Don't “sell the family rice paddy,” try contract farming

Thai people are strongly patriotic. Thus, selling the family rice paddy to foreigners is almost unthinkable and would inevitably trigger much social controversy. Former Prime Minister Thaksin’s rumoured invitation to Middle Eastern leaders to view Thailand’s rice industry therefore became the talk of the town, spawning bitter newspaper protests of national betrayal.

In my opinion, though many foreign investors have bought Thai properties or businesses, the possible foreign ownership of Thai rice paddy has generated an overcharged, illogical response. Deciding to sell Thai businesses to foreigners should depend on its possible effect on Thai people, most of whom are rice farmers. Thus, actions that maximize benefits for Thai farmers may be “in the national interest.”

To efficiently help Thai farmers, the price of unhusked rice must increase. One way is to increase the potential number of buyers for unhusked rice. More buyers ensure higher prices, and greater benefits to rice farmers. However, non-competitive rice purchasing by foreign investors lets unhusked rice prices remain low. The new rice paddy owners become rice buying monopolists, or monopsonists, and Thai farmers gain no long-term benefits. If foreigners purchase rice fields significantly, Thai farmers will lack sufficient land themselves, and national food supply will be threatened. So, though rice field transferal to foreign investors is not national betrayal per se, if long-term benefit to Thai farmers does not result, this situation could only be “harmful to Thailand.”

Through fair agreement terms, international investment could benefit Thailand, including Thai farmers. Instead of selling rice fields to foreign investors with little benefit to Thai farmers, I propose contract farming where Thai farmers work the soil and retain field ownership, but negotiate contracts with foreign investors, who guarantee fixed crop return rates. Government negotiation with interested foreign investors would benefit Thai farmers, ensuring rice price maximization at minimized risk to farmers.

Contract farming prevents monopolies, forcing competition onto foreign investors. Contracts allow farmer flexibility; farmers easily switching to buyers with the highest price. This system would be much more beneficial to farmers, long-term.

To counter benefits for just one “select” group of Thai contract farmers with government favour, a significant number of Thai contract farmers should have foreign contractors as new consumers, forcing millers and merchants into competitive rice purchase from farmers.

However, several issues require discussion; first, national food security. In time of crisis, such as war or natural disaster, rice crop devastation must guarantee the prior claim of Thai people on Thailand’s rice crop, over foreign contract partners. Excessive contract farming may lead to local rice shortages. Thus, the government must cap the amount of contract farming allowed, and Thailand can maintain a secure food supply.

Other groups in the country would also be affected by contract farming. If Thai farmers become more economically prosperous, some other groups may suffer, especially local rice millers in contract farming areas. Another group “cut out” of the business cycle is rice industry middlemen. Finally, consumers must pay higher rice prices. Thus, contract farming’s limitations must balance farmers’ needs with the needs of these interest groups.

Dr Kriengsak Chareonwongsak
Senior Fellow, Harvard Kennedy School , Harvard University
kriengsak@kriengsak.com, kriengsak.com, drdancando.com