Commodity woes pose threat to Thailand's recovery<\/p>\n
By Anchalee Koetsawang<\/p>\n
BANGKOK (Reuters): Thailand's economic recovery may be
\nthwarted by falling world prices for its key commodities and a
\nrapidly firming baht which could undercut exports and generate
\nless revenue for farmers, analysts said on Thursday.<\/p>\n
Although commodities exports account for only 10-12 percent of
\nThailand's country's gross domestic product (GDP), the farm
\nsector's importance has become pronounced during the crisis.<\/p>\n
The sector not only provides a safety net for the country at a
\ntime when the unemployment rate is soaring as economic turmoil
\ntriggers an avalanche of bankruptcies, the resilient sector might
\nalso be able to help stimulate domestic demand.<\/p>\n
Farmers' incomes in 1998 have been boosted by the weaker baht
\nand an extraordinary increase in rice demand. Rice was one of the
\nfew commodities this year that enjoyed robust prices.<\/p>\n
Thailand is the world's top exporter of rice and a leading
\nexporter of sugar, rubber, tapioca and shrimps.<\/p>\n
But analysts said the farm sector was unlikely to see two
\ngolden years in a row. Farmers are likely to be hit by a double
\nwhammy next year as world rice demand drops and the baht firms.<\/p>\n
\"The problem is posing a serious social threat to the
\ngovernment. Although the farm sector accounts for only around 10
\npercent of GDP, it employs almost 50 percent of the workforce,\"
\nsaid Supavud Sacheau, an economist at Merrill Lynch.<\/p>\n
\"With the economy yet to fully recover and the world economy
\nexpected to grow at a slower pace next year, Thailand will still
\nneed a solid farm sector as a cushion,\" he said.<\/p>\n
Merrill Lynch forecasts that the world economy will grow by
\n1.2 percent in 1999 versus 1.7 percent seen this year.<\/p>\n
Growth in the Organization for Economic Cooperation and
\nDevelopment countries next year is projected at 1.1 percent from
\n1.9 percent forecast for 1998.<\/p>\n
Experts forecast that the world rice import demand next year
\ncould drop between 3.75-6.75 million tonnes from a record 26.75
\nmillion tonne seen this year.<\/p>\n
Drought caused by the El Nio phenomenon ravaged rice crops in
\nmany countries and sent rice imports soaring in 1997 and 1998.<\/p>\n
Resumption of normal weather patterns should cause world rice
\ntrade to shrink and rice prices are expected to fall in line with
\nsofter demand. Traders predicted that rice prices could drop by
\nat least 10 percent from the 1998 level.<\/p>\n
Sugar, another key export from Thailand, is unlikely to see
\nany major reprieve early next year as Indonesia, the biggest
\nAsian sugar buyer this year, has front-loaded its imports and
\ntherefore might not need to commit to its usual buying program
\nfrom January and May, analysts said.<\/p>\n
The International Sugar Organization (ISO) says the world
\nsugar price turnaround might not take place until the 1999\/2000
\ncrop cycle.<\/p>\n
As for rubber, the International Natural Rubber Organization
\nforecasts that it saw no real or substantial improvement in
\nrubber prices until mid-1999 or later.<\/p>\n
Merrill Lynch's Supavud forecast that the first and second
\nquarter of next year would be a critical time for the Thai farm
\nsector and the government because of commodities problems,
\nespecially in the rice industry.<\/p>\n
\"The prices are expected to be lower than this year. The baht
\nis stronger and therefore will generate less income in baht
\nterms. The output itself is forecast to be low due to pest
\noutbreak and lack of water,\" he said.<\/p>\n
\"This means farmers will receive less income from selling less
\nrice at lower prices,\" he said.<\/p>\n
Vichai Sriprasert, president of the rice exporting firm
\nRiceland International, told Reuters rice mills and exporters
\nwere being hit by liquidity problems as commercial banks were
\nreluctant to lend.<\/p>\n
\"Mills have no money to buy rice from farmers because
\nexporters who lost money from rice trade delayed the payment.<\/p>\n
\"They were both to blame. Commercial banks were reluctant to
\nlend to them because they had misused the rice loans in the past
\nby investing in the loss-making property sector,\" he said.<\/p>\n
\"If mills have no money, farmers will be directly affected
\nbecause mills buy paddy from them,\" he said.<\/p>\n
Arporn Chewakengkrai, an economic advisor to Thai Prime
\nMinister Chuan Leekpai, told Reuters the government was mapping
\nout measures to help mitigate the impact of the lower commodity
\nprices and stronger baht.<\/p>\n
\"The government is working to ensure sufficient credits to the
\nfarm and agribusiness sectors. It has set a guaranteed price for
\npaddy and will look for ways to provide additional incomes for
\nfarmers,\" she said.<\/p>",
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