule. Major Problem Areas 16. An overview of the state ofegriculture in Thailand reveals some encouraging aspects but also some disquieting trends. (a) Thailand's rate of growth in agriculture (in the last two decades) averaged 4.6 percent a year, the highest among Asian developing nations, according to FAO. (b) By far most of the gains in output has come from lateral expansion of cultivated area, particularly through un- organized encroachment on forest lands; this has been a means for employment of the growing rural labor force, but also a destructive use of the nation's land resources. (c) Thai agriculture has hardly been touched by the improved seed-fertilizer technology; essentially organized in small units with 70 percent of the land holdings less than 4 hectares, low productivity brings low incomes. Crop yields of most products, low by international standards, appear to be declining as marginal lands are brought into cultivation. (d) A resourceful private sector in agriculture, which on its own in the past decade has made remarkable progress in developing production and exports of maize, cassava and kenaf - upland crops grown under rainfed conditions - and shrimp. Thailand's traditional dependence on rice has been substantially diminished. (e) Heavy public investment in irrigation facilities has had some effect in increasing output and yields of rice mostly through better water control; as yet the contribution of dry season irrigation to production of upland crops has been small. Anex 1 Page 7 (f) Government policies primarily directed toward maintaining low prices to consumers and obtaining revenues from exports of rice have not been sufficiently encouraging to agricul- tural development, and thus inhibited private investment in agriculture. (g) A marketing system, while technically efficient in many aspects for the major export commodities, works against the farmer particularly at harvest time; high handling costs at portside and uncertain quality dampen Thailand's competitive positions in foreign markets for most commodities. (h) The institutional iD,frastructure particularly concerning agricultural research, extension, education and cooperatives, is still grossly inadequate to support a strong development effort. (i) There are many government agencies involved in administering agricultural programs, leading to duplication, lack of coordination and unsatisfactory performance. The Third Plan 17. The Third Plan for agricultural development is largely shaped by the need to increase export earnings and improve farm income, especially urgent in view of the turn-about in world markets for rice. Thus, the central strategy for agriculture is to accelerate diversification of the production base. The plan expects an increase of about 32% in the value of agricultural exports during the next 5 years, providing about half of the projected increase in total export earnings. Whether the overall plans target materializes will depend substantially on increased production and export of maize, which is projected to account for some 32% of the increase in value of agricultural exports, while cassava is expected to account for 19%, and rubber 16%. Production Targets and Prospects 18. Viewed from past experience, including the demonstrated flexibility of the agricultural sector to adapt to new opportunities, the production targets on the whole do not appear over ambitious (Table 3). The over-all growth rate projected for the sector of about 5% a year is well within the actual rates obtained in the past decade and somewhat below that of 1965-70. Projected increases in output for most commodities are not greatly out of line with past performance. 1/ There is no serious question as to the capa- bility of Thai agriculture to meet production targets for rice, rubber, cassava or kenaf, all important export items, even if present methods of farming continue. 1/ Except for coconut, for which the data are conflicting. The NEDB series indicates a sligh,tly declining trend whereas estimates of the Ministry of Agriculture indicate an increase, which appears more reasonable. Annex 1 Page 0 19. The most serious reservation relates to maize, the keystone of, the plan. Although there are still lands available to expand maize cultivation, it seems quite unlikely that the target of 3.5 million tons would be approached, without effecting some improvement in yields, now on a declining trend. With declining yields, the area in maize would need to be expanded from the present 5 million rai to perhaps 12 million. Even with a program of improved seeds and fertilizer there may well be a shortfall considering the time element involved. But this could be substantially off- set by an increase in grain sorghum beyond its target. Areas where low moisture conditions make maize production risky are better adapted to sorghum; improved varieties, more acceptable in export markets than the present varieties, could outyield maize on those lands. 20. There appears to be little prospect for reaching the soybean target, especially in view of the low yielding varieties available and poor returns to cultivators. A shortfall is likely also for coconut. Never- theless, with increased output of groundnuts, the supply of vegetable oils would be ample to meet domestic requirements. In the case of cotton, where a serious deficit exists, the government will need to enforce certain farm practices to overcome the boll worm infestation. For tobacco, it depends largely on government action through the tobacco monopoly to provide the seeds and other inputs for increasing output. 21. For the livestock sub-sector, the growth rate of 3.4% a year projected appears on the high side, especially in view of the static numbers and slaughter rates of cattle and buffalo which have prevailed for a con- siderable number of years. Here, the need is to improve the basic stock, animal nutrition and management, a lengthy process which will have little impact on Third Plan targets. The poultry and swine industries have progressed faster and have the potential to expand more rapidly than cattle. In fisheries the potential to exploit remote ocean fishing grounds and establishment of shrimp culture along the Thai coastline also hold more promise for years beyond 1976. For forestry, production targets could well be attained at the expense of further depletion of teak forests. Export Targets and Prospects 22. Thailand has a good chance to achieve its overall target for export earnings from agricultural products. This involves an increase from about 10-/12 billion baht (about US$500 million) in 1970 to some 14-1/2 billion baht (US$700 million) by 1976. Mission projections of export volume and unit values for the 8 most important products are shown in Table 4. Port capacity is a major obstacle. By 1976, the volume of rice, maize (and sorghum) and cassava for export could be 2 million tons larger than in 1971, when the capacity of Bangkok port was already strained by heavy seasonal load in the early months of the year. Some relief could be obtained from evening out the seasonal movement by building up country storage for partly dried maize and cassava chips and pellets, and providing some means for financing inventories. Even so, port capacity would be inadequate. There is need for a deep sea port facility which can accomodate Annex 1 Pare 9 large vessels. The Bangkok port can n4ly handle small vessels which makes for a costly operation. Thus, shipping costs of mlAze from Bangkok to Japan substantially exceed costs of shipment in large vessesx from the US to Japan. 23. Thailand will also need to improve and standardize the quality of the products it exports, much as it has done for rice. Cassava and kenaf particularly need immediate attention, and quality is likely to become of increasing importance for maize and sorghum, if Thailand is tz improve its competitive position in those commodities. 24. World markets can probably absorb the increased volume of exports; prices of some commodities such as rubber and kenaf will probably continue weak, while prices of most others may show little change. Exceptions are likely for shrimp, tobacco and teak. for which demand and prices are ex- pected to strengthen during the plan period. 25. Modest gains in export volume and price are anticipated for Thai rice, even though the world market fails to expand. The high quality of Thai rice, the recently adopted agressive credit sales policy particularly under government to government sales, and the prospect of r2ducing costs of production could help Thailand to weather the immediate depressed markets better than most other developing countries and to expand exDorts when markets may improve. Uncertainties as to future rice markets are under- scored by the outbreak of hostilities between India and Pakistan. 26. Prospects for approaching export targets for maize (and sorghum) are directly related to trade with Japan and Taiwan, which now purchase about 80 percent of Thai exports of maize. Thailand's share of the Japanese market has declined to some extent since mid-1960 but retains most of Taiwan's imports. Both countries are giving grain sorghum a more important role in their import feed supply. If Thailand can reduce ship- ping costs and also provide sorghum of desired quality, the prospects for regaining a larger share of the Japan maize requirements are encouraging. Lower freight costs would enable Thai exporters to compete in some European markets. 27. Prospects for Thai exports of cassava products are quite favor- able during the plan period (1972-76). A flourishing trade has developed in the Netherlands and West Germany where cassava feedetuffs have a com- petitive advantage relative to maize as a result of the EEC import levy on maize. The longer run prospects beyond the mid-1970's are also bright, particularly as additional countries enter the EEC (notably the U.K.). Over the long run also, Japan could become an important outlet. 28. World consumption of rubber should continue to rise about 6-7 percent a year. The inroad of synthetic rubber is likely to slow in view of low prices for natural rubber and the prospects that prices may move even lower. 29. Some increase in demand for Thai kenaf is likely in the near term as supplies from East Pakistan may be interrupted. However, by the end of the plan period, Thai exports and world prices are likely to return to levels prevailing before the outbreak of disorder. Annex 1 Page 10 30. Strong export markets exist for shrimp, teak and tobacco. The major constraint is on the supplies Thailand might have available for export. Third Plan Outlays 31. It is not possible to relate planned public expenditures for agriculture during the Third Plan to the production and export objectives, which are largely a matter of developments in the private sector. Supportive activities of government agencies concerned with agricultural development (excluding irrigation projects) are scheduled to double between 1972 and 1976. At the same time, expenditures on irrigation projects are projected to increase about 13 percent. Government plans to postpone initiation of new large construction projects and to emphasize ditches and dikes installa- tions to bring dry season irrigation to the upper Chao Phya basin. As brought out later in this report, the latter program has very limited possibilities to contribute to the targets for upland crops during the Third Plan. II. DOMESTIC DEMAND FOR FOOD 32. The Third Plan emphasizes agricultural exports with little attention to the potential domestic requirements arising from population and income growth. For a nation which traditionally exports as much as one-fourth or one-third of its total agricultural output, and in the con- text of the five year plan period, this short treatment may be of small moment. However, over the longer run, Thailand needs to take into account the claims on agricultural resources that arise from increases in domestic demands. Table 5 projects total consumption of important food commodities for 1976 and 1981 under various assumptions of population and income growth. It should be noted that with the exception of paddy and cassava, domestic consumption by 1976 will exceed current production levels. And by 1981, the current level of paddy output will fall short of domestic needs. 34. Under the assumption that price relationships among commodities remain more or less the same, increases in demand and consumption of individual foods would group as follows: Rapid Increases Medium Increases Modest Increases eggs fish rice red meats (pork and beef) poultry cassava fats and oils buffalo meat (including vegetable oilseeds oils and lard) AZMIfl5 I Page 11 Even for rice and cassava (which have low income elasticities) if population and income growth rates continue much as in the past, domestic demand could rise perhaps 3-1/2 to 4 percent a year. 35. Some implications flow from these projections. First Thai agri- culture needs to be concerned with developing the livestock subsector more rapidly. In particular past rates of growth for beef and swine will not suffice to meet future demand (including in the case of swine the demand for lard), particularly since demand for meat would be reinforced by a slowdown in fishery output. However, prospective production of vegetable oils could well exceed domestic requirements. Second, it will be difficult to meet domestic requirements for fish unless the marine catch is increased. Finally, it makes clear that unless progress is made in improving crop yields, even for such staples as rice and cassava root, domestic needs will make increasing inroads on the land base and severely limit the potential to export. III. MAJOR STRIATEGIES AND POLICY MEASURES 36. It is clear that Thai agriculture has an enormous potential for development and considerable flexibility in how it might go about it. The nation is forttnate in that there are still large tracts of land that can be opened up to cultivation if needed. At the same time, a transition from traditional agriculture to improved technology offers very large possibilities for rapid increases in output on existing farm lands. There are the differing emphasis that might be placed on developing irrigated agriculture and on improving rainfed agriculture, which has long been neglected. There is the evident capacity to take up new lines of production as well as a built-in national advantage in producing rice. 37. Thailand need not embark on a single track of development with the risks that such a course would entail. Rather an appropriate strategy for the immediate years ahead would be to move in a number of ways so as to keep open its options for long term development. It is clear that at the same time Thai agriculture is learning how to develop and use irrigation facilities more effectively, a large effort must also be directed toward increasing productivity in rainfed agriculture which is the condition under which most Thai farmers operate. Policy for Rice 38. Although the dominant position of rice in the Thai economy has diminished appreciably over the years, it is likely to continue to be the mainstay of agriculture for some time to come. Over 80% of agricultural households produce rice. Since the average land holding is less than 22 rai (about 3-1/3 ha) and about two-t:hirds of the land holdings have less than that, much of rice output is for family subsistence. About 35% of output is marketed and 15% or so presenitly moves into export. Most of export rice comes from the Central region. Annex 1 1968 1968 1968 Area Planted Production Yield Per Rai Region Percent Percent Planted North 7 12 458 Northeast 40 32 190 Central 46 47 250 South 8 9 282 Kingdom 100 100 241 Source: Agriculture Statistics, Ministry of Agriculture. Two-thirds of the rice produced in the Northeast is of glutinous variety favored in the region but with a limited export market. Part of the reason for low yields in the Northeast is the heavy incidence of damaged area, usually from drought conditions. According to the latest figures (for 1965), 15% of the planted area in the region was not harvested. The Chao Phya lower basin, usually heavily flooded in wet season, has low yields because conditions permit only floating rice to be grown. Rice yields in Thailand are somewhat above Pakistan, Burma and India but are less than half those of the Republic of Korea and Taiwan. 39. The near term future of rice is likely to be shaped more by domestic needs than by export markets. As major importing countries continue to firm up their own production, a likely prospect in view of the spread of high- yielding varieties and associated technology, world trade in rice offers scant prospect for distinctly better times in the years immediately ahead. Moreover, concessional sales by developed nations with surpluses of rice have taken up a larger share of the world import needs. Thus, Thailand, the major rice exporting nation in the mid-1960's, was supplanted by the US in 1968. Under these conditions, it would be difficult for Thailand to exceed past export levels, which approached 2 million tons, during the Third Plan Period, again unless widespread disorders or large scale crop failures occur elsewhere. 40. Yet, as indicated in the Third Plan targets, some gains in Thai rice trade may well be realized. An increasing amount of exports is moving out under Government to Government arrangements involving special credit arrangements, a factor in the increase in exports this year to about 1.5 million tons compared with 1.0 million tons in 1970. 1/ Over the longer run, low prices for rice may dampen production in exporting countries, partly as producers respond to prices which are generally below costs of production and partly as the costs of export subsidies mount for developed nations. Thai costs of production of paddy are probably as low as any among exporting nations; cash costs in 1970 averaging about US$10 per ton and total costs (including overhead and imputed labor costs) about US$48 per ton. While current prices are unremunerative to many producers, Thailand can weather the immediate period ahead better than most other developing export countries. 1/ The unit value of rice exports in August 1971 was 29 percent lower than in August 1970 reflecting a heavy concentration of lower quality rice in export movement as well as lower prices. Annex 1 Page 13 41. Whether or not the low state of export markets for rice persists for the forseeable future is a matter of conjecture. This depends on such factors as the future progress of the green revolution, which has been more visible in wheat than in rice, the continued rapid rise in population, and the effects of weather and social disorder which can disrupt production in wide areas. Thailand may well need to redirect its agricultural resources to other products but at the same time it needs to protect its comparative advantage in rice production in the event the world market situation should change. 42. In any event, Thailand will need to increase rice output to meet domestic needs. Rice supplies some 70% of the Thai diet with per capita consumption estimated at about 155 kg a year (250 kg paddy equivalent), a high level by any standard. In 1971, domestic use accounted for about three-fourths of total rice output. With increasing population and incomes, domestic requirements for rice (paddy) will rise over 400,000 tons a year in the next decade (Table 6). Even if exports improve *ly slightly, total demand for paddy 10 years hence would exceed current production levels by perhaps 30 percent. If the uptrend in yields during the 1960's is sustained, there would be little need for additional land. However, if yields remain at current levels, about 15-16 million more rai planted to rice over the next decade would be required. 43. It would be quite unfortunate if this latter should turn out to be the course of events. The process of diversification would be severely restricted. Further, there would be little prospect for increasing incomes of most Thai farmers. For these reasons, it seems clear that the prime emphasis of policy with respect to rice (as for other crops) should be to improve yields as rapidly as possible. 44. For many producers there is little choice except to grow rice. Much of the Chao Phya basin in the Central region has soil and water conditions which make rice the only practical option open to cultivation. Reductions in rice area are likely to come from areas that are marginal for rice cultivation and where there are opportunities to grow other crops more pro- fitably. The drop in prices of rice facilitates such a shift in land use. In addition to substantial non-irrigated areas in the Central Plains that could be affected, the Northeast region could also release large areas for production of other crops. However, the Thai farmer, particularly in the Northeast, characteristically produces his own rice. Thus, lands would be released only under conditions where higher yields reduce the land require- ment for rice and/or the alternative enterprises open to him are clearly favorable enough for him to risk the shift. 45. It is clear that the Central Plain will continue to be the major center of rice production by reasons of physical adaptability and proximity to Bangkok markets and port facilities. The improved rice varieties, RD-1 and RD-3, have been introduced successfully in the western part of the Chao Phya delta. These varieties have the potential of doubling yields and substantially reducing unit costs over the next decade. Armex 1 Page 14 46. Much of the concern over price policy for rice has been dissipated by the turn of events. The rice premium, essentially an export tax applied since 1954, primarily in the interests of maintaining low prices for domestic consumers and providing substantial Government revenues, effectively kept domestic prices of rice some 25-50% below world prices. Thus, there was little private investment for intensifying rice production although there was public investment in irrigation facilities for that purpose. 1/ As world prices declined in recent years, the premiums were reduced in successive stages until by May 19, 1971, they were removed from all grades except 100% and 5% white rice. 1/ The reduction in premiums, however, did not compensate for the decline in world prices and domestic prices also moved down substantially (Table 8). 47. The Government of Thailand is considering the abolition of premiums on the high quality rice as well. The case for its retention rests largely on the belief by some that these rices have a stable export market relatively immune to price developments for other grades. It is true that Thai exports of high quality rice which make up about 25% of recent export appear to have better established markets and more stability than exports of the lower qualities for which many countries compete (Figure 2). Nevertheless, world price trends indicate that there is some substitution and inter- relationship of prices. More important, maintaining the premium on high quality grades while eliminating those on other grades would likely have unfavorably effect on the supplies of better quality rice available for export. By narrowing the price differential between quality rice and lower grades, domestic consumption would shift toward the higher quality. It would also reduce the incentive to cultivators to continue to produce high quality rice. This would be-an unfortunate development for export earnings in view of the large margin between prices of higher and lower qualities. The Role of Irrigated Agriculture 48. In the past, when rice dominated development strategy, large scale public investments in irrigation facilities went into the Chao Phya project of the Central Plain for the primary purpose of alleviating flooding in the basin, in order to improve the conditions under which rice is grown in wet season. This important objective has been realized. The controlled water supplies have been beneficial to wet season rice under the command of canals, permitting earlier planting and an increase in transplanting in areas where lower yielding broadcast seeding was the rule, and reducing the hazards of floods and of droughts which sometimes occur during the wet season. 49. However, the programs to extend dry season irrigation to the northern part of the Chao Phya plain (between Ayutha and Chainat) have not 1/ Until 1970, receipts from the annual rice premium exceeded capital investment in irrigation. 2/ However, the 5 percent duty on rice exports remains. In fiscal 1971, this collected g 135 million, equivalent to 0 123 (US$6) per ton. Annex 1 Page i.g been adequate and progress has been slow. Since the mid 1960's, the area in dry season crops increased on average about 10,000 rai a year. By 1971, the dry season area totaled about 165,000 rai including: Thousand rai Perennial crops 46 Sugarcane 16 Vegetables 6 Rice 72 Field Crops 25 Expansion has come largely in rice and to a smaller extent in field crops; areas in perennial crops and vegetables were about the same in 1971 as in the mid 1960's while the area in sugar cane was reduced about 30 percent. 50. The Third Plan proposes to extend dry season irrigation in this area to 1.3 million rai. A program of this magnitude appears to be over- ambitious within the time frame of the next 5 years for a number of reasons. First, it would require alterations in the system of canals and laterals to provide water during the dry season; at low flows the present system can serve only 424,000 rai. It would be necessary to raise the water level by some means - checks, locks, parallel canals or pumps - to serve the additional area. Second, there would need to be improvements in the farm distribution system especially where there is potential for dry season irrigation of upland crops which require irrigation and drainage ditches to each plot, a condition not necessary for cultivation of rice. Such drainage measures are difficult when farm fields are usually small and irregular in shape. To deal with this problem, land consolidation, including regrading, has been carried out on a small scale at a cost of $ 800 per rai (US$250 per hectare) for the project near Singburi. 1/ Third, the soils are a limiting factor in orienting production to upland crops. Some 70 percent of the area contains compacted soils well suited for rice but not for upland crops. Those areas that are suitable for growing upland crops are scattered and intermixed so that the large scale development proposed in the plan would likely result in much more rice produced than upland crops. Fourth, there is as yet lim:Lted research and experience in growing most upland crops under irrigated conditions. Few have proved profitable so far, notably groundnuts. Finally, and of overriding importance, is the unsatisfactory state of the supportive services, such as extension, credit, availability of seeds and fertilizers, and market facilities which would need to be greatly strengthened and coordinated at the operating level if a program is to succeed. 51. For these reasons, the Government might proceed more slowly in developing dry season cropping than is proposed in the Third Plan. A selective program of pilot projects which take advantage of investments already made and which give priority to those areas with the best potentials 1/ These costs could be cut in half by deferring leveling and reshaping of land. Annex 1 Page 16 for producing upland crops should go forward. These may include the Phase 1 project identified by the Nedeco Report and a program for strengthening agricultural services in the 424,000 rai which can be irrigated at present. As capabilities and performance improve, the pace of development in this area could well be increased. From a longer perspective, it must be kept in mind that this area is well suited for dry season rice and, with improving water control, well adapted to the high yielding rice varieties. Looking beyond the Third Plan, as internal (and perhaps foreign) demand increases and opportunities for other crops develop in marginal rice areas, the Chao Phya irrigated area could well be the rice basket for the nation. 52. The development of the Nan River basin should proceed. It is a matter of immediate urgency since closure of the Sirikit Dam reduced flooding in the Uttaradit and Pitsanuloke areas between the Dam and Chainat upon which wet season crops are dependent. Thus, some 820,000 rai of wet season rice are affected adversely mostly in the Pitsanuloke area. The Royal Irrigation Department is using portable pumps in an attempt to supply these lands with water, but this measure is expensive and does not adequately serve the damaged area. Therefore, the Department proposes to begin work in the Pitsanuloke area which according to its time schedule would take 7 years and to defer initiating Uttaradit for at least 4 or 5 years. 53. The soils of the Nan River Basin appear to offer better opportunities for dry season irrigation of upland crops than the northern part of the Chao Phya plain. A total area of over 1.5 million rai is irrigable, of which some 60 percent has soils suitable for upland crops. Investments costs for the total project, fully designed for dry season irrigation, and presently esti- mated at roughly US$250 million. Since this is a matter which will take many years, the experiences with upland crops to be gained in the northern part of the Chao Phya plain will assist fairly rapid development as the project is completed. 54. There is an important precondition to substantial investment. Competing requirements for power, navigation, salt water intrusion and Bangkok water supply will limit the supply of water available for irrrigated agriculture in the dry season. It is essential to know how much water can be allocated to agriculture and where it can be used most effectively in relation to the available land resources. If the Nan River basin is to be developed, there must be a firm and adequate allocation of the Sirikit water supply to that purpose. 55. Investigation to date indicate that supplies of ground water for irrigated agriculture are quite limited. No acquifers were found in test drilling in the Chieng Rai basin of the North. Tests in the Northeast generally report saline waters. According to the Yom Basin Study, Groundwaters in the SukoThai and Phrae areas could be mined as a prelude to comprehensive surface irrigation development. Annex 1 Page 17 Land and Land Tenure Policies 56. Land itself does not appear to be an immediate limiting factor on farm production or employnment of the rural labor force. Even though perhaps 20 million rai have been encroached from forests in the past 6 or 7 years, approximately 50 percent of the total land area is still in forest land. But the lands opened up are increasingly marginal for crop production, and the process of unorganized settlement and slash and burn cultivation leaves in its wake serious problems of soil and water conservation and unproductive use of valuable timber resources. It is essential that effec- tive control on land settlement be established. The land classification survey now underway should enable identification of those areas best suited for crop production which should be excised from forest lands. The current teak reforestation program may be a case in point. That program for which the benefits could begin many years in the future, encompasses relatively flat undulating lands which appear to be far better suited for cultivation than the steep fields where much slash and burn cultivation takes place. 57. Organized land settlement by the Government of Thailand began some 35 years ago. In the intervening period over 300,000 families have been settled on over 5 million rai. A large majority of these families have been accommodated under programs of the Department of Lands, Ministry of Interior, requiring minimal development of infrastructure and supportive activities. Self-help settlement schemes of the Department of Public Welfare and land cooperative settlements under the Ministry of National Development do provide for some credit and technical support. 58. Settlement schemes need to be substantially improved. Settlers rarely have sufficient credit resources available, particularly long-term credit, to establish a productive base for obtaining adequate incomes. Such technical support, including extension activities, as is supplied for some settlements is understaffed and poorly trained. If settlers are to be given a better opportunity, larger public investment in infrastructure, improved supporting services and access to more financial resources would be required. 59. The Cabinet recently approved the allocation of 8.6 million rai from forest land for land settlement during the Third Plan. A settlement program of this size would accommodate most of the increase in rural labor force during the plan period. Some of these projects, at least, should receive the intensive treatment required for successful land settlement. 60. The lack of land titles is a formidable obstacle to investment in agriculture. Less than 40% of the cultivated area is covered by rights of occupancy recognized for legal transfer or as security for credit. But many more have met the requirements for NOR SOR 3 certificates, also legally recognized, which would enable recipients to obtain long-term credit to improve productive capacity of their farms. 61. W4hile the incidence of tenancy does not appear to be increasing over the years, there is concern over the situation in the Central Plain area, particularly in provinces adjacent to Bangkok. The conditions of tenancy as they exist at present not only impede development but also disadvantage Annex 1 the tenant. The Act of 1950 providing, among other things, for low rental rates and 5-year lease periods is clouded with ambiguities which have made it unenforceable. A study in 1965 indicates that 85-90 percent of tenants were on a one-year lease. Thus, tenants generally do not have access to institutional credit nor are they in a position to make improvements. Their yields and incomes are substantially lower than owners. It would seem a matter of urgency from the viewpoints of overall development and of equity for the tenant to amend and made effective the legislation to improve the conditions of tenancy. Fertilizer Price Policy 62. The high cost of fertilizers relative to prices farmers receive for these products is one of the most important obstacles to improving crop yields and incomes in agriculture. Thai farmers pay high prices for ferti- lizers 1/ partly reflecting protection of domestic output of amonimum sulphate and urea at prices more than double the costs of imports, 2/ and partly due to a distribution system involving small volume and high credit charges associat- ed with farm sales by the private sector. 63. Fertilizer use did increase rapidly between 1960 (15,000 tons of nutrient) and 1969 (109,000 tons), mostly on rice lands. Even so, the average use of less than 10 kg per hectare of arable land is one of the lowest among Asian countries. Further, import data suggest that there was some decline in consumption in 1970, a reflection of lower prices for rice. According to the FAO/UNDP Soil Fertility Research Project, fertilizer use in 1969 was only 40% of the levels required just to maintain soil produc- tivity and only 10% of the amount that would increase yields significantly. There is little use of fertilizers on maize and cassava, which rank high in the development plan. 64. Present product/fertilizer price relationships do not provide incentives for cultivators to use fertilizers. As shown in Table 8, the added returns to rice, maize and cassava are generally too low to compensate for the risks involved. However, a reduction of fertilizer prices to culti- vators of about one-fourth, from approximately $2 to $1.5 per kilo, would increase average returns to cultivators for these commodities by more than double the cost of the fertilizer, generally accepted as a yardstick favoring fertilizer use. A significant reduction in prices could be accomplished by lifting restrictions on the importation of fertilizer materials at current world prices, and by providing more institutional short-term credit for fertilizers at official interest rates which are substantially lower than those extended by non-institutional sources. 1/ FAO UNDP/SF Soil Fertility Research Project in Thailand - The Marketing of Fertilizer in Thailand, p. 8 - Bangkok, 1970. 2/ Appendix I of the report H.P.A. Croll, UNIDO adviser for the Chemical Industry Bangkok, July 1971, also, the Development of Export Industries in Thailand, Vol. IV Xec. VIII p. 27, L.H. Manderstam & Partners, Ltd., October 1970. Annex 1 Page 19 65. It is clear that a significant downward adjustment in prices of fertilizers is essential, if the decline in crop yields is to be arrested and reversed. It is an adjustment of overriding importance that simply must be achieved, even if it becomes necessary to subsidize part of the costs to farmers. The Thai cultivator has proved to be responsive to opportunities to improve his income. However, it should not be expected that lower prices of fertilizers will bring an immediate widespread use on maize, sorghum and cassava. Rather, in the beginning, increased use is likely to be limited to those areas where the gains that accrue from fertilizers are demonstrated and the risks of inadequate rainfalls are small. Promotion by the Ministry of Agriculture research and extension services will be an important factor in spread:lng adoption of improved seed-fertilizer practices. Quality Seeds 66. Concurrent with the change in fertilizer policy a program to improve seeds is needed. Few Thai farmers use quality seeds that are responsive to fertilizer application. Varieties of maize and sorghum, available in Thailand, have a definite superiority in this respect to traditional varieties. But the system of large scale seed multiplication and distribu- tion is lacking so that they are not generally available. Seed improvement is of critical importance, if the fertilizer policy is to pay off well. Beyond this, there is a further large potential to increase yields by directing the research program to develop new varieties with high fertilizer response characteristics. IV. OTHER CONSTRAINTS TO DEVELOPMENT Agricultural Research 67. Thailand has been building a fairly extensive research establish- ment. This includes various Departments in the Ministries of Agriculture and of National Development, the National Research Council in the Office of the Prime Minister and the Tobacco Monopoly. Within the Ministry of Agriculture, each Department maintains research stations scattered through- out the country. The Min:Lstry also operates regional research centers at Tha Prah in the Northeast, at Chainat in the Central Region, is estab- lishing a center for the North at Chiengmai, and is tentatively planning a regional center for the South. The three National Universities at Kasetsart, Chiengmai and Khonken also engage in agricultural research. There are also a substantial number of research teams from foreign countries, international organizations and foundations working with the ministries and universities. 68. This inventory reveals a structural weakness in that research is fragmented among too many organizations. Moreover, within an individual Department, resources have been spread so thinly among numerous research stations that few are really viable research units. To a significant degree, researchers become isolated within a narrow definition of their work program without the lbenefits of cross-fertilization of ideas and research methods which come from contacts with other researchers. It would Annex 1 Page 20 seem that two important steps should be taken. First, the Ministry of Agriculture should be given the responsibility for all agricultural research so that there will be central direction and coordination of research programs. Second, there needs to be consolidation of small, scattered research units into a fewer number with more resources and capabilities to do meaningful research. 69. For the most part, crop research has been aimed at improving seed materials for use in traditional agriculture. With the exception of the new rice varieties RD1 and RD3, little attention has been directed toward the development of improved seeds with a high fertilizer response and disease resistance under conditions which prevail in the various agro- climatic zones of Thailand. Nor has the research program been sufficiently concerned with developing varieties that would be more acceptable by foreign buyers, as is clearly needed for soybeans and sorghum. 70. Thailand has a large potential for cropping almost year around even under rainfed conditions. To accommodate multi-cropping, within the rainfall pattern, attention should be directed to developing shorter maturing varieties. Extension 71. Inasmuch as development strategy for the future entails a substan- tial departure from the traditional way of farming, the extension services face an enormous task for which they are ill equipped at present. There does not exist an effective link between agricultural research and the extension services which assist farmers to adapt research findings into practice. Further, the extension services are inadequately manned, poorly trained and poorly paid, and the responsibilities are so scattered among several government departments that they are substantially uncoordinated. 72. The Department of Extension within the Ministry of Agriculture was created in 1968 by consolidating the extension services of the Rice and Agriculture Departments. The Department of Livestock, the Royal Irrigation Department, Department of Land Development and some other agencies still assume some responsibility for extension work in their respec- tive fields. Consolidation of these services for crop and livestock produc- tion under the Ministry of Agriculture is necessary for effective extension support of development programs. Effective links must be established with research and this is more likely to occur when both research and extension are under the purview of the same Ministry. At the same time, close cooperation with action agencies is required. The cooperative effort of the Sericulture Division and the Department of Extension in carrying out the pilot silkworm improvement project might well serve as a model. 73. Most district extension officers devote about half time to ad- ministrative duties outside of extension work. Thus, the ratio of extension workers to farmers is effectively about 1 to 8,000. Relieving field exten- sion agents of nonextension tasks would immediately increase extension manpower. Many assigned to extension work come from nonfarm backgrounds and lack the practical experience to deal effectively with specific prob- lems of farmers. Extension agents should receive special training for the AnnexI Page 21 specific types of agricultural enterprises in their assigned districts. The training courses should be conducted by Departments or Universities which have the expertise in the particular subject matter. In addition, a staff of subject matter specialists should be appointed in the Department of Extension to provide technical support to field agents, including special training for agents and short courses In the field for farmers. Assignment of specialists from other departments for full time duty on the extension staff couldl provide expertise as well as liaison between departments. Agricultural Credit 74. Although significant progress has been made in developing institutional credit for agriculture in recent years, the supply of such credit is still very short of requirements for both seasonal and long-term credit and relatively few farmers are being reached by institutional sources. The situation is likely to remain acute and to impede agricul- tural development unless the pace of institutional operations is substan- tially quickened and a more effective balance obtained between long-term credit available for investments, such as land improvement and livestock, and the shorter term credit supportive to current production. 75. According to a survey in 1962/63, the major sources of credit for farmers were relatives, neighbors and local commercial lenders including shopkeepers, landlords, moneylenders and crop buyers. Annual interest rates were high, averaging around 28%. Only about 5% by value of the estimated credit advanced in 1963 came from credit cooperatives, the only institutional source then available to farmers. Since that date the Bank for Agriculture and Agricultural Cooperatives (BAAC) has come into operation, and some commercial banks have made advances for agricultural production. Production credit to farmers from institutional sources (BAAC, commercial banks, cooperatives, and farmers' associations) increased more than five- fold, from about 0 160 million in 1966 to $ 875 million in 1970, or from an estimated 0.5% of the annual value of production in 1966 to 2.82 in 1970. Nevertheless, noninstitutional sources are still the principal suppliers of agricultural credit. 76. During its 4 years of operations, BAMC has made an important impact on the institutional credit schene, and has shown increasing ef- ficiency. Its trained staff of 1,600 serves almost 602 of the more ag- riculturally progressive districts in the country, and now has almost 230,000 farmers as its clients. In 1970 it made loans of almost 0 0.6 bil- lion to farmers, of which about three-fourths was seasonal. It also made loans of I 0.2 billion to cooperatives. Its rate of growth slowed down in 1970 due mainly to a shortage of funds. 77. Credit to farmers from commercial banks increased fourfold from 1966 through 1969, from $ 32 million to % 138.million, but declined in 1970 to $ 112 million. Most of this came from the Bank of Bangkok but two other banks were also active. Almotst half of it was seasonal. 78. Membership in agricultural credit cooperatives has not increased significantly over the past five years, and remains small, at about 5% of Annex 1 Page 22 all farm families. Over the past two years most of the 8,000 very small village cooperatives of around 16 members each have been amalgamated into larger production credit cooperatives of almost 500 members each. By the end of 1971 village cooperatives will have disappeared, and in their place will be about 400 of the larger cooperatives. There are a further 500 land cooperatives, which assist landowners with improvements and help the land- less and tenant farmers to acquire land through settlement and hire pur- chase schemes. About 210,000 farm families at present are in the coopera- tive movement. Value of loans made each year has declined from a peak of over $ 200 million in 1968 to about B 190 million in 1970, while loans outstanding have increased from $ 375 million in 1966 to $ 535 million in 1970. Only about one-third of loans made were seasonal. Government's administrative costs of running the cooperatives are high, reaching $ 100 million in 1970, compared with loans made of $ 190 million in the same year. The next few years will be a period of consolidation, and some reduction in administrative costs should be expected. Farmers also obtain credit through farmers' associations, run by the Ministry of Agriculture, but the amounts are small. They can also obtain farm machinery or hire purchase through dealers. 79. An estimated 640,000 farm families, 15% of the total, are now affected by institutional credit, but only about 280,000 (6%) receive credit in any one year. Excluding farmers' associations, the average size of individual loans is about % 3,400, which is around 45% of the average annual value of each farmer's production (or $ 7,400), but there are marked variations as between individuals, institutions and crops produced. The average annual interest rate for all institutional loans is about 12%, which compares favorably with interest charges for commercial loans in other sectors. 80. The major requirements for improving institutional credit are to increase the supply of credit and to revise existing programs to make them more productivity oriented - as for example fertilizer credit for short- term and land improvement for longer-term credit. Cooperatives lending should include more seasonal credit. BAAC also requires more funds to expand its operations, particularly in long-term credit, and commercial banks should be given inducements to increase their credit activities. To meet these requirements over the Third 5-year Plan period an Agricultural Development Fund should be set up within the Bank of Thailand, to advance to institutional sources up to, say, 70% of all loans running over 2 years made by them to farmers for development purposes, provided the loans were adequately supervised and backed up with sufficient seasonal credit. This fund could also be available for discounting of loans by institutions for agri-business activities such as the up country grain drying and storage facilities mentioned in para 22. Marketing and Prices 81. On the whole, the marketing system works fairly well in the physical movement of commodities. Large exporters or traders in Bangkok establish purchasing networks with successive intermediate levels extending to the province and ultimately to the village buyer. For paddy, where Annex 1 Page 23 mills have been decentralized from Bangkok, marketing may involve only 2 or 3 turnovers. For maize, where up country drying and storage is lacking, it may move through 5 or more hands before it reaches export position. Each handling adds to the cost of marketing. And high moisture content of maize enroute to Bangkok caujses considerable deterioration of quality. 82. Most farmers sell at low prices at harvest time, partly because of lack of storage and partly due to the need for income to pay off debt. The price guarantee program for paddy has been quite ineffective for lacks of funds, of buying stations and of storage facilities. In 1968/69, the program purchased only 0.5% of production and in 1970/71 only 1.3%. Thus, prices of paddy fell substantially below the support price levels at harvest time. Seasonal price movements for maize are even more severe, averaging some 2-1/2 times greater than for paddy. 1/ 83. In a strategy which looks for a very large increase in maize output, it will be important: to prevent depressed prices to producers at harvest time. The performaice of the price guarantee program for rice indicates the undesirability of mounting a similar program for maize or other commodities. Recent programs of the Bank of Thailand to discount warehouse receipts for stored paddy appear to offer a better alternative for stabilizing seasonal prices. Application of this program to maize and cassava requires up-country drying and storage facilities, which are also needed to even the flow of commodities to port. 84. Export markets for maize, kenaf and cassava would be substantially facilitated by establishing grades and improving quality. Further, export agreements for maize whereby export quotas are fragmented among numerous exporting firms protects the inefficient and inhibits investment in facilities which could reduce the costes of export marketing. Government Organization and Administration 85. The extreme disarray of Government agencies and functions concerned with agricultural development has been emphasized repeatedly in previous reports of the Bank and other international bodies. It is all the more important now that a major sihift in agricultural strategy is underway. The diffusion of responsibilities for agricultural research and extension described previously illustrates a condition characteristic of most agri- cultural development activities on Thailand. Difficulties in administering programs in the Chao Phya basin where there is a substantial governmental infrastructure indicate that: effective coordination at the local level is rare no matter how well intentioned coordination is pursued at high levels. It'remains abundantly clear that the development effort requires centraliza- tion of organization and day-to-day administration. It is almost axiomatic 1/ Potentials in the Economic Development of Thailand's Agriculture. S. Sriplung, p. 72. Dividion of Agricultural Economics, Ministry of Agriculture, Bangkok, 1968. Amex 1 Page 24 that a strong ministry of agriculture with the major responsibility for agricultural development is essential, a situation which does not exist in Thailand. Delineation of functions among the several agencies should make clear the distinction between construction work such as irrigation facilities and land leveling and the on-farm activities of assisting farmers in ap- propriate land and water use and the development of profitable cropping patterns. These latter should be clearly the responsibility of the Ministry of Agriculture. 86. Capabilities of the Ministry of Agriculture to contribute to the planning and policy decision process are quite weak as a result of limited responsibilities for agricultural development and of inadequately trained personnel. Some important steps are being taken to correct this latter situation The Division of Agricultural Economics has initiated a program of training with local institutions to up-grade personnel. External assistance appears to be forthcoming from USOM to strengthen agricultural economics research, a basic step toward building planning competence. Further, the establishment of a planning unit within the Division with assistance from UNDP/FAO is anticipated. Thus, the Ministry may develop a much stronger capacity to take over more responsibility for planning agricultural develop- ment, and to contribute more effectively to the formulation of agricultural policies. 87. Planning to have much meaning must have a sound statistical base. This is a serious lack in Thailand where the quality of agricultural statistics has fallen to a very low level. Responsibility has been divided among several agencies which has brought some duplication and at the same time has left some major gaps in coverage. The situation is not likely to improve unless the responsibilities for current data gathering for agri- culture are brought together and assigned to the Ministry of Agriculture. Development Institutions 88. Various Government agencies have developed or sponsored a wide array of farmer institutions for group action, ranging from Government controlled and supervised farmer cooperatives to informal associations of farmers who band together more or less in their own for a more limited purpose. In 1969 there were almost 15,000 cooperative groups or associa- tions with a total membership of almost 700,000 families (including multiple counting of those with membership in more than one). This would approximate less than 15% of all farm families. Since 1969, the number of cooperatives has been reduced by about half, with most of the small village credit cooperatives consolidated into larger production credit cooperatives. Membership in cooperatives under the government hand has not expanded appreciably in recent years; perhaps not a surprising development in view of the independent characteristics of the Thai farmer. Legislation is being considered to provide legal status to farmer associations in order to enable their members to obtain credit under the same terms as members of cooperatives. 89. These institutions are still in a developing stage and it is too early to prescribe any one form as the standard means for development at the Annex 1 Page 25 farm level as has been proposed for the multi-purpose cooperative. There is, in fact, a danger that these institutions will be called on to do too much for their present capabilities. V. THE RESOURCE BASE Natural Resources 90. Thailand has a great variety of resources in land, water and climate which have the potential for substantial diversity of agricultural production. Too little is known as yet on how to use these resources to best advantage. There is abundant land with only some 25-30% of the total area of 321 million rai (51.4 million ha) in farm land. Half of the land base is still in forest lands, a valuable resource especially in the Northern and Southern regions. The nation stretches some 1,620 km in length providing a range in climate from equatorial in the south to conditions approaching the temperate in the far north. 91. In the Central basin, the main producing area, soils are generally rated as of moderate fertility. Much of them are heavy marine soils but there are levees and transiLtional slopes suitable for upland crops. In the Northeast, which is largely on a plateau, soils are shallow and sandy with poor water retention and of moderate to poor fertility. This region has a considerable potential for pasture and forage for livestock production. The narrow valleys between mountain ridges in the North and South are of moderate to good fertility. The hillsides of the North, however, afford only a meager agriculture of the slash and burn variety. 92. The southwest monsoon, mid-May through September, provides ade- quate rainfall during the wet season but the dry season from October to May is a limiting factor on crcp production without irrigation except in the South where rainfall is quite abundant and regular. Even within the restrictions of monsoon agriculture, there is potential for multi-cropping and in fact the practice is increasing. In the western part of the Central Region, there is a belt of low precipitation (750-1,000 mm) which extends from Hua Hin on the Gulf of Thailand to a point 175 km north of Tak. In the Northeastern region, there is a dry pocket in the lee of the Petchabun mountains extending from the center of the region to the southwest. 93. The long coastline of 2,414 km bordering the Gulf of Thailand and the Indian ocean provides entree to substantial marine fishery re- sources. Human Resources 94. The people of the agricultural community make up about 80% of Thailand's 36 million people. On the whole they are not well educated. Few go beyond grade 4. In the Bangkok metropolitan area over 80% of the pupils in the lower elementary schools move on to upper elemcntary schools (grades 5-7). Outside of Bangkok, only 30-40% move on to the upper grades Amex 1 Page 26 in the Central and Southern regions, 22% in the North, and 14% in the Northeast, a marked direct relationship with regional income differentials. In particular, the people of the Northeast are least equipped to compete in the nonagricultural labor market. 95. Nevertheless, agricultural people are resourceful and respond rationally to income opportunities. The people of the Northeast are no exception as evidenced by the spread of kenaf in the region when conditions warranted. There are some fears that the agricultural universities will provide a surplus of graduates in agriculture during the Third Plan period. Numbers graduated increased by some 80% between 1967 and 1969. The number of middle level agricultural students reached 7,700 in 1970, an increase of 2,500 since 1967. However, considering the large needs for research and for improved and enlarged extension services, a surplus of trained agricul- tural manpower need not emerge if it can be mobilized and administered properly. Government-Private Sector Relationship 96. Thai agriculture has a basic resource in that it operates in an open economy. The strength of a private sector left relatively free to develop on its own is demonstrated in the signal successes of maize, cassava and kenaf production. In such a situation the functions of govern- ment are primarily to provide infrastructure, credit and supportive services, and to promote the conditions and incentives for farmers to become more productive. On the whole, Thailand manages an effective balance in the roles of government and private sector. Nevertheless, there is always a distinct danger that in the desire to effect more rapid change, Government will undertake functions which the private sector is better equipped to perform. VI. DEVELOPMENT PROGRAMS FOR CROPS TREE CROPS Rubber 97. Thailand is the third largest producer of natural rubber. Since 1965 exports have risen over 30% to a level approaching 300,000 tons. The rise in exports approximates the annual increase in world consumption of about 6-7 percent a year. An aerial survey indicates that the area in rubber is considerably larger than recorded plantings, perhaps 6 million rai compared with the official estimate of about 4.5 millionral (including about 700,000 rai in the Chantaburi area or roughly double the official estimate). Apparently the increase in rubber output has come largely from the extension of unrecorded plantings. 98. Practically all rubber in Thailand is produced on smallholdings averaging about 16 rai. Yields average only about 60 kg per rai. Although data as to age distribution of the trees are not available, it is believed that a large proportion is unselected material nearing the end of its Annex 1 Page 27 economic life. The FAO Project Manager at the Rubber Research Center, Hat Yai, estimates that replantirng with high yielding material would increase yields up to 200 kg per rai. 99. The rubber replanting scheme initiated in 1961 has been financed by a cess of 0.5 baht per kg exported, with 90% of the fund distributed as replanting grants of 2,000 baht per rai. Thus, at current levels the cess, if fully effective, would generate about 135 million baht for replanting grants enough for some 67,000 rai, about 1% of the total rubber area. A normal rate of replanting to maintain age distribution of trees is about 3% a year, clearly beyond the capabilities of the cess to finance. The Government proposes step-up the rate of replanting to 135,000 rai a year by providing additional funds from the budget. This would approach a practical minimum replanting rate. Thailand has the administrative capacity to expand operations. Field personnel are adequate and the quality of re- plantings already made is quite acceptable. 100. Since the replanting program will not have effect on production for some years to come, the use of new yield stimulants, which are being used in Malaysia to boost production on small holdings as well as large is a matter for consideration. Tests at Hat Yai have confirmed that with proper selection of old trees, the application of Ethrel and fertilizer can raise yields far beyond the break even point of a 30-40 percent increase in yields required to regain costs of application. This could be an important offset to losses in income resulting from replanting, especially significant in view of depressed world prices for rubber. The Malaysian experience should be watched as a possible guide for future development in Thailand. Oil Palm 101. At this time, there is little prospect for establishing an oil palm industry in Thailand. A feasibility study in 1968 by Messrs. Hunting Technical Service Ltd. proposed a 2,700 ha plantation to be situated at Krung Yan in the peninsula. However, ecological conditions in this area are not favorable for oil palm. There is a dry period of about 3 months duration and the soils are relatively poor. Moreover, to justify invest- ment in processing and port handling facilities, a much larger area of oil palm would be required, in the range of 10,000-15,000 ha. It is doubtful that an area this large with suitable conditions is available. Coconut 102. It is difficult to determine the trend and level of coconut production. The production estiLmate of NEDB is 37% lower than that of the Ministry of Agriculture. The latter shows an increasing trend between 1961 and 1969, averaging 2.6% a year, whereas the former indicates an annual decline of 0.4%. Most nuts are consumed as fresh coconut for food. The small quantity of copra produced is of poor quality, mostly sun dried. Moisture content is high and most of the copra is mouldy. In view of in- creasing demand for coconut as food, Thailand no longer exports copra. 103. The Sawi research station estimates that of the 1.8 million rai in coconut, about 0.5 million are over 50 years old producing little or Annex 1 Page 29 no nuts. Such plantings or replantings as occur are with traditional unselected material prepared by the growers themselves. They use no fertilizers. The Sawi station is experimenting with various fertilizer formulas. 104. The most immediate means for increasing production would be the use of fertilizers on present plantings. This has the potential for doubling yields. However, two years of fertilization is required before there is significant response and the program must be regularly continued thereafter. Because most holdings are small and extension services, credit facilities and fertilizer distribution lacking, progress is likely to be slow. The program is likely to be more successful if focused in the beginning on the larger holdings of 30 rai or more which constitute some 500,000 rai, over a fourth of the total. 105. Sawi research station was created 8 years ago for selection and development of improved materials. Its work is not yet much advanced, as is the case with most coconut research stations in developing countries. Only IRHO station at Port Bovet in Ivory Coast is producing an improved hybrid planting material based on selected African Tall crossed with dwarf of the variety present in Thailand. This material produces about four times the yield of Thai material. Moreover, the hybrid trees start producing in the fourth year after planting rather than the sevea or eight required by local material. Fertilizer applications would be required. Since the quantity of IRHO material is quite limited, the establishment of a seed garden (about 200 ha) for high yielding hybrid planting material with assistance from IRHO specialists would be a first step. Communication between IRHO and the Agriculture Department has been initiated toward this end. In about 5 years the seed garden would enable the beginning of plantings and at full production would enable plantings of over 60,000 rai annually of high yielding stands. At that time, external financing for planting programs of the improved materials might well be in order. FIELD ktOPS 106. To improve crop yields must be a prime objective if incomes in agriculture are to be raised, the pressure on land eased, and Thailand's position in trade protected vis a vis its competitors who adopt technology which reduces unit costs. This is clearly recognized in the Third Plan which looks to accelerated production programs integrating research, ex- tension (including demonstration), credit and production inputs into a package program for each key commodity. It seems evident that there is a substantial potential to raise yields of many crops, particularly of those which are of immediate importance for increasing export earnings. Since Thai agriculture so far has made little progress in improved seed-fertilizer technology and few data on actual farm experience exist with the exception of rice, it is a matter of judgment as to the progress that can be made in the next 5 or 10 years. Some feel for the possibilities is obtained by Annex 1 Page dY comparing recent crop yieldi with top yields obtained at Experiment Stations although admittedly the latter in most cases should not be generalized and is far above any practical index of obtainable yields by most farmers. The comparison serves two purposes. First where a very large difference exists, it may signal some near term possibilities to increase yields. Second, if the difference is quite narrow it points to the urgent needs for research to open up such possibilities. Crop Yields, Average 1966-68 and Top Yields at Experiment Stations Top Yields Average Yield Experiment Crop 1966-68 Stations kg/rai kg/rai Rice 281 /1 742 Maize 301 822 Sorghum 334 568 Soybeans 178 218 Groundnuts 210 554 Mungbeans 181 316 Cotton 154/1 450 Kenaf 201 227 Cassava 2,378 3,990 /_ 1967-69 average. Source: Rice; Breeding, Performance and Characteristics of Dwarf, Photo period Non-sensitive Rice Varieties for Thailand by Jackson et al, Breed- ing Division. Rice Dept. Thai J. Agr. Sci 2-1969. Maize and Sorghum: Thailand National Corn and Sorghum Program, 1970 Annual Report. Other Crops: Dept. of Agriculture Research and Experiments Division, Annual Report 1969. Research on other products was lacking, notably castor beans, sesame, kapok, sugarcane and tobacco. Based on present research findings, there appears to be clear opportunities for major increases in yields for most crops listed except for soybeans and kenaf. 107. Rice: The new RD varieties are highly responsive to nitrogen and have built in resistance to diseases and insects. Long grain varieties RD1 and RD3 have been found quite acceptable for export markets. They yield 10-30% more than most local varieties under traditional practices. This in itself is scarcely enough margin to make for a large shift to the new seeds. However, when linked with fertilizer and plant protection practices, yields of the new varieties are doubled or more depending on soil and moisture conditions. They are especially suitable for areas with water control and their use so far has been largely in some irrigated parts of the Central Plain. AnneM 1 P8-ge 330 108. Present improved seed production operations of the Rice Department on experiment stations provide no more than 100 tons of stock seed a year. Distribution is made directly to farmers who for the most part grow com- mercial rice so that the seed supply remains quite limited. 109. On-farm trials in 1966 and 1967 showed substantial responses for varieties commonly in use in the several regions. Increases in yields from various fertilizer rates were as follows: Region Percentage Increase Northern 17.5 - 30.7 Central 20.9 - 30.6 Northeast 34.9 - 52.7 Southern 51.9 - 66.5 During those years (1966 and 1967) when the price of rice was rising, it was generally profitable to use fertilizers and its use expanded quite rapidly, although still at very low levels. With the decline in prices of rice since 1968, fertilizer use has turned down. At current price relationships of rice and fertilizers, it is generally unprofitable to use fertilizers. 110. Improved seed - low-cost fertilizer programs could have substantial impact on production throughout the nation's rice areas. The irrigated areas of the Central Plains by reasons of soils and a measure of water control appear to offer special advantages. 111. Maize and Sorghum: The decline in crop yields for maize and sorghum during the 1960s is particularly disturbing since these products offer relatively favorable export prospects. Little fertilizer is used on maize and soil fertility is apparently diminishing. Moreover, the maize area is extending to areas of poor quality soils. Average yields are declining 1 to 1-1/2% a year. Disease and insect damage lowered yields of sorghum by about one-fourth since 1965. Further the white Hegari variety has not been favorably received in the Japanese market. This combination of factors reduced the area planted to sorghum by over 50% in one year, 1967 to 1968. 112. Guatemala PB5 for maize and PB Hegari for sorghum are currently in use. The National Maize and Sorghum Program has developed promising new maize varieties. These are hybrids of Guatemala PB5, Caribbean and Capurico. Tests of the latter in 1970 at 7 locations reported an average of 685 kg/rai. For sorghum, trials of Thai Sorghum Selection (TSS) hybrid lines outyielded Hegari by as much as 58%. These are yellow endosperm varieties favored in Japanese trade. They are also more disease resistant and less subject to lodging. Although somewhat susceptible to grain weathering compared with Hegari, if used in areas of low moisture and as a late season crop, the disadvantage is minimized. 113. Fertilizer applications increased yields on the average by 21% for maize (PB5) and 30% for sorghum. However, most of the fertilizer trials did not cover the TSS lines of sorghum, which should be further Annex 1 ?ag.s 31 investigated. A test at only one location indicated that effective weed control increased maize yields by 80%, again subject to further investigation. 114. It is clear enough that much could be gained from exploiting the new varieties. However, at current prices of fertilizers, it does not pay out. The most profitable use on maize at this time would be on irrigated levee soils (based on data from the Chainat Research Center). Under rainfed conditions, it would take a reduction in fertilizer prices of about one-fourth to bring them into profitable range. In the absence of an improved seed - fertilizer program, it is likely that maize yields would decline further and sorghum production would be negligible. Such a program might reasonably be expected to increase national average yields by 1976 from recent levels by 15-20%. The potential fertilizer requirements to attain these yields would be about 320,000 tons for maize and 47,000 tons of fertilizer for sorghum. This is substantially in excess of total use of fertilizer in Thailand at the present time. 115. At present, maize and sorghum are largely produced in the Central Region, much of it in Lopburi, Saraburi, and Nakornsawan. The Land Capability Survey, when completed, will help idetiffy potential new areas of production. Preliminary results for the Northeast indicate that 6 million rai will be suitable for maize and sorghum. Potential areas are also likely to be found in the Central Plain and Northern regions. On the basis of soils and climatic data now available, the potential maize production area could well include: Central Region: Saraburi, Lopburi, Nakornsawan, Pichit, Petchaboon, Pitsanuloke, Uttaradit, Sukhothai, Kampaengpet, Uthaithani, Kanchanaburi, and Ratburi, with soil fertility levels mostly moderate to low but some with high levels; precipitation of 1,300 mm p.a. with good prospects for May plantings. Northern Region: Prae, Nan, Lampang, Chiengmai, Chiengrai, with soil fertility levels mostly moderate to low but some with high levels; precipitation of 1,200 mm p.a. with good prospects for May plantings. Northeast Region: Mainly in the provinces that rim the outer perimeter of the region - Korat, Burirum, Surin, Sisaket, Ubol, Nakorn Panom, Sakolnakorn, Nongkhai, Udorn, Loei, with soil fertility levels mostly moderate to low but with some with high levels; precipitation of 1,300 + mm p.a. with good prospects for May plantings. 116. Sorghum should be considered as'an alternative to maize in the drier areas. Rainfall data suggest that in the North, sorghum should be grown instead of maize in some districts of Chiengmai, Lamphoon and Lampang. In the Central Plain, parts of Kanchanaburi, Nakorn Pathom, Petchaburi and the western side of Nakonisawan could be put into sorghum. In the Northeast, the western part of Chaiyaphoom, the western parts of Mahasarakham and Korat, should be considered for sorghum instead of maize. Annex 1 Tage 32 117. It is particularly important to spread cultivation of maize and sorghum to the Northeast where income opportunities are quite limited. At the same time, it could begin to release some marginal lands in rice which might better be shifted to the more productive rice lands of the Central Plain. But because of the distance from Bangkok of areas in the Northeast with good potential for maize and sorghum, transportation charges under present conditions would make the returns to cultivators unprofitable. It would be necessary to equalize transport costs for long hauls so that the i.ortheast farmer could receive approximately the same price as the farmer in the Central Region. Some access roads would be required as well as marketing facilities, where the grain can be dried and stored. 118. Soybeans: There are no technical improvements in sight that would make for mucn of an increase in yields in the immediate years ahead. SJ1 and SJ2 are short-day photo responsive varieties with adaptation to the Northern Region dry-season environment (Chieng Mai Province). When they are moved out of their day length adaptation into wet-season production problems of plant growth arise. The Third Plan production target of 300,000 tons, some three times the current level appears to be over ambitious. In most areas, soybeans by virtue of low yields ranks fairly low in returns to farmers, and it is unlikely that sufficient expansion of area planted to soybeans would take place under present conditions. Thus, there is need for a substantial program of research which would lead to higher yielding varieties, with emphasis on protein content. 119. Soybeans can have an important role in Thai agriculture, especially as an export earner. It could serve well as a first rainfed crop on uplands as a second rainfed crop on uplands after maize, and on irrigated land after rice. Suitable soils are available in the valleys of the North Region 1/, on the undulating uplands of the Central Region in the maize belt extending from Saraburi north to Uttaradit 2/ and in a belt extending along the same latitude as Uttaradit east to Nakorn Panom along the south side of the Mekong River. 3/ 120. Groundnuts: This is one of the more profitable crops to grow and in most cases has recorded a net return advantage over soybeans. Ground- nuts are commonly planted between rows of maize, cotton or castor beans during the monsoon season. They are well suited to multiple cropping patterns and thus the area involved for groundnuts can be expanded rapidly. 121. The Department of Agriculture's research is concentrating on variety improvement and cultural practices but as yet these show little advantage over standard varieties. Good yields have been obtained at Chainat Research Station with both local and Tainan 6 varieties when planted 1/ Chiengrai, Chiengmai, Lamphoon, Mapang, Prae, Nan. 2/ Saraburi, Lopburi, Nakornsawan, Kampaengpet, Pichit, Petchboon, Sukhothai, Phitsanulok, Uttaradit. 3/ Loei, Udorn Thani, Nongkhai, Sakonakorn, Nakorn Panom. Annex 1 Page 33 in ridges. Fertilizer applications do not give significant yield responses except on very low fertility soils, and even then are unlikely to be uneconomical. 122. ITlailand has an increasing demand for cooking oil and prospects do indicate the likelihood of a fairly rapid increase in groundnut output. This will come largely from expansion of area in the next period ahead. The main requirement for the immediate future is to provide for an expansion of the seed supply. Research for improved varieties and cultural practices should push ahead. 123. Mungbeans: Production of mungbeans has increased almost four-fold since 1960. Exports have approximately doubled in the past 5 years. In- creased output has come from extension of area. Yields have declined. This crop is well suited to multiple cropping and may be planted after a monsoon maize crop on uplands or after rice on lowlands. 124. Research has found some distinct yield advantages in new varieties. But the highest yielding lines have small rough seeds which are not favorably received in the market while the smooth, larger seed varieties give lower yields. Research is proceeding on combining yield and quality. 125. Cotton: There is a growing import deficit for cotton fibers. The area in cotton has declined sharply and production halved since 1968 because growers have not been able to control insects, particularly the boll worm. With the spread into cotton areas of maize which is the alternate host for the boll worm, the pest has reached epidemic proportions. Growers are spending as much as 400 baht per ral in trying to combat it, making cotton growing clearly unprofitable in heavily infested areas. It may well be necessary to establish control areas for cotton production where maize is prohibited. 126. There are opportunities for considerable yield improvement. The Research Station at Takfa reports maintaining a yield of 450 kg/rai, about three times the recent national average. Research at the station is directed toward developing insect resistance as well as fiber improvement. Yields almost as high have been obtained at Chainat Research Station with variety Rex, planted early before monsoon rains. Insects were also a major problem in this area and the crop required a high standard of management and high inputs. 127. Kenaf: This crop has pursued a variable course; area expanding four-fold between 1960 and 1966, as export demand increased and falling by about half by 1968 as demand weakened. Market prospects in the future depend substantially on the availability of competitive supplies from East Pakistan. For Thailand to compete in such a market in which synthetics are making in-roads as well, yield increasing technology which reduces costs is essential. Poor quality is also a factor; a proper grading system does not exist. 128. While there are substantial research activities directed toward variety improvement for higher yields and quality, and resistance to Annex 1 Page 3h diseases and nematodes, there is little proved research findings to exploit. Fertilizers are hardly used, a reflection of low returns and high risks in the Northeast where rainfall varies considerably. The broad lines of strategy include an improved seed supply and development of a grading system which rewards quality. 129. Cassava: Production and exports have risen five-fold in the past decade and with the prospects of favorable export markets, they are likely to continue to increase quite rapidly. The main factor was expansion of area. It is mostly concentrated in the Central Region where two provinces (Rayong and Cholburi) account for 70 percent of the national output. There are extensive and unutilized areas in the southeast of the Central Region which are suitable for growing cassava. 130. Thus far, the research program has not turned up new varieties with a significant advantage over local varieties. However, research has shown that on those soils which yield poorly (less than 2.5 tons of roots per rai), fertilizer applications can raise yields as much as 100 percent. Where yields are already high (in the range of 5 to 6 tons per rai), fertilizer does not increase yields significantly further. However, since the average yield is 2.4 tons, there is a very large scope for increasing yields by fertilizers. 131. Current cassava-fertilizer price relationships appear to be marginally favorable to the use of fertilizer on soils of low fertility. But the incentives could be greatly increased by lower prices of fertilizer and upgrading the quality of cassava to obtain higher prices for cultivators. European importers of Thai cassava products complain about the high sand content of shipments and discount prices for this factor. There is need for equipment which more effectively screens out the high sand content and other impurities which are the causes of complaint. But there is also need for stricter enforcement of export standards. 132. These are some of the potentials for increasing yields of the major field crops strategic to the Third Plan. Over the long run, there is a larger potential that could come from a stronger research program oriented to genetic improvements in seeds which are highly responsive to fertilizers, resistant to diseases and insects, and adapted to local conditions. Of more immediate impact within the Third Plan period, there is the need to exploit the research which is presently available. Strengthening extension services which help farmers put research findings into actual farm operations, which has been discussed previously, is a critical ingredient in development. Similarly, credit services will have to be expanded to enable farmers to finance more advanced technology. A policy to effect a significant reduction in prices of fertilizers to farmers so as to make fertilizers profitable to use is of immediate importance. Two additional urgent needs should be stressed. First, the need to expand the quality seed supply available to farmers, and second, the storage and drying facilities which will be required to accommodate sharply increased output of grains and pulses during the Third Plan. Annex 1 Page 35 Seed Requirements 133. Good quality seeds are generally not available to the Thai farmer. Those that are available have uncertain germination, poor performance and are adulterated with inert matter. The present capacity of the Ministry of Agriculture to provide seed is very limited. By the end year of the Third Plan (1976) ainual seed requirements for rice (assuming a 3 year replenish- ment rate) would total 67,000 tons and for maize (assuming a 5 year rate) almost 6,000 tons. These two seed crops alone would require over 150,000 rai of land. 134. There are two important parts. First, a program of seed multiplication of recommended varieties which carries through the four stages of seed generation from Breeder through Foundation, Stock and Extension. Obviously, the land requirements are far beyond those available to Govern- ment Departments, and there will be need to enlist either private or quasi-public efforts at the Extension stage and possibly at the preceding Stock stage. 135. Second, recent seed physiology research in Thailand has shown that most crop seeds are sensitive to temperature and moisture during storage. At temperatures above 75eF and relative humidities of 75% and above, germination is seriously affected. These conditions prevail through- out Thailand. Tests of the Rice Department showed that rice seed decrease in viability after 5 months or so and by the tenth month are essentially dead. This emphasizes the need for seed drying equipment and moisture proof storage at various points in the countryside. Storage and Processing Facilities 136. During the Third Plan period production of the major grains and pulses (rice, maize, sorghum, groundnut, soybean and mungbean) will increase by almost 4 million tons, much of it moving into export. Because there is a lack of up-country drying and storage facilities, the quality of most products, particularly maize wrhich is harvested during the wet season, deteriorates rapidly enroute to facilities in Bangkok. Paddy is an exception with much of the mill capacity now outside of Bangkok. At present, most farmers must sell their crops at harvest time at considerable discounts due to moisture and the heavy supply which comes into market in a short period. If a program for storage and other facilities was combined with the provision for credit on st:ored crops to enable farmers to wait until prices improved, considerable benefits would accrue to producers. Addi- tionally, up-country storage by evening out the flow to market would ease the congestion in Bangkok port. VII. DEVELOPMENT OF THE LIVESTOCK INDUSTRY 137. In the longer run, the livestock sub-sector will likely make a much more important contribution to agricultural development than at pre- sent. In 1970, it accounted for some 13% of gross domestic product from Annex 1 Page 36 agriculture, about the same proportion that has prevailed during the past decade. Thailand has the potential for producing the feedgrains, protein meals and forage to support a greatly expanded livestock industry but domestic demand and opportunities for export are quite limited. The rise in output of animal products since 1965 (annual growth of 2.9%) has been slightly less than the increase in population. Even so, with the exception of milk which offers some opportunity for import substitution, local out- put of livestock products supplies current domestic requirements. Milk 138. Increased consumption of dairy products has led to rising im- ports. The bulk of domestic consumption is condensed milk and milk powder. Since 1965, six dairy plants have been established to process condensed milk from imported butterfat and skim milk powder. The net result from declining imports of condensed milk and larger imports of butterfat and skim milk powder for processing has been a net import saving of $ 172 mil- lion.' expension in local processing to replace current imports of con- densed milk could result in further import savings of roughly $ 75 million. Substitution of vegetable oil for butterfat in reconstituted milk would bring additional savings. 139. Fluid milk is consumed mainly in Bangkok. Total consumption is about 14,000 metric tons/year consisting of 6,000 tons of local fresh milk, 5,500 tons of imported sterilized milk and 2,500 tons of recombined fluid milk from imported ingredients. Commercial dairy production is developing successfully around the Thai-Danish Dairy Project at Muaklek. Total produc- tion in this area is expected to increase from 2.4 million litres in 1971 to 5.4 million litres by 1975. The output is marketed in Bangkok as pasturized milk in cartons at about 8 bahts per litre. The market for pasturized fresh milk at present prices appears to be nearing saturation. Minimum cost of production under good management is about 3 bahts per litre. It is highly unlikely that commercial dairymen can sell milk at 2 bahts per litre to compete with imported ingredients for manufacturing milk products. There is opportunity, however, to market surplus production as sterilized fresh milk and eventually replace the annual imports of about 5,500 metric tons of this product. Cost estimates show that locally produced sterilized fresh milk could be retailed in 500 cc tins for $ 10.90/litre with current farm price of B 4.00/litre. This compares with about $ 17.00/litre for the imported product including 40% import duty. Thus, there are two im- mediate actions which could save foreign exchange: - Prohibition of imports of all condensed and evaporated milk to enable local condensaries to process total domestic requirements for these products. - Equipment of the local dairy industry to sterilize surplus fresh milk. Importations of sterilized milk and the import duty should be continued until domestic production is sufficient to replace imports. Promotional programs featuring price advantage, and keeping qualities of locally produced sterilized milk should be initiated to gain consumer acceptance. Annex 1 Page 37 Beef 140. Cattle and buffalo are raised primarily for draft purposes and their numbers have remained fairly static during the last decade. The Government has attempted to encourage expansion of breeding herds by ban- ning the slaughter of females and young animals, and by imposing export restrictions on beef. The prevalence of foot and mouth disease limits the foreign outlets for fresh beef. Under the quota system, 18,500 live oxen and heavy buffalo bulls were exported to Hong Kong in 1970. Also 16,500 head were shipped to Malaysia and Singapore from the Southern Peninsula, the only disease-free area in Thailand. It is reasonable to assume that the three export markets could absorb the 50,000 heads projected as the 1976 export target in the Third 5-Year Plan. The Japanese investigated and reported favorably on the feasibility of establishing a slaughtering and processing plant in the disease-free Southern area for processing meat pro- ducts for export, providing certain conditions are met. The annual beef production growth rate of 1.5% since 1968 will have to increase to at least 3.5% if domestic and export requirements are met. However, export targets for beef could be met by draft animals if mechanization continues. 141. The only commercial beef ranch in Thailand has as its objective the production of higher quality beef for domestic and export markets. The market for pen-fed beef in Bangkok is limited at the present time but should increase with the spread of modern food stores. Exploitation of the Hong Kong market for this type beef faces stiff competition from Australia and Mainland China. The bulk of consumer demand is for rela- tively low-priced fresh beef. The objective, therefore, should be to increase beef output without significantly increasing production costs. Increase in total beef tonnage will require genetic improvement of the cattle population, better nutrition and management as well as market incentives for producers. American Brahman cattle have demonstrated their adaptability to local environ- ment and appear to be the best breed for initial upgrading of the small hardy Thai cattle. Nearly half of the Kingdom's cattle and buffalo, and the largest area of available land for beef development - submarginal for crops - are in the Northeastern Region. Information is not presently available upon which to base an estimate of Thailand's potential capacity for beef pro- duction. The program for developing the beef industry should include: - Upgrading of native cattle with improved Brahman bulls to increase beef output and provide a more productive cow base for future development of a modern beef industry. - Improvement of cattle nutrition and management by establishing supervised demonstration herds with cooperating farmers accompanied by extension education activities with other cattle owners to improve practices. - Research on pasture development and the economics of beef Annex 1 Page 38 A high priority for brucellosis control as a means of improving reproduction efficiency. Support to the private sector to supply the growing needs for high quality beef, and to provide improved bulls for the upgrading program. As demand for quality beef expands, commercial operations could well be developed in the Northeastern and Northern Regions. Improvement of the marketing system to encourage beef production. Exploration of the potential for producing canned beef speciality items, including dog food, for export. Research on more efficient use of the buffalo for beef produc- tion by identifying genetically superior buffalo bulls through progeny testing, and indepth investigation of reproduction pro- blems. Pork 142. Pork accounts for roughly half of the meat consumed in Thailand. Pigs are fattened mainly on rice bran, broken rice, fishmeal and crop re- sidues. The price differential between maize and rice products usually favors the latter. About 98% of the pigs are produced by small farmers but modern commercial producers now account for nearly 50% of the pigs marketed. Production is meeting domestic requirements. Major constraints on expansion of the pig industry are the antiquated marketing situation and a lack of export outlets. The large market in Japan for frozen pork cannot be exploited because of Thailand's foot and mouth disease status. The former exports of live pigs to Hong Kong have now been supplanted by cheaper pigs of good quality from Mainland China. The needs for developing the swine enterprise involve: - Programs directed to reducing the costs of production and marketing and improving pork quality. - Exploration of the potential for exporting canned pork products. Poultry, Meat and Eggs 143. A modern poultry industry in developing in the Central Region. Eggs, broilers and capons are produced on a commercial scale for the Bangkok market. The industry is moving towards vertical integrated arrangements initiated by the feed mills and hatcheries. Thailand is a net exporter of eggs to Hong Kong and Singapore. Export volume has fluctuated widely due to cyclic fluctuations in domestic production. Increasing competition from Annex 1 Page 39 Mainland China at prices below rhai costs of production portends export problems in the future. Hong Kong and Japan appear to offer considerable potential as export outlets for dressed broilers if Thailand can become competitive on quality standards3 and price levels. Rice bran and broken rice are the most widely used constituents of poultry feeds with maize ranking second. The limited local research suggests that poultry and eggs can be produced more efficiently by combining maize with rice than with rice alone. The direction of development of the poultry industry should include: - Extension and research in poultry to increase efficiency and reduce production costs. - Centralization of processing and marketing to achieve greater efficiency of operations and to meet standards required by export markets. VIII. DEVELOPMENT OF SERICULTURE 144. Thai silk is in strong demand on the world markets with annual exports of silk cloth valued at $ 170-180 million. About 200 metric tons of raw silk is produced annualy by some 250,000 small farmers in the North- ern and Northeastern Regions. Cultural practices are primitive and the raw silk is hand reeled resulting in low productivity and inferior quality yarn. Imports of high-grade mcachine reeled silk from Japan and Korea are required for blending with locaLl silk to maintain quality of cloth. Imports are rising rapidly and reached an estimated 220 metric tons in 1968. 145. Thailand will need to modernize its silk industry if it is to maintain its position in the world markets. Productivity per rai of land can be increased five to six fold by use of hybrid silkworms, improved mulberry varieties and proper management. Replacement of village hand reeling with centralized machine reelers can increase value of hybrid silk from the present $ 200/kg to B 350/kg. 146. The Government is promoting improved silkworm production as a means of increasing incomes of subsistence farmers and foreign exchange earnings. The Sericulture Division in the Ministry of Agriculture has a comprehensive research program and is assisted in promotion and develop- ment by field staff from the Agricultural Extension Department. Technical assistance and hybrid silkworms are provided by the Japanese who wish to develope a low cost source for imports of highl quality silk yarn and cloth. Two family-owned corporations are establishing commercial silk farms and are exploring integrated arrangements for cocoon production by small farmers. The Sericulture Division with the assistance of Extension tech- nicians expects to launch pilot village projects in 1972 to demonstrate improved sericulture. Government plans to expand the budgets for seri- culture research and extension from $ 7 million in 1971 to $ 19.8 million by 1976. Annex 1 Page 7O 147. To effectively develop the silk enterprise there is need for: - Establishment of a Silk Industry Board to provide overall leadership in modernizing the Kingdom's silk industry and to coordinate the activities of the worm rearers, weavers, merchants, exporters and research. - The Government silk improvement program with small farmers to provide for the establishment of cooperative machine reeling centres, each to serve a minimum of 500 farmers. Machine reeling will be essential for production of high- grade silk. - Long-term credit for farmers to improve mulberry plantings, housing and equipment. IX. DEVELOPMENT OF FISHERIES 148. The fisheries industry of Thailand has had a remarkable growth during the past decade. Gross domestic product from fisheries rose an average of 18.5% a year. By 1970, it accounted for over 12% of GDP from agriculture compared with 4-1/2% in 1960. There is strong internal demand for fish with per capita consumption about equivalent to that of pork and beef combined. Moreover a thriving export trade in shrimp was developed, mostly with Japan, the US and Malaysia. World production of shrimp (in- creasing about 6% a year) has not been enough to meet world demand except at a rising trend in prices. Marine Fisheries 149. The marine catch increased from 163,000 tons in 1960 to about 900,000 tons in 1969. Shrimp catch rose nine fold, reaching over 95,000 tons in 1969 of which 5,000 tons were exported. Biologically, local stocks of fish and shrimp in the gulf of Thailand are being fished at or beyond levels of sustainable yields. There is evidence also of decreasing catch per unit effort on stocks all along the Indian Ocean coast of Thailand and Malaysia. 150. Thailand looks to the development of a modern distant water fleet to extend the area fished. The potential of the more distant ocean resources is not yet well established but most data indicate that fish supplies are limited in waters that might be accessible to Thai fishermen. Thus, the most serious questions as to Thai ventures in distant waters pertain to territorial claims and fishing rights in waters adjacent to the coasts of other Southeast Asian and Indian Ocean countries. There is need for effec- tive agreements as to the areas and extent of Thai participation. 151. The Thai fishing fleet is now made up of many small vessels ill- suited to serve in distant waters. Only a very few modern vessels have Ann x I been built by private capital. The industr, is still largely of a h oub&ist- ence nature with only about 5% of the households engaged in fishing consid- ered to be on a commercial basis. As- a precondition to development of a modern distant water fleet, there needs to be some assurance that it will not fish in local waters where; their activities would reduce the catch and livelihood of small fisherman. To assist these latter, there is need to strengthen rural fishing associations to provide access to markets, credit and extension services. Small cold storage facilitics at various points along the coast could provide collection points and local markets for the catch of small fisherman. Potential for Brackish Water Culture 152. The brackish water environments along the coast have. an emormous potential for culturing shrimp and oysters. This would bring labor inten- sive activities to areas where there is substantial under-employment. Pre- sent productivity in shrimp culture ponds is low, attaining only one-third to one-half the output per hectare obtained in Singapore. Singapore, in turn, producem only one-tenth as much per hectare as does Japan. More- over, there is an abundance of swampy and estuarine areas suitable for shrimp culture. 153. The UNDP has approved a Government request for a major research facility and technical assistance to provide the basis for development of the industry. As research progresses, there may well be need for largee- scale investments in converting suitable areas into shrimp ponds, especial- ly if it involves reclamation of some tidal lands, and in processing and marketing facilities. Inland Fisheries 154. Freshwater fish provides most of the protein available to the poorer segments of the rural population. Permanent water areas total almost 600,000 hectares (over 3-1/2 million rai), including rivers and canals, lakes and swamps, ponds, large impoundments and irrigation tanks. In addition, there are large areas flooded in the wet season from which fish are harvested. The fresh water catch is estimated roughly at some 2,,0,000 tons, although the reported catch is appreciably below this figures. 5C5. During the past decade, fresh water-fish output declined ebout 100,000 tons, mainly because water ways are over fished by increasing numbers of fishermen, limitation of which would be difficult to enforce. Further, cycles of fish reproduction, growth and harvest are disrupted by blockage of upstream spawning grounds, water pollution and changing patterns of water distribution and use. Thus, the prospects are not promising for an increase in fresh water fish catch. Although efforts should continue to stimulate pond culture, raceway culture and floating cage culture, it appears that the main reliance for meeting domestic requirements for fish should be on expanded output of marine fisheries. 156. It is highly unlikely that the planning, research and develop- ment of brackish water culture will proceed rapidly enough in the third Amex 1 Page 42 plan period to contribute much to the production and export targets pro- jected for shrimp. Nevertheless, the export target of 14,000 tons (8Z of projected output) could well be reached by upgrading quality of the pre- sent catch by better handling at sea, and by some increases in catch from new grounds. Marine fish catch will likely equal or exceed plan targets, which are quite modest, although modernization of the distant water fleet is more a factor for the years beyond the plan period than in the years immediately ahead. X. DEVELOPMENT OF THE FOREST RESOURCES 157. Thailand has extensive and valuable national forest resources which can make a much larger contribution to the balance of payments and national development than has been the case. Although forests cover about half of the total land area, forestry accounts for only 8-1/2% of Gross Domestic Product from agriculture. The annual growth rate of GDP from forestry has slowed down from 5.8% in 1960-65 to 4.5% in 1965-70. The Third Plan expects a further slackening to 3.4% during the next 5-year period. 158. Valuable teak stands in the North are being overcut and ineffi- ciently handled and used. Teak output doubled from 1960 to 1970 but exports, which have a strong foreign demand, dropped over 70% partly as result of field practices which impair the quality of timber, export taxes which, while substantially reduced recently, still act as a disincentive to export promotion, and Government policies which on the whole encourage domestic use. At the other extreme, there are many species, particularly in the rich southern forests, for which both local and export markets exist but which are virtually unexploited. 159. Thus, Thailand which enjoyed a net trade surplus in wood and wood products of about US$10 million in 1960 has come to a net import deficit of about US$27 million. This reflects both a decline in exports of round and sawn timber and also a rapid increase in imports of pulp, paper and paper products, which rose almost three-fold between 1960 and 1969. The existing coniferous resources are quite inadequate to support a pulp and paper industry that can meet the growing needs of the nation. 160. Large scale encroachment on forest lands associated with slash and burn settlement results in a waste of the forest resource. At the same time there is still need for additional land for cultivation. With large forest areas available, the Thai Government can meet that need without jeopardizing a viable forest base adequate for domestic timber requirements and export objectives. To rationalize settlement by excising areas best suited for cultivation is a matter of high priority. Meantime practices which improve productivity involving more efficient forest exploitation, log grading and conversion into wood products could more than offset reductions in forest area. Annex 1 Pa-ge 43 161. Two specific lines of action are suggested for long term develop- ment. It is unlikely that either will have significant effect during the Third Plan period but will be important factors in the years beyond. First, forest plantations of species suitable for pulp should be established and the possibilities of using local tropical hardwood species for producing pulp and paper should be investigated. Some nations are using mixtures of soft and hard woods to produce pulp. Second, although the rich forest resources of the Northern region should continue to receive prime attention, the economic feasibility of exploiting and processing the forest resources of the Southern region should be investigated. In this region, the forests are similar in composition to the tropical evergreen Malaysian forests which are being exploited for export purposes. XI. INVESTMENT OPPORTUNITIES IN AGRICULTURE, 1972-76 162. This review has emphasized the great potential of the agricultural sector to perform more effectively in meeting national needs and improving incomes in the countryside. Some major constraints have been identified which at the same time provide opportunities that appear to be suitable for external financing. These are summarized below. Irrigation Facilities 163. UPper Chao Phya Basin. Over the longer run Thailand will need to develop its water resources to the full in order to make more intensive use of its lands, particularly during the dry season. For the immediate future, in view of market prospects, to improve the capabilities for dry season irrigation of upland crops would be a prime objective. Thus a program for developing on farm capabilities for upland crops should well continue in the upper Chao Phya basin. This needs to be selective to give priority to those areas most suitable for upland crops. At the same time emphasis must be given to the development of adequate supporting services to the cultivator. Taking the longer view, when the pattern of land use can be adjusted to reflect the comparative advantage of the Chao Phya basin to produce rice and when other regions have found other products more rewarding, the full ex- ploitation of the upper basin would be well justified. In the meantime for the Third Plan period, suitable areas for upland crops (which would include as well some rice lands for second cropping) should be identified and ex- ploited. Investment during the Plan period from external sources for the program indicated in para 51 might be on the order of 3 million US dollars. Nan River Basin 164. To develop the complex of irrigation facilities including diversion dams and distribution systems at Uttaradit and Pitsanuloke, would involve a large expenditure, probably US$130 million for the former and US$120 million for the later. Nevertheless, there are some fairly compelling reasons for initiating the project. There is the urgent need to bring water for wet season rice to the area which has been affected by the closure of the Sirikit Dam, especially in Pitsanuloke. Further, this Basin has a substantial potential for dry season irrigation of upland crops and the experience Annex 1 Page 44 gained in that regard in the next 5 years or so in the upper basin of the Chao Plhya would be largely transferrable. Thus, except for the disadvantaged wet season rice area, development need not be on a crash basis and the commitment during the Third Plan period can be adjusted to the fiscal possi- bilities. It is understood that the Government is considering initiation of the Pitsanuloke project as a first priority involving external financing of about US$26 million in the next 7 years. Agricultural Credit 165. Although institutional credit has expanded significantly in recent years there is still a serious shortfall in the amount of credit available to Thai farmers. More short-term credit will be needed to finance increased fertilizer use. But also important is the lack of intermediate and long- term credit which has been a particular obstacle to investments which build up the productive capacity of the farm such as land improvement and animal stock. There is also need for financing agro-related business activities such as up-country storage and drying facilities. Perhaps the most flexible way of serving the needs for intermediate and longer-term credit, would be to establish an Agricultural Development Fund at the Bank of Thailand which would provide discounting facilities for loans made by BAAC, IFCT, or commercial banks which are directly related to investment on the farm and in agricultural related industries. It is tentatively suggested that such a fund could usefully employ US$20-25 million. The possibility of such a fund and its terms of reference should be explored with Government. At the same time, the alternative of direct loans to BAAC and IFCT need not be ruled out if the Fund proves to be difficult to establish. Pedigree Seed Multiplication and Storage 166. Rapid expansion of the supply of quality seed is a key element in the strategy to increase production during the Third Plan period. It will not do much to make fertilizers available for the poor quality seeds which are generally available to Thai farmers. Moreover, drying and proper storage of seeds are required to prevent loss of viability due to temperatures and humidity prevailing in Thailand. A preinvestment study would be required to evaluate the methods by which seeds could be multiplied, processed, tested, stored and distributed, the ways to encourage use of quality seeds by farmers, the institutional and organizational requirements for operating the seed program, and finally the costs involved. The capital costs of this project could be financed under the proposed Agricultural Development Fund. It is tentatively estimated that facilities and equipment for storage, processing and regional seed testing laboratories might require about US$5 million. The possibility of combining the storage and processing aspects of the seed program with the grain storage program below should also be explored. Storage and Processing Facilities 167. Present facilities are clearly inadequate to handle the large increase in production in view over the next 5 years in grains, pulses and cassava. Even now there is urgent need for up-country drying and storage facilities for these products, with the possible exception of paddy. Annex 1 Quality of maize and. cassava particularly is reduced by moisture conditions. Moreover, as areas of production expand, especially as they move into the Northeast, such facilities will need to be established. If storage and drying facilities are established, and crop loans made available to farmers their incomes would be substantially improved. There is need for a preinvestment study to determine the present situation and the future requirements for facilities and where they shoiuld be located. It is understood that the Canadian International Development Agency (CIDA) has proposed such a study for the grains and Government has accepted. A tentative estimate of in- vestment would be about US$10 million. Again, this might be financed under the Agricultural Development Fund. Beef Cattle Development 168. Beef production in Thailand is not keeping pace with domestic requirements and potential exports. Thai beef is now produced at low cost under fairly primitive conditions. Demand is largely for low price fresh beef. Upgrading of the small native cattle with improved Brahman bulls offers the most rapid means of increasing beef production without materially increasing production costs. Improvements in nutrition and management are also necessary. A preinvestment study should assess the potential market for additional beef, the technical constraints on large scale use of improved Brahman and Brahman crossbred bulls for upgrading native cows and on development of improved grazing and forage resources; and if technically and economically feasible, prepare a program. Importa- tion of cattle would require investment of about US$5 million. Small Farm Sericulture 169. Demand for Thai silk is strong but domestic production of raw silk is declining and imports rising. Productivity is low due to primitive cultural methods and use of low yielding mulberries and silkworms. Village band-reeling results in inferior quality of raw silk. Improved mulberries and hybrid silkworms can icnrease productivity five to six fold. First grade machine reeled silk can be produced in Thailand. This development could substantially increase incomes of subsistence farmers in the Northeast as well as provide foreign exchange earnings. Producers will need to be concentrated in selected areas and organized in silk marketing organizations in order to justify purchase of mechanical equipment and operation of central reeling centers. A preinvestment study should determine market potential, identify possible areas for development, evaluate returns from alternative production methods, and prepare the details of an investment project whiclh would also consider financial requirements, technical assistance and institutional arrangements that might be required. It is tentatively estimated that credit for capital investment by small farmers and silk marketing cooperatives would require up to US$3 million. It could be financed under the proposed Agricultural Development Fund. Integrated larger scale operations, which are also labor intensive, could also be financed under the Fund. Forestry Pulp and Paper 170. The establishment of pine plantations for pulp production in the Northeast seems to offer posEiibilities for a project that might meet the Annex 1 Page 46 requirements for external financing. There is at present a growing import deflicit for paper and paper products which will increase substantially in the next decade. The existing natural resources which are suitable for the production of pulp and paper are inadequate to meet even a small proportion of the present demand. There are relics of natural pine forests in the southeastern corner of the Northeast, and pine plantation trials have established that pine suitable for pulp may be grown there. The rotation is expected to be about 10-15 years. A tentative site for the plantation and ultimately for the mill is in Sisaket Province. 1/ The area is considered suitable for other reasons. There is sufficient fast flowing water on the Mum River, a tributary of the Mekong; hydro- electric power would be available; low cost labor is available; communica- tions are good, and there is easy access to the railroad which connects the area with Bangkok and other important centers of paper consumption. The area has been described as one of "high potential for long-fibred species, although the actual establishment of the plantations is dependent on the future establishment of a pulp mill". 2/ It is estimated that about 75,000 ha3of land would be required in order to produce about 700,000 solid m of wood annually. This would yield about 50,000 tons of newsprint and about 100,000 tons of bleached pulp per year. A preinvest- ment study should assess the future demand for pulp and paper in Thailand, evaluate the growth performance of existing plantations of various pines, assess the costs of establishing plantations and select a suitable site. It is roughly estimated that the cost of establishing plantations of Pinus merkusii in this area would be approximately US$250/ha spread over seven years involving a total of about US$10 million from external sources. The capital requirements for the newsprint and bleached pulp plants are estimated at about US$50 million. Exploitation and Processing in the South 2 171. Close to 39,000 km , or over 55% of the total land area of the southern region of Thailand, are covered by forests. It has been estimated that the total volume of standing timber in this region is 194 million3m3, and that the annual increment of these forests is close to 5 million m . The forests are similar in composition to the tropical evergreen Malaysian forests, and contain species for which there is already an export market. Yet the current forest removals from this area are insignificant. A preinvestment study of exploiting the Southern forests should include an assessment of demand, both internal and external, for the species available, the inventory and rate'of removal of timber, the costs of harvesting and transporting, including the need for additional or improved roads and port infrastructure, and the technical and economic feasibility of estab- lishing an integrated wood conversion complex. It is roughly estimated that to construct logging and timber transportation roads, provide equip- ment for forest operations and to establish a sawmill-plywood timber conversion complex would require perhaps US$15 million of outside financial assistance. 1/ An FAO/UNDP project has established a forest plantation station at Huay Tha, on the left side of the motor road from Sisaket Town to Amphoe Kantharalak, approximately 24 km south of Sisaket and 1 km south of the Huay.Tha stream. 2/ FAO (1968) - Paper and Pulp Survey - Thailand, Rome. Anriex 1 Page 4z7 Fisheries 172. There are two major possibilities for investment in fisheries, but in each case prior conditions exist which must be met before such programs could go forward. Thus, there is little prospect for large scale investment in the next sseral years. Modernizing the Fishinp Fleet 173. There is possibil:Lty for a major investment in fishing vessels and support facilities to modernize the fishing fleet. The precondition is that such programs would not appear to be feasible in the absence of some form of limitation on total fishing effort, and possibly a limitation on areas of fishing. In conjunction with a program to modernize the fishing fleet, a program is also needed to assist the many subsistence fishermen by strengthening rural fishing associations to provide access to markets, credit, and extension services. Small cold storage facilities (50 tons +) at various points along the coast could be used to provide a market for the catch of the small fishermen. The type of development that might be contemplated would require market research, planning, and technical assistance. Shrimp Culture 174. Development of a brackish waters culture industry could offer an excellent means of increasing output of shrimp and diversifying fishery incomes. This potential might evolve from the research to be undertaken with the assistance of the INDP research Center. But it will be some years before substantive results are forthcoming. Government assistance would be required not only for land preparation but also for the creation of a network of rural shrimp growers associations for which extension services, shrimp fry (baby shrimp), and marketing assistance will be required. The Thai Government estimates that about 100,000 ha of lands is available, some of which might be developed for shrimp and oyster culture. The cost of land survey, site selection, and land preparation alone will be very substantial. To cornvert the average type of swampy and estuarine land into fish and shrimp ponds would cost about US$200-400 per hectare and to reclaim tidal lands perhaps US$800-1,000 per hectare. January 5, 1972. Table L: AREA, YIELD AND PRODJUCTION OF MAJOR CROPS, 1960, 1965-70 1960 1965 1966 1967 1968 1969 1970 Area Planted ('000 rai) Paddy 37,008 4OJ4491 46,o64 40,064 44,662 47,732 n.a. Rubber 2/ 3,009 3,324 4,570 4,608 5,019 5,286 n.a. Maize 1,785 3,605 4,083 4,650 4,763 n.a. n.a. Sorghum n.a. 196 359 415 200 n.a. n.a. Kenaf 877 2,401 3,314 2,177 1,587 n.a. n.a. Cassava 447 637 814 880 1,067 n.a. n.a. Sugar Cane 986 883 778 935 1,137 n.a. n.a. Tobacco 367 447 537 390 455 n.a. n.a. Coconut 1,029 1,550 1,545 1,700 1,792 1,884 n.a. Cotton 307 471 523 702 955 660 n.a. Groundnuts 736 621 982 673 739 n.a. n.a. Soybeans 139 117 285 399 329 n.a. n.a. Mungbeans 327 753 840 830 1,249 n.a. n.a. Total iW,057 55,496 64,656 58,423 63,954 n.a. n.a. Yields (Kg/rai)-/ Paddy 222 X9 276 274 275 295 n.a. Rubber 72 76 66 55 60 63 n.a. Maize 306 291 304 290 308 n.a. n.a. Sorghum n.a. 405 323 369 310 n.a. n.a. Kenaf 208 227 213 197 204 n.a. n.a. Cassava (roots) 2,734 2,316 2,321, 2,343 2,447 n.a. n.a. Sugar Cane 5,500 5,100 5,000 5,100 5,200 n.a. n.a. Tobacco 336 277 265 331 n.a. n.a. n.a. Coconut (fruits per tree) 50 45 41 39 39 38 n.a. Cotton 133 132 179 135 152 177 n.a. Groundnuts (unshelled) 110 219 230 202 221 n-a. n.a. Soybeans 190 166 137 145 156 n.a. n.a. Mungbeans 187 169 161 152 158 n.a. n.a. Production ('000 m tons) Paddy 7,834 9,218 11,975 9,595 10,771 13,000 13,270 Rubber 171 217 218 219 258 274 276 Maize 544 1,021 1,122 1,212 1,331 1,700 2,000 Sorghumd/ n.a. 68 57 73 68 n.a. n.a. Kenaf (washed) 181.3 529 661 421 317 350 310 Cassava (roots) 1,222 1,475 1,892 2,062 2,611 2,700 3,000 Sugar Cane 5,382 4,480 3,827 4,526 5,846 6,740 7,387 Tobacco 74 76 88 78 86 800 77 Coconut (1,000 fruits)!! 832 936 855 859 903 1,111 1,113 Cotton (with seeds) 46 60 89 81 123 92 63 Groundnuts (unshelled) 152 131 20 132 158 180 198 Soybeans 26 19 38 53 U5 61 70 Mungbeans 60 125 132 123 l84 202 222 a/ Includes tappable and non-tappable. b/ On an area harvested basis. cl On an area planted basis. d/ Includes six leading sorghum producinig ohangwata. e/ These figurea differ from those used by the National Income Accounts Div., NEDB. For national income statistics and the Third Plan the figures issued by the Ministry of Agriculture is multiplied by 0.h1' (from 1960.65) and 0.37 (since 1967) for comparability with Census data. Sources& 1. For 1960-68: Agricultural Statistics of Thailand, 1967 and Supplements, Division of Agricultural Economics. Ministry of Agriculture. 2. For 1969: Bank of Thailand, Monthly Bulletin, June 1971; Division of Agricultural Economics, Ministry of Agriculture. 3. For 1970 and data on sorghum: Department of Extension, Ministry of Agriculture. ,Annex 1 Table 2 : EXPCRT VALUES OF MAJCR AGRICULTURAL PRODUCTS, 1960, 1965-71 Jan. - May 1960 1965 1966 1967 1968 1969 1970 1y70 1971 - - - - - - - - - - - - - - - - (Million Baht) - - - - - - - - - - - - - - - - - Total Exports 8,422.3 12,940.8 14,099.3 14,166.2 13,679.0 14,722.1 14,772.8 6,379 7,243 Total Agricultural Exports 7,647.8 10,578.7 11,476.2 102664.5 10,179.5 10,619.3 10,359.0 n.a. n.a. Rice 2,596.1 4,334.4 4,001.1 4,653.1 3,774.8 2,944.7 2,514.7 1,358 1,019 Rubber 2,579.3 1,998.9 1,860.7 1,573.8 1,815.9 2,664.1 2,231.4 1,043 884 Maize 550.7 968.6 1,519.9 1,355.4 1,556.1 1,674.4 1,856.h 555 1,081 Tapioca Products 287.1 676.1 6h4.0 725.5 773.2 876.3 1,223.2 546 585 Kenaf 230.- 1,102.1 1,613.1 865.2 673.2 776.3 721.8 359 424 Shrimp n.a. / 109.14 190.5 259.2 277.9 270.4 223.5 111 92 Teak 356.1 200.8 242.9 193.7 169.0 166.2 155.7 58 71 Tobacco 24.1 88.7 114.9 147.2 198.5 149.5 202.1 78 116 Major Agricultural Exports 6,623.4 9,478.8 10,187.3 9,773.1 9,238.7 9,521.8 9,129.4 4,111 4,272 Other Agricultural Exports 1,024.4 1,099.9 1,288.9 891.4 940.8 1,097.5 1,229.6 n.a. n.a. a/ Includes jute exports. b/ Not available. Shrimp is included in Other Agricultural Exports for 1960. Sources: 1. For 1960 - Agricultural Statistics of Tnailand 1967, Division of Agricultural Economics, Ministry of Agriculture, .angkCok. 2. Department of Customs. Annex 1 Table 3 : AGRICULTURAL PRODUCTION AND GROWrH RATES Agricultural Production Average Percentage Change lff 1 1969 Plan Goal
Groupe de la Banque mondiale · Pre-2003 Economic or Sector Report
Thailand - Current economic position and prospects (Vol. 3 of 6) : Annexes 1-4 : The agricultural sector, export projections, the mining sector, and industrial estates
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