Agri-food exports: Why Thailand is a model of diversification

Nearly three decades ago (1985), I wrote an article in the Agribusiness Papers of the then Centre for Research and Communication (now University of Asia and the Pacific) entitled “Thailand: A Model of Agricultural Diversification.”

The article’s conclusion was that:  “The Thai agricultural experience offers interesting lessons for us.  In about two decades, the Thailand has managed to lessen its heavy dependence on rice and rubber exports by diversifying into at least ten  major commodities. Not putting all the eggs in one basket is one maxim which the Thais took to heart. The story continues, and so does the contrasts of achievements.”

In contrast, the Philippine diversification program continues to be a pie in the sky. In spite of good soils and climate, our progress in rubber, cacao, coffee, prawns, fruit trees, and spice development leaves much to be desired. I am not saying that we should remove coconut and sugar out of Philippine soil. That’s foolhardy. But lopsided dependence on very few export crops substantially raises the already many business risks— market, prices, weather, etc.

1980s 

Some 28 years have passed. It would be good to know what happened to the “race.” In 1983, Thailand’s total agriculture export of $6.5 billion was four times higher compared to the Philippines’ $1.6 billion. The top Thai exports (over $100 million a year) were rice, rubber, tapioca, maize, sugar, and shrimps. For the same period, the Philippines’ top agri exports were coconut oil, sugar, logs and lumber, canned pineapple, and bananas.

Today

Thailand ranks sixth among the world’s top agri-food exporters, according to the World Trade Organization (WTO). It is tied with Indonesia, and ahead of Malaysia at 9th and Vietnam at 15th. However, in terms of export diversification, Thailand leads over Indonesia and Malaysia. The latter two’s exports are heavily concentrated on palm oil and rubber.

Data from the United Nations show that Thai agri-food exports reached $43.3 billion in 2012, compared to only $4.9 billion for the Philippines. The former’s value rose 6.2-fold from the early 1980s; the latter’s 3.1-fold.  Using ratios: the Thai export was $1,670 per hectare of farmland in 2012; the Philippines, $400 per hectare.

The growth of Thai agri-food exports helped in expanding markets for farmers and, in turn, created jobs and incomes that reduced rural poverty. The total poverty for Thailand was 0.4 percent for the total population at the international poverty line of  $1.25 per capita per day as compared to 18.4 percent for the Philippines in 2009, according to the World Bank.

Benchmarking

Over the period 1983 to 2011, Thai exports grew about 11-fold versus three-fold for the Philippines.  Thai exports were driven by many products. Products  with over $100 million in exports a year that grew faster than average numbered 13: fresh fruits (except pineapples), pineapple concentrates, dried fruits,  prepared  fruits, food preparations, cassava starch,  natural rubber,  coffee extracts,  palm oil,  sugar,  chicken meat, shrimps, and  prepared mollusks.

The relevant export for the Philippines that grew at par with Thailand’s 11-fold was only one, prepared foods! The main exports expanded at a much slower pace: fresh bananas, 4.5 times; canned pineapples, 2.6 times; sugar, 1.2 times;  and coconut oil, 2.8 times.

In 2011, Thailand had 12 products with total exports of over $1 billion a year:  natural rubber, rice, sugar, preserved fish, prepared meat (chicken), compound rubber,    shrimps, prepared shrimps and octopus, frozen shrimps,  cassava chips, animal feeds and tapioca starch, in that order.

By contrast, the Philippines had only one: Coconut oil.  The other peer countries in Southeast Asia performed better than the Philippines:  Vietnam had six—coffee beans, rice, frozen fish, natural rubber,  shrimps, and cashew nut; Indonesia also had six—palm oil and fractions,  palm kernel oil, natural rubber, coffee, shrimps, and fish;  and Malaysia had four—palm oil and fractions, natural rubber, hydrogenated vegetable oil, and compound rubber.

Similar disparities exist for export products earning above $250 million a year: Indonesia had 10, Malaysia had 10, Thailand had 15, and Vietnam had nine.   The Philippines had a measly three.

Scorecard

Country

Number of agri exports over $ 1 billion a year

Number of agri exports over US$ 250 million a year

Philippines 1 3

Indonesia 6 10

Malaysia 4 10

Thailand 12 15

Vietnam 6 9

Source of basic data:  UN Trademap (c. 2011).

Implications

of underperformance

What are the strategic implications of the Philippines’ underperformance?

Here is food for thought for policy-makers, industry  leaders,  civil society, the academe and the media. It answers in part what Thailand did right that the Philippines got wrong.

First,  success is a result of directed policy where outcomes are jointly determined by the synergy of government actions and by the fruit of private sector initiatives.

Penetrating the global markets needs long commitment to make the value chains competitive from research to good farm practice to efficient logistics and marketing. There must be conscious investments by the private and public sectors. Thailand invested on extensive road network and has over 1,000 km of expressways compared to less than 300 km in the Philippines.   It funded research into  crops  and aquaculture,  and it is now reaping the benefits in fruits, rubber and aquaculture.

Second, building on the investment strategies of other countries.

Thailand expanded rubber and later, oil palm following the experience of Malaysia. It is a late comer in the sugar industry but it is now  one of the world’s most efficient.

Third,  value adding  creates a network of agri-based manufacturing industries which are job-creating.

Thailand is a leading canned tuna producer but it has a small tuna catching fleet. It buys fish from the Japanese and Taiwanese trawlers. Also, it does not produce temperate fruits and nuts, but it is emerging as a juice processing  center. Check out the Thai brands in supermarkets.

Fourth, stable policies supported by continuity in programs and competent bureaucracy characterized the Thai system.

Fifth, industry champions are critical to execute stakeholder-driven road maps.

There appears to be unity among the industry associations in Thailand, a far cry from the Philippine business environment.

A dynamic private sector made Thai’s success in agriculture possible. Applying the basic principle of subsidiarity, the Thai government provided the right business climate and concentrated on roads, irrigation, crop breeding and other support services. Moreover, adversarial relationships between the government and the private sector were avoided.

Risks

What vulnerabilities does Thailand’s approach pose for the future?  The risks are less compared to the overconcentration of exports in a few products such as in Indonesia, Malaysia and the Philippines. It is a good pathway for the Philippines to emulate.

What can the Philippines do to overcome its weaknesses, recognizing the recurrent theme of government inadequacies?  In the short to medium-term, the government (national and local) must be pro-active enablers of private investments and productivity-inducing programs. In the long-term, it is strategically important to ensure that the rationalization program follows the path of meritorious bureaucracy.

What strengths does the Philippines possess to serve as platforms for future growth?  First, it has heavily under-utilized resources in farm lands, brackish ponds and marine waters.  Low productivity has two faces:  One face is poor economic engine and the other, a large room for growth.  Second, there are untapped talents in the academe and the retiree cadres within the country and overseas.  Third, there are entrepreneurial talents that can be unleashed, provided the investment climate is conducive.

There is no compulsion to radically re-invent agriculture strategies.  The key is for decision makers to be humble and learn from the successes of other countries: What can be adapted, what can be improved, and what need to be discarded.  Thereafter, the choice strategies must be executed well.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP. The author is the Chair of the MAP Agribusiness and Countryside Development Committee and the Executive Director of the Center for Food and AgriBusiness of the University of Asia & the Pacific. Feedback at <[email protected]> and < [email protected]>.  For previous articles, please visit <map.org.ph>)