Farming and foreigners

TWITTER
FACEBOOK

Bangkok Post | 31 August 2009

Writer: CHOOKIAT OPHASWONGSE and DHEERASAK SUWANNAYOS

The issue of land ownership by foreigners has always been highly emotional in Thailand and other developing countries. The debate has intensified in the last year, with increasing allegations that foreigners are buying up prime land through Thai nominees.

World staple crop prices spiked last year after rising oil prices prompted the diversion of some crops for energy use instead of food. Countries that rely heavily on food imports started looking abroad. Anecdotal reports abound in Thailand, though documentation is scarce, of Middle Eastern interests engaging local brokers to secure large tracts of Thai farmland.

Indeed, Gulf countries are chasing investments in farmland and agricultural businesses in many developing countries to secure food supplies. Sudan has seen a fifth of its cultivated land set aside for Arab governments. The United Arab Emirates and Egypt have secured 400,000 hectares each in Sudan to plant wheat, while South Korea has 690,000 hectares, also for wheat. Saudi Arabia is said to be investing about US$100 million in Ethiopia on leased land to grow wheat, barley and rice. The UAE, meanwhile, has invested in farmland in Kazakhstan with an intention to purchase more land in Africa, Vietnam, Cambodia and South America for food crops.

The Bangkok Post recently asked two prominent figures to discuss the pros and cons of foreign land ownership. We asked each to respond to the following seven questions:

  1. Do you agree with existing laws prohibiting foreigners from engaging in domestic farming activities? Why or why not?
  2. Thailand produces more agricultural crops than are needed for domestic consumption. Given the agricultural sector's existing dependence on export markets, why shouldn't we consider liberalising land ownership and foreign business laws to permit direct foreign investment in the sector?
  3. Over several decades, Thailand has progressively liberalised various industrial and service sectors to allow foreign participation. Is agriculture inherently different than any other sector?
  4. Proponents of deregulation argue that allowing farmers to sell their property to foreign investors would help address the long-standing problems of rural poverty. Do you agree or disagree?
  5. Despite current land ownership restrictions, it is widely known that nominee structures are used by Japanese, Taiwanese and other Asian investors to participate in the local agricultural sector. Considering the country's difficulties in enforcing current law, would it not simply be more practical to rethink our policies?
  6. Successive governments have urged Thai businesses themselves to invest overseas, particularly in neighbouring countries. Several leading Thai firms have done so, including ventures in the agricultural sector. Is it not hypocritical that Thai companies are seeking to invest abroad while we still restrict foreign investment in the country?
  7. If foreign investment in agriculture were allowed, should there be safeguards covering the size of land holdings, the scope of activities or the exporting of output?

'TOO BIG A RISK'

CHOOKIAT OPHASWONGSE

President, Thai Rice Exporters Association

1. I strongly agree with existing laws, but they should be upgraded and improved to increase effectiveness and transparency. Public relations activities by state agencies to promote understanding should also be stepped up to create a consensus that agricultural products are not only related to Thai people but also to Thai culture, and that foreigners should not be allowed to grab them. As Thailand is currently strong enough in agricultural production, we see no necessity for our country to allow foreigners to invest, compete and take the traditional livelihood of Thai farmers.

2. Although Thailand is well-positioned to produce agricultural output in excess of domestic consumption, agriculture is a very large sector and related to a large population. More importantly, agriculture is the genesis of Thailand's economy and the base of other manufacturing sectors. And as the agriculture sector is directly connected to the use of land, the overall farm sector would be directly affected if foreigners were allowed freely to control and make use of land without proper controls and land-use restrictions. We could not rest assured that those investors really want to build up the country's prosperity rather than just come and take short-term profit, leaving local people to deal with the problems they have created.

3. Similar to the answer above. The agriculture sector is associated with the majority of Thai people, most of them still poor and short of opportunities to find other jobs. So it would be tantamount to letting foreigners snatch their jobs if they were allowed to invest in this sector. Most importantly, this would probably result in a big change in the Thai social structure, which is now based on agriculture.

4. This perspective is very dangerous as an attempt to address poverty by selling poor people's traditional livelihood to capitalists with colossal capital, switching the poor into other jobs for which they lack skills and expertise, or changing their status from farmers, who are business owners, to employees hired by foreigners to make products only to order. This would weaken the farm sector and farmers in general, as Thai farmers would be responsible only for following orders, no longer knowing production planning and crop management.

If the government is sincere about addressing farmers' poverty, it must help them improve their knowledge and understanding of production planning and business management, and must provide correct and factual information. It should help reduce production costs through production factors, marketing and other techniques. But any assistance should not distort the market mechanism, which should be allowed to work fully, freely and most efficiently.

5. Responsible agencies have probably not realised the importance of this issue. They were not able to foresee the impact that could arise in the future. However, this is also due to weak legal enforcement and to existing laws failing to keep pace with change. The positive aspect is that reports about this issue have alerted the Thai public, and state agencies have been prompted to react, take action and launch investigations. Without social checks and continuous monitoring, this issue will probably be similar to several cases in the past that were left unresolved and unchecked. As this issue has social repercussions, it is imperative for the government to start revamping and improving laws to ensure stricter and more effective implementation and enforcement. A special unit should be set up or assigned to take direct responsibility.

6. As far as we have observed, the government's promotion of investment abroad stems largely from an intention to help neighbouring countries whose economic conditions are far poorer than ours to create jobs and to develop and upgrade their agricultural sectors. For contract farming, in particular, Thailand not only buys their output, but also honours sub-regional agreements on a government-to-government basis.

Nonetheless, Thailand is not alone in reaping the benefits. As a matter of fact, Thai farmers also feel the pinch, as several products made in neighbouring countries are almost identical to what our farmers could grow in the Kingdom. A flood of similar products from lower-cost neighbouring countries would cause a glut in the Thai market, as we have seen in the past.

Once we take into account why we have to bar foreign investment in agriculture, we will see a different situation, as highly capitalised foreign investors intend mainly to reap benefits unilaterally from Thailand without considering what Thailand and Thai farmers receive in the future.

7. Should the government really want to allow foreign investment in agricultural production, legal restructuring and a special unit are needed. Strict measures must also be developed regarding the size of investment, type and category of farming and proportion of shareholding. Accreditation and certification from related agencies and strict examination of sanitary standards and GMO (genetically modified organism) crops must be established.

More importantly, exports of crops must be limited and export prices must be controlled to prevent an impact on the overall market.

NO QUICK FIX FOR POVERTY

DHEERASAK SUWANNAYOS

President, Islamic Bank of Thailand

1. I agree with existing laws, as farming activities are a sensitive issue. The land is basically the key factor not only for production but also for residential purposes, a national asset and a strategic factor in which Thais as the country's owners must restrict only for Thais and bar from any foreign ownership.

2. From an economic perspective, allowing foreigners create the following adverse impacts.

  • Impact on competitiveness: Given relatively larger capital and higher technology, foreigners would have much more competitiveness in terms of productivity and crop quality than local farmers. Thai farmers' incomes are unlikely to benefit from increased shipments by foreigners if they were allowed to invest in farming activities and the country's export figures rose.
  • Exploitation of resources: allowing foreigners in the sector would indirectly destroy or lead to free use of domestic natural resources such as water resources without any compensation or returns. This could put small-scale farmers in trouble and affect their welfare.

3. Several industries, such as automobiles and electronics, lack key production factors including capital and state-of-the-art technology, and local producers have inadequate capital and skilled human resources and expertise. In such cases, joint ventures with foreign investors who bring capital and sophisticated technology are necessary to develop such domestic industries.

However, Thailand's farm sector is not desperate for such factors. Land is the key and essential production factor. Opening land for foreign ownership would weaken the ability of local people to acquire land. Allowing foreign capital to freely flow into land would significantly raise demand for land, resulting eventually in a surge of prices. With less access to this key production factor, local farmers would fail to produce food, create jobs and generate continuous cycles of income in the economic system.

A loss of agricultural land would also affect the country's food security, as happened in Argentina where foreign investors grabbed large plots to grow crops mainly for exports, leading to a shortage of output for local consumption and high prices for local consumers.

4. Selling the land may not tackle the poverty problems. Thailand's poverty is rooted mainly is a lack of proper education (people cannot find rewarding jobs or develop their own businesses) and inability to get access to sources of funds. Selling land might earn farmers some capital, but it would be of no avail if farmers fail to invest their proceeds efficiently and generate sustainable income, a key factor that would release Thai farmers from the vicious circle of poverty. The new options programme to insure crops is likely to benefit farmers to certain extent, as the difference between market prices and the set benchmark or reference prices would accrue directly to farmers.

More importantly, the scheme enables the government to push up the income guarantee to farmers which would finally better their standard of living. This is much better than traditional crop pledging scheme, as the price differences went mostly to the middleman.

5. Over the past several years and governments, there were attempts to amend relevant regulations such as the Land Act, Foreign Business Act and Investment Promotion Act to restrict foreign ownership or trading in land. This issue needs serious caution, as it may affect sentiment and confidence of foreign investors.

In my view, there is a way for the government to cash in on opportunity from foreigners increasingly interested in Thailand's agriculture sector and products. For instance, as most of these investors intend primarily to procure farm output to feed people in their homelands, Thailand may sign a memorandum of understanding to sell agricultural products in relatively large amounts and prices offered specifically to that country. This would ensure steady production rather than letting foreigners handle the production themselves.

6. Thailand's investment in farming in neighbouring countries is a part of regional economic co-operation agreements and is based on mutual benefits.

In addition, Thailand's presence in foreign countries is mostly in the form of assistance. For instance, Charoen Pokphand Group's investment in aquaculture in Indonesia is mainly aimed at disseminating production technology, and was made at the invitation of the Indonesian government. In Laos, local authorities have also invited Thai investors to grow rice given the ample arable areas that were unused. But in Thailand, we have to restrict foreigners, as our arable lands are still inadequate (for our own farmers).

7. The government should determine clearly the scope, amount and period of land ownership of foreigners. Laws relating to investment promotion also need to state clearly conditions on rights granted to investors and ensure compliance with the goals of investment promotion. Moreover, government policy should better focus on promoting joint ventures in this area.

Authorities may consider amending the laws to offer leasing periods long enough to attract foreign investors. A land leasing contract would generate steady income, but the land rights ownership still belongs to Thais. Allowing foreigners to control land ownership rights would result in a loss of proprietary rights for good.
Original source: Bangkok Post
TWITTER
FACEBOOK
TWITTER
FACEBOOK

Post a comment

Name

Email address (optional - if you want a reply)

Comment