Regions and Countries

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p. 12 of 23 BACK | NEXT I. Country Performance Assessment II. Country Operational Strategy III. Sector Strategies A. Agriculture B. Infrastructure C. Social Infrastructure and Environment D. Governance Dimensions of ADB Operations E. Gender Dimensions of ADB Operations F. Private Sector Operations IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Thailand : III. Sector Strategies

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A. Agriculture

1. Agriculture and Natural Resource Management

39. Recent Developments. Thailand’s share of agriculture in GDP has declined from more than 30 percent in the 1970s to about 9 percent today. This long-term decline reflects in part the slow growth of demand for farm products compared to the faster growth in demand for manufactured goods and services due to rising incomes. It also reflects supply side factors, especially capital accumulation, which resulted in resources moving out of labor intensive agricultural industries and into more capital- and skill-intensive manufacturing and services industries. In addition, Thai economic policy has contributed to the long-term decline in agriculture. Although expenditures by Government are high by regional standards, public investment in agricultural research and investment has been modest. Private capital investment in agriculture, especially in crop production, is also rather limited. In addition, trade policies have encouraged the development of capital intensive manufacturing, giving that sector an edge when competing for domestic resources. As a result, yield improvements in Thai agriculture are among the lowest in the region. While agricultural production did not grow as rapidly as output in other sectors during the economic boom, neither did it contract as in other sectors during the economic crisis. In 1998, manufacturing production fell by 7.5 percent, construction by 22 percent, and services by 7.1 percent; agricultural production, by contrast, increased by 2.5 percent. The policy debate on agriculture sector development has increased sharply since the emergence of the economic crisis. The sector not only absorbed large numbers of the urban unemployed, but also became an important source of increased foreign exchange earnings without the need for large capital inputs.

40. An estimated 60 percent of Thailand’s population of 62 million people live in rural areas, and 90 percent of this number are farmers. Nonetheless, rural households derive only 35 percent of income from farming; the balance is attributable to non-farm activities and remittances from relatives who work in urban areas and overseas. An estimated 17 percent of rural inhabitants live below the poverty line. The agriculture sector contributed about 10 percent of total GDP in 1999, decreasing from about 20 percent in the mid-1980s. The agriculture sector cushioned the social impact of the economic crisis by allowing re-migration from urban areas for an estimated 1.2 million people. Land and natural resources, already stressed before the crisis, have given way to increased environmental pressures (e.g., accelerated deforestation, soil degradation, and desertification). Improving productivity, enhancing export competitiveness, and improving sector management are the three key challenges facing the agriculture sector.

41. Government Strategy. The Government’s development strategy in the agriculture sector centers on generating employment for rural households, especially those that lack income stability. The Government intends to induce employment generation through investments in natural resource conservation, special agroeconomic zones, and nonfarm rural activities. To this end, communities will be at the core of development, and the Government aims to focus on developing the Tambon Administrative Organizations to take on primary responsibility for agricultural development at the rural level. The Government’s agriculture sector objectives are currently embodied in a framework for restructuring the agriculture sector approved by the Cabinet in May 1998. The twin objectives of sustaining agricultural growth and enhancing export competitiveness are underpinned by the policy measures under the Agriculture Sector Reform Program.

42. The Ministry of Agriculture and Cooperatives (MOAC) plans to focus on three strategic areas:

• community-based rural development;
• rehabilitation of rural areas and poverty reduction; and
• river basin environment and natural resources management. Reorientation of farmers’ way-of-thinking through capacity-building extension services (one-stop service centers), resource mobilization for villagers’ activities (own funds, financial institutions, cooperatives, etc.), establishment of multi-direction information networks between farmers, public and private sectors, and product quality control at local levels are among the rural development activities envisaged for support by the MOAC.

43. ADB Support. An Agriculture Sector Program Loan (ASPL) ($300 million, plus $300 million in “Miyazawa Initiative” cofinancing from the Japan Bank for International Cooperation) was approved in September 1999. The Program is promoting sustainable agricultural development in Thailand through a broad-based reform agenda. It is also strengthening the sector's export competitiveness. The Program aims at removing constraints to the expansion of agricultural production, and to the improvement of sector management. In particular, the Program covers a wide range of sector-specific issues to:

• promote sustainable water resources management;
• improve land utilization and management;
• provide effective rural financial services;
• strengthen agricultural research through emphasis on traditional knowledge and adaptive technologies;
• improve extension services through restructuring the existing extension system, developing information networks, and implementing a farmer education plan;
• reduce the intervention of the Government in procurement of agricultural inputs; and
• restructure the MOAC to carryout client-oriented programs based on efficient management systems. Consultants have been fielded under the ASPL to: (a) improve the Office of the National Water Resources Committee and the Royal Irrigation Department, and (b) restructure the MOAC. The Program will benefit a majority of the rural population, including the poor who will have improved access to microfinance, higher farm incomes through improved technology, more appropriate inputs, and higher foreign exchange earnings through strengthened export competitiveness. The Program will also help reduce rural poverty through various measures that will assist the poor and vulnerable groups including stepped-up measures to issue land certificates, improved irrigation services, increased investment on small irrigation schemes, and strengthened community-based organizations for participatory sector planning. Beneficiaries of these measures are mostly the rural poor, who constitute significant numbers of the rural population.

44. ADB will also provide support in 2001 to MOAC for advisory technical assistance on Agriculture Strategy and Policy Development. This TA is aimed at formulating future policy options and sector strategies further to those addressed under the ASPL. A policy advisor should be engaged in early-2001 to assist the Office of the Permanent Secretary in these tasks.

45. ADB is also planning to expand its support for the agriculture reform process through several new initiatives. The River Basin Development Project ($100 million) in 2002 is expected to cover the Ping, Mun, and Klong Thatapao river basins, in the North, Northeast, and South, respectively. Subprojects or components of the loan would address priority water resources investment requirements in these river basins that were defined through a process of participatory river basin assessment and planning involving the river basin committees established in 1999 and 2000. The priority investments could include:

• water resources development for irrigation, flood control, and other water uses;
• upper watershed management and protection;
• water quality control;
• environmental protection, including biodiversity conservation;
• capacity building in public, private, and community institutions;
• public education and awareness for sustainable water resources management; and
• monitoring, evaluation, and research. The sector loan modality will be considered. The project will include a focus on poverty reduction, through selection of poorer sub-basins and type of subprojects, including small-scale irrigation schemes and watershed management.

46. In addition to the above loan, ADB will provide several TAs in the area of microfinance. Thailand has a relatively small number of microfinance institutions (MFIs). State-owned banks, particularly the Bank for Agriculture and Agriculture Cooperatives, provide most small-scale financial services. The objectives of Establishing Legislation for Operation of Microfinance Institutions (ADTA in 2001) will be to expand the microfinance institution business for increased access among the poor to microfinance services and promote competition in the provision of financial services. This will be realized through establishing the legal and regulatory framework for MFIs, including grassroots-level credit and savings institutions. The current banking law would need to be amended to allow MFIs to operate savings and credit services. It is expected that the activities of NGOs and community-based organizations, which have been providing financial services under weak regulation, will be given legal basis and encouraged to expand. Regulation and Supervision of Microfinance Institutions at Bank of Thailand (ADTA in 2002) will strengthen the capacity of the BOT to regulate and supervise MFIs in accordance with the established legal framework. The TA will assist in creating a unit for supervision and inspection of MFIs and in preparing guidelines, financial indicators and their norms for operating the unit. This will contribute to improvement of accounting and prudential standards of MFIs in line with international practice. Linking Micro- and Small-Enterprises to Commercial Finance (ADTA in 2002) will analyze the constraints to access to formal financial services among micro- and small-enterprises, and propose measures to remove such constraints. This would promote competition in the provision of financial services and thereby reduce spread and enhance efficiency.

47. ADB projects will make extensive use of information and communication technologies (ICT), possibly to link peer groups of farmers, scientists, international agencies, and NGOs. The network will use a combined global-and- local approach towards development issues, collaborating to document, disseminate, and integrate indigenous and external knowledge on agricultural and cooperative management. As in other sectors, the single, most important key to success for these ICT efforts will be to use or create local expertise, which should be given utmost priority.

48. Policy Dialogue. The major policy reform areas covered under the ASPL where dialogue with the ADB are necessary include:

• the establishment of appropriate institutional and legal framework for sustainable water resources management;
• proper demarcation of protected areas and other lands based on proper land use planning;
• review and rationalization of various public intervention schemes, particularly those involving Government procurement and distribution of farm inputs; and
• restructuring and improvement of MOAC and other agricultural institutions.

49. Extensive consultation and dialogue will be required to decrease subsidies on irrigation water and other agricultural inputs, as some farmer groups and NGOs are resisting the implementation of this policy reform. Identification and design of projects under the ASP should also be carried out in a transparent manner.

50. While priority is currently given to complete the policy measures under ASP, follow-on policy reforms to further strengthen the agriculture sector need to be identified. The implications of World Trade Organization (WTO) membership, further improvement in delivery of rural financial services, reduction of nonperforming agricultural loans, substantiation of decentralized administration system, and community empowerment are considered to be some of future challenges.

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