How drought weakens Thai economy
Thai farmers are expected to face a tough year in 2019 as the drought will be more acute than usual, lowering the water levels in reservoirs in the central and northeastern provinces.
Director General of Department of Agricultural Extension Samran Saraban said the drought this year is exacerbated by El-Nino weather event which causes temperature to rise 1-2 degrees Celsius than normal and cause the water levels in major reservoirs to drop to worrisome level.
As Thailand’s drought this year may persist to June, Prime Minister Prayut Chan-o-cha has called for farmers not to grow off-season rice as drought is spreading into northeastern and eastern regions.
The long dry season will lower certain farm outputs, pushing up their prices. However, an overall farm income is set to decline because the drought will leave other negative affects to farmers who are also the consumers as well. This will affect the purchasing power of farm households, which account for one-third of Thais.
E-Saan Poll organized by Center of Business and Economics of Isan, Faculty of Management Science, Khon Kaen University, last week released a consumer confidence index showing the economic sentiment in the northeastern provinces in the first quarter of this year. The index shows that the consumer index in the first quarter of 2019 continues to drop for the seven straight quarters. The prospect for the second quarter is not bright either.
The center said that the index in the second quarter in 2019 is likely to plunge slightly since most of survey respondents said they have to burden higher cost of farming due to bad weather this year. Most of families in the Northeast are farmers and low-income earners.
Economists estimated the damage from the drought on the economy this year could be high. Kasikorn Research Center estimated the drought could cost at least Bt15.3 billion.
Anusorn Tamajai, Dean of Economics Faculty, Rangsit University, estimated the drought to cost around Bt20 billion-Bt30 billion because it would affect the outputs of off-season rice, sugarcane and tapioca. He said, “it will dampen the purchasing power of farmers in the second quarter.”
Siam Commercial Bank’s Economic Intelligence chief Yanyong Thaicharoen said that the lackluster farm income can slash the growth rate of domestic consumption this year to 3.5 percent versus 4.6 percent growth last year, in addition to other factors, namely, high household debt and slower demand for durable goods.
Spending power from farmers is crucial to sustain the growth of the economy. However, the grassroots economy is bracing for negative outlook this year.
Department of Agricultural Extension has determined that a total of 16.08 million rais would be used for farming during the dry season this year. A total of 13.43 million rais nationwide are already used for farming. Of the total, 9.31 million rais are in the irrigation area including 8.74 million rais for rice farming. The other 4.12 million rais outside the irrigation are used for farming, including 2.64 million rais for rice and the other 1.48 million rais for other crops.
In addition to the drought, Kasikorn Research Center said the outbound trade of Thai commodities this year is also impacted by a slowdown in major importers’ economies especially China, which buys around 26.8 percent of Thai farm exports. China’s economic growth is decelerating with its GDP growth expected to expand at slower pace of 6.2 percent against 6.6 percent in 2018.
Chinese market influences the prices of Thai farm goods, especially rubber and tapioca, Kasikorn Research Center thus estimates that Thai farm goods are likely to decline by 0.2-0.6 percent over-year. The figures are calculated on prices of major farm exports.
Moreover, China will likely demand less agricultural products from Thailand because of its slowing economy and the fact that local producers are increasing their production to substitute the imports. Therefore, the prices of Thai farm goods are unlikely to rise in the future, the center estimates.