middle income trap and roles of agriculture in avoiding mit

Middle Income Trap And Roles of Agriculture in Avoiding MIT

The 3th SUT International Agricultural Colloquium 2015 at Suranaree University of Technology,

Nakorn Ratchasima Province, September 14, 2015

Somporn Isvilanonda Knowledge Network Institute of

Thailand

Outline

1. Thailand Economic Progress and Middle-income Trap

2. Situation of Thailand Agriculture: Past and Present

3. Problems Encountered Thailand Agricultural Growth

4. Renovating Thailand Agriculture in Avoiding From the MIT

The 3th SUT International Agricultural Colloquium 2015 at Suranaree University of Technology, Nakorn Ratchasima Province, September 14, 2015

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1. Thailand Economic Progress and Middle-income Trap

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3


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1.Thailand Economic Progress and Middle Income Trap

1.1 What Explained Past Growth in Thailand Economy?

Before 1960s, Thailand was considered to be one of low income countries.

Basic infrastructure and market improvements in the 1st to 3th development plans stimulated a significant growth in agriculture in the late 1960s and 1970s.

High industrial growth in a sub-sequent period as a result of industrial promotion, FDI, and a better access to infrastructure facilities has made Thailand moving into the middle income level since early 1980s.

Although economic crisis in 1997-99 was disrupted the economic but the situation was recovered in the early 2000s in couple with financial reform.

Raising average per capita income reflecting a well-being of the citizen.

Economic and social development plans

Year Baht/ head1/

beginning of 1st Plan 1962 2,199

End of the 1st Plan 1966 3,063

End of the 6th Plan 1991 45,084



In middle of the 11th Plan 2011 131,579

Source: NESDB various issues

Per capita in term of NNI dramatically changed in the past five decades which reflects well-being of the citizen.

Note:1/ in nominal term

1.2 Translation of Economic Progress

Better access to public goods and services.


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Reduction in poverty but remaining issue of income inequality.

Source: NESDB,2015

65.17

57.97

50.04

42.54

35.25 38.63

42.33

32.44 26.76

21.94 20.04 20.43

17.88 16.37 13.22 12.64 10.94

34.1 31.6 27.8 24.1 20.3 22.7 25.8 19.9 16.5 13.8 12.7 13.1 11.6 10.8 8.8 8.4 7.3

879 960

1,086 1,157 1,306

1,533 1,555 1,606 1,719

1,934 2,006

2,172 2,174 2,285

2,415 2,492

2,572

-

500

1,000

1,500

2,000

2,500

3,000

0

10

20

30

40

50

60

70

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2008 2009 2010 2011 2012 2013 Ratio of poors (%) No. of poors (Million person) Poverty line (Baht/person/month)

Headcount ratio indicating declining poverty from 1986-2010 in both urban and rural.

Source: Jitsuchon (2012).

Increasing employment opportunities in cities and reallocation of labor force from rural to urban helped to reducing no. and ration of the poors.

1.2 (Cont.) 1.Thailand Economic Progress and Middle Income Trap


In the past few decades, Thailand like other low income countries, had gaining competitive in international markets by producing labor–intensive, low cost products using technologies imported from aboard.

Productivity gains were largely achieved through labor reallocation from the low-productivity agr. sector to high productivity manufacturing sector. When they reach middle-income levels, the pool of underemployed rural workers drains and wages begin to rise thereby eroding the competitiveness.

1.3 Thailand Lost Its Competitiveness

It is no longer possible to boost productivity by shifting additional workers from agriculture to industry and the gains from importing foreign technology diminish significantly.

With escalating wages, it lose cost competitiveness and cannot compete in export markets.

1.4 Moving Status from Low to Middle Income Level

Mov

ing

from

low

-inc

ome

stat

us t

o m

iddl

e-in

com

e st

atus

and

mid

dle

inco

me

grow

th t

rap

Low-income status and dependent on traditional agricultural economy 8

As economies move from low-to middle-income status, they can compete internationally by moving from agricultural to labor intensive, low-cost manufactured products.

Using imported technologies, late-developing economies reap productivity gains as workers shift from the agricultural sector to the manufacturing sector.

Productivity growth from sectoral reallocation and technology catch-up are eventually exhausted, international competitiveness is eroded, output and growth slow and economies become trapped, unable to transcend to high-income status.


1.5 What Situation Demonstrated a Falling into Middle Income Trap (MIT)? A middle-income trap is a situation in which a country that is successful in lifting its economy from the a low-income country to a middle-income one but remains at that level without much prospect of becoming an advanced or rich country (World Bank 2011).


World Bank estimates that of 101 middle –income countries in 1960, only 13 became high income by 2008. In Asia, only Japan, Hong-kong, Singapore, Korea, and Taiwan have passed the test.

1.6 Whether Thailand Falling into MIT ?

GDP growth rates in selected periods

Pre-boom 1968-861/

Boom 1987-961/

Econ. Crisis 1997-991/

Recovery 2000-061/

Instability 2007-11/2

Total GDP 6.7 9.5 -2.5 5.0 2.62

Agriculture 4.5 2.6 0.1 2.7 2.06

Industry 8.5 12.8 -1.7 6.2 2.46

Services 6.8 9.0 -3.6 4.3 3.24 Source: 1/Warr, 2011; 2/NESDB, 2015

Thailand enjoyed its economic growth at the ave. real rate of 7% per annum during 1963-1993. But, a subsequent period was found a sharp decline to 4% or less.


Source: Jitsuchon (2012.

Medium term growth rate 1952-2011 by 11-year moving average.

1.7 Comparing GDP Growth Trends of Some Selected Countries

Source: World Bank 2012 as refered by Jitsuchon, 2012.

According to GDP/capita Growth of Some Selected Countries, Thailand is one in the MIT. Its GDP growth performance is slowly growth.

Thailand GDP/ capita =4,210 US$

Upper middle income GDP/ capita from US$ 3,976 to12,275. Between US$1,006-3,975 is ranked for middle income.


Source: Economist.com

1.8 Comparing Per Capita Incomes of Some Selected Countries



13


2.1 Past Dominant Role of Thailand Agricultural Economy

Nearly a century ago, agriculture was a predominant sector of the national economy. Economic activities were primarily involved in crop production both for food security and income source.

Despite Thai farming mainly produced for subsistence, the surplus was large enough for both domestic and export markets. An industry was small sector and little contributed to the economy.

The export income was mainly derived from agriculture. The top four major export items were rice, rubber, teak, and tin.


Large number of production resources, particularly land and labor, were accumulated in agriculture.

2.2 Development Plans Accelerating Resource Adjustment improving Agriculture and Raising Farm HH Income

Rice 72.55%

Tree Crops

11.76%

Upland Crop

15.69%

Forest area 186 million rai or 58.2% of the country land area; Crop area 51 million rai; Ratio of agr. GDP 34.91%; Ratio of agr. Labor to the country’s labor force 67%; Farm HH income in 1953 was about 3,905 Baht/HH. Source: Chhochart, 1960

Ratio of crop land in the 1th plan (1963-1966)

Rice 49.65

% Upland Cropร ่21.35

%

Tree Crops 21.32

%

Others 7.68%

Ratio of crop land in the 10th plan (2007-2011)

Forest area 107.2 million rai or33 % of the country area. Crop area 149 million rai. Ratio of Agr GDP 8.8% Ratio of agr. Labor to the country’s labor force 41.8%; Farm HH income in 20123 was about 110,700 Baht/HH. Source: OAE 2012


16

Items Rice Maize Rubber Sugarcane and sugar Cassava

Oil palm and palm

oil

Planted area(mil. rai) 79 7.4 19.28 8.1 8.8 4.3

Ratio of planted area(%) 53.02 5.0 12.94 5.09 5.90 2.88 Farm HH(million) 3.8 0.41 1.26 0.21 0.47 0.13 Production(mil.) 22.23 4.79 3.6 10.75 24.15 2.94

Ratio of domestic utilization(%) 54.2% 91.23 14% 24.58 26.17 94.07 Ratio in export market (%) 27.5% 0.34 34 11.18 89.37 1 Ranking in export market (1) - 1 (2) (1) (-)

2.3 Thailand Plays Essential Role in Export of The Food Surplus

Source: Calculated from OAE data Conversion ratio: 1 ton of sugarcane = 0.108 ton of raw sugar; 1 ton of oil palm= 0.26 ton of palm oil; 1 ton of paddy = 0.650 ton of white rice.

Thailand is a food surplus country with planted land area approximately 149 million rai (24 mil. ha).

3. Roles of Agriculture in Overcoming the MIT

Major important crops are rice, rubber, sugarcane, cassava, maize, oil palm.

Thailand is ranked one of the tenth in agricultural and food export to the world market.

Source: Dept. of Custom

The top ten agro-industry productsi export n 2013 and 14

Source: Ministry of Commerce

2.4 Main Export Commodities of Agriculture and Agro Industry

The top ten agricultural product sexport in 2013 and 14

6. สินค้าเกษตรของไทยในตลาดการค้าระหว่างประเทศ

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Items 2013 (mil.baht)

2014 (mil.baht)

1. Rubber 249,296.4 193,754.8

2. Rice 133,851.2 174,854.7

3.Cassava product 98,344.6 114,644.9

4. Processed chicken 60,470.1 61,315.2

5. Frozen shrimp 28,531.7 27,700.4 6.Fresh, frozen, and dried fruits 32,012.7 40,730.8

7. Fresh and frozen squid 10,291.6 11,383.6

8.Fresh and frozen fillet 8,711.7 10.311.8

9. Fresh and frozen chicken 6,744.4 12,650.0

10.Maiz 6,000.1 8,933.1

รายการสนิคา้ 2556 (mil. baht)

2557 (mil.baht)

1. Can seafood 146,052.9 138,547.1

2. Sugar 85,494.5 87,942.4

3.Can and processed fruit 49,247.1 55,672.0

4. Beverage 37,868.2 43,719.4

5. Annimal feed 35,179.9 39,962.4

6. Wheat products and instant food 35,795.5 42,669.6

7.Vegetable and animal oils 24,748.4 17,667.2

8.Food favor and additive 16,796.3 19,076.5

9. Can and processed veg. 10,192.7 11,619.1

10. Beef and processed beef 9,637.6 10,485.9

2.5 Recent Development in Thailand Economic Structure

Share of labor force by sectors in 2013: agriculture 38%; manufacturing 14%; and services 48%.

A result of economic progress under previous development plans has consequently transformed Thailand economy toward the more importance of industrial and service sectors.

However with the movement toward global and regional free trades, there are strong competition in production and trade in all sectors.


In recent years, The top five major export items are automobile and parts, data processing machines and parts, refined fuel, precious stones and jewelry, polymer products.

19

Value of GDP in 2012 = 12.91 trillion Baht Income Per capita 131,579 Baht.

Absolute value of GDP in agriculture (Baht).

Despite the GDP in Agriculture has been continuously increased but its share in the total GDP consistently declined.

10.0

37.1

52.9

8.5

36.8

54.7

10.5

40.0

49.4

11.3

37.0

51.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Agriculture Industrial Service

Unit: Percent

1990

2000

0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,000

1990

19

92

1994

19

96

1998

20

00

2002

20

04

2006

r20

08r

2010

r20

12r

Agriculture Million baht

Source: Calculated from NESDB data , 2013 Source: Calculated from NESDB data , 2013

Also agricultural growth remains sluggish in the past few decades. Average GDP growth in selected period

1968-861/ 1987-961/ 1997-991/ 2000-061/ 2007-11/2

Total GDP 6.7 9.5 -2.5 5.0 2.62

Agriculture 4.5 2.6 0.1 2.7 2.06

2.5 (Cont.) 2. Situation of Thailand Agriculture: Past and Present

A faded agricultural sector and declining growth were reflected in agricultural export income and income inequality.

Source:: Calculated from data set provided by Ministry of Commerce

unit: billion baht

2.5 (Cont.)

ปี 1992 2002 2014 1. Industry 572.25 2,399.58 5,647 2.Agriculture 169.77 305.42 719 % share of Agriculture 20.60 10.14 9.83 3. Agro-industry 82.12 218.94 547 4. (2+3) 251.90 523.36 1,266 % share of agr. and agro industry to total export

30.56 17.90 17.31

5. Total Export earnings 824.15 2,923.94 7,314 20


But agriculture still be a main occupation of rural HH.


21

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3.1 A Decline in Agricultural Productivity

Agricultural

Sector

Ave. the 6th Plan

(1987-91)

Ave. the 7th Plan

(1992-96)

Ave. The 8th Plan

(1997-01)

Ave. the 9th

Plan (2002-06)

Ave. The 10th

Plan (2007-11)

GDP Growth 4.55 2.98 2.04 2.90 1.64 Source of growth Labor 0.11 -0.27 -0.07 0.08 0.07 Land 0.06 0.05 0.06 0.14 0.05 Capital 3.01 6.57 3.34 3.19 3.55 TFP 1.36 -3.37 -1.29 -0.51 -2.18

Source: NESDB 22

Agricultural growth in the past was stemmed from increasing number use of production resources but lacked concern on quality and productivity enhancement.

Increasing number of Land, labor, and capital but not technology which is represented by TFP.


23

Government investment in R&D in Thailand is very low about 0.21% of GDP; Lower than Korea, Singapore, and Taiwan.

Low research investment consequently resulted slow progress in new technology and innovation development, losing competitive capacity, increasing cost, and reducing market share.

Gove. Research Budget in Agriculture about 1,318 million baht (average during 2007-2010).

Source: Statistical year book for Asia and pacific 2009, United Nation

3.2 Threat from Previous Low Investment in Technology and Innovation Development Small-scale farmer shares a large ratio of Thailand agriculture. Lack of fund and skills prevented them to access to technology and innovation.


Source: Bank of Thailand as Refered by Pasuk Phongpaichit & Pornthep Benyaapikul (2012)

3.3 A Sluggish Labor Productivity Improvement

Thus its impact on smaller return to labor


0

1000000

2000000

3000000

4000000

5000000

6000000

2533

2534

2535

2536

2537

2538

2539

2540

2541

2542

2543

2544

2545

2546

2547

2548

2549

2550

2551

2552

Head

No. of farm laborers who work more than 20 hr/week by age อาย ุ15-24 ปี รวม อาย ุ25-34 ปี รวม อาย ุ35-44 ปี รวม อาย ุ45-54 ปี รวม

25

3.4 Encounter Farm Labor Shortage and Aging Farmers

Source: Puapongsakorn

Continuously declining agricultural labor force and demonstrating an increasing trend of aging farmers.


19.8 18.1 16.8 15.8 14.8 13.8 12.8

67.0 66.0 64.1 61.4 58.6 56.6 55.1

13.2 16.2 19.8 23.7 27.6 30.4 32.2 42,740 42,961 42,293 40,739 38,795 36,993

35,175

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2015 2020 2025 2030 2035 2040

No. workforce age: thousand person

Employee coverage(%)

Age: 60 years up Age: 15-59 yearsAge: 0-14 years No. workforce age

Thailand has already moved into aging society with increasing trend of dependent citizen

3.4 (Cont.) 3. Problems Encountered Thailand Agricultural Growth

Source: google.co.th

3.5 Moving Toward Free Trade Policy Threatening Small-scale Farmers

Source: Department of Trade Negotiations

Economic and market integrations are important but they create differential impacts from the agreements and leads to having new development measures of NTB or TBT.

Developed countries have stronger implementation of standards and quality which developing countries are difficult to achieve. Increasing new development measure for technical barrier to trade(TBT); Agriculture in Thailand largely consists of small-scale farmers. They are facing difficulty in adjusting themselves to the new trade regulation.

Access to new technology for better production and high quality standards is rather difficult.


3.6 Global Climate Change and Its Linkage to New Trade Regulation and Standards

Distress in global climate change leads to reconsider in the use of global natural resources and environment.

Extreme weather events, particularly drought and flood, increasing risk to agricultural production, threatening natural and agricultural ecosystem, increasing variation in food supply and farm income.

Establishing a clear link between sustainable development and disciplined trade liberalization.



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4.1 Stages of Caching-up Industrialization of Some Selected Countries


Source: Ohno, 2010

Shifting away from growth that is driven primarily by factor accumulation. They should rather embrace growth based on productivity increases driven by improvements in the quality of human capital, product and innovation.

4.2 Essential Need to Reform the Agriculture for Escaping MIT

Proactive policies on technology and innovation development. Enhancing productivity through creativity of new products with high quality and value for enable them to compete in the international markets.

Promoting physical capital accumulation and improvement through advanced infrastructure development, reducing regulation rigidity, including market reform.

Source: Refered to Agenor, P.R.; Canuto,O. and Jelenic, M. (2012) Economic Premise;

Creating new strategies for developing new products, processes, and markets are necessary.


http://and/

4.3 Theoretical Concept for Productivity and Capacity Enhancement

Implying either productivity or quality enhancement and also inducing cost advantage and competitiveness.

Note: TVP= Total Value Product

Both product Innovation and process innovation are necessarily to create and develop.

Need both product innovation and process innovation


4.4 Triple Helix Model: A Synergy for Technology Transfer and Moving Up Agricultural Economy

Source:Luis Farinha and João J. Ferreira (2013)

The the triple helix is used to explain the relations between the academy, industry and government since innovation has become the decisive challenge for global competitiveness.

The competitiveness of firms help to determine the flows of income and employment, creating regional and sectoral development and wealth creation.

Social responsibility Environment Sustainability

Economic sustainability

The academy takes leading role as enhancing skills of human capital by knowledge and technology transfer.

The government is a key interactions between the economic and social networks to ensure cooperation, partnership and institutional support.


34

Knowledge Technology/innovation

Competitive advantage Competitiveness

4.5 Transforming Agriculture Toward Knowledge Base Driven Economy

A scarcity of production resource and environment, advanced in technology, in coupled with the free trade policy, have changed classical concept from let “Factor Driven Economy” to be a new concept of “Innovation Driven Economy” or “Knowledge-based Economy”.

4.5 (Cont.)

The concept is how to make use of the same certain amount of resource for a better quality and production value?

Integration of innovation, technology, social capital, local wisdom, and environmental value into the creation of product value.


Source: Termpittayaphaisith, NESDB 2013

4.5 (Cont.)

Source: modified from Termpittayaphaisith, NESDB 2013

Newness Knowledge or Creativity Economic Benefits


University engagement

New management skill

Specific variety

4.6 Empowering Rural Poors Through Enhancing Management Skills and Developing New Supply Chain

innovative technique

Social enterprise

Source: Modified from Vanvicit 2014

Business engagement

Community engagement

Empowering farmers and community in

production and business

management skills

Creating new and fair share supply chain

linking up stream and

down stream business activities

Fair trade Innovative products

Public sector and government engagement

Infrastructure improvements; ensuring property rights; regulatory governance; better extension services.


+

New Technology

Knowledge Management

New Demand

Existing Resource Endowment

People

Natural resources

Cultural values

Indigenous Knowledge

“Thainess” Repackaging/Branding

Real Products & Services

Value Creation

Balancing Economic & Social investment

4.7 Matching New Innovative Products with New Demand

Using new innovation and knowledge management in creating new products and matching them with new market demand.

Source: Modified from NESDB


High Antioxidants Selenium/ Folate/ Phytonutrients (สารฟฤกษเคมี)

Low – medium glycemic index

Iron and high Fe bioavailability

Let Your Rice be Your Medicine

ทีม่า: รัชน ีคงคาฉุยฉาย 2556

Good Quality High Nutrient For Longevity Life

4.8 Rice : Can It Be Innovated Beyond a Basic Staple Food?


4.8 Rice (cont.)

White rice 20 B/kg.

Aromatic rice 35 B/kg.

Nutritive rice >80 B/kg.

Development toward healthy food &cosmetic

ทีม่า: ดัดแปลงจาก Apichart Vannvichit

Organic Paddy 15 B/kg

Organic white rice

30 B/kg Rice production

Cosmetic/spa 5000 B/kg

Riceberry oil

Medicinal material 6,500 B/kg


ระบบการผลติ (Production System)

ระบบการตลาด (

4.9 Moving up Traditional Agricultural Supply Chain to Become Value Chain

ระบบการแปรรปู (Processing System) Marketing System)

ระบบการบรโิภค (Consumption System)

Using innovation and creativity for upgrading product value and value added.


Source: Stan Shih’s refered by Tangkitvanich et al., 2013

4.10 R&D: An Important Gearwheel for Moving Up the Value Chain

Moving up the value chain implies a continuous process of change, innovation and productivity growth.

Functional Upgrading

Process Upgrading

Product Upgrading

R&D Planning and Designing

Production Distribution Branding

Activities under value chain

Value added


Government engagement

University engagement

Business engagement

Community engagement

To be specialized in bio-base commodity

Agriculture base

การเกษตรอาเซยีน

4.11 Renovating Agricultural-Base Economy to be Specialized in Bio-Base Economy

43 Time dimension

To be specialize in commodity

Industrial biotechnology; Biorefineries; Biobase chemistry; Biobase plastic and composites.


Citric acid industry

Down stream production

Feed mill industry

Ethanol industry

Mono sodium glutamate industry

Paper industry

Glue industry

Textile industry

Food industry

Domestic

Domestic

Domestic

4.11 (Cont.)

Pellet mills

Cassava chip exporters

Middle stream production

Up stream production

Middlemen/ Assemblers Local central

markets

Cassava flour mills

Flour exporters

Export

Export

Farmers produced cassava roots


4.11(Cont.)

Cassava roots

Cassava pellets

Cassava Chips

Cassava flour


Paper

Animal Feeds

Ethanol

Organic acid

Modified starch

Flour as a raw materials

Textile Plywood

Physical process

Polyols;Sobitol;mannitol

Dextrinized starch

Bio-technology process

Chemical process

Pregelatinized starch

Modified starch with heat

Tapioca starch

Acid thinned starch

Starch ether

Hydroxy-propyl starch

Acetylated starch

Oxidized starch

Glucose; fructose;sweetener

Amino acid; glutamat;lysine

Organic acid;lactic acid;citric acid

Alcohol;Ethanol

46

4.12 Transforming Agriculture As a Regional and Global Food Hub

Responding to the need and interest of consumers in domestic and global markets Developing food technology and quality in comply with international food and safety standards

Adopting WTO agreements on SPS measures for food quality and safety standards and other related agreements on trade.

Investing in innovation for agro-industry food processing.

Certifications, Inspection, Testing, Health-related labeling

Environmental protection,.


Gasifier Bio-gas Clean gas

Electricity Husk from rice mills

Residues from oil palm crushing mills

วัศดุจากกระบวรการผลิตการเกษตร

เหลือใช้

Generator

4.13 Moving Up Agriculture as a Source of Renewable Energy and Green Technology

Bio-energy from biomass and agricultural residues

Cellulosic Ethanol

Agricultural fields and Windmills


Source: google.co.th

4.12 Policy Challenges

Support a shift of economic activity towards more high value-added areas, raising productivity and quality. Addressing this through education and training policy requires a growing focus on life-long learning.

Upgrading the human resource base:

Enhancing R&I for raising competitiveness: increase the level of knowledge and technology embodied in production and exports, which would make competition through rising investment in R&D.

Creating new areas of economic activity: Stimulating green and creative innovation and technology for new firms and entrepreneurships;


Enhancing the country and location attractiveness .

Agricultural-Base Economy to be Specialized in Bio-Base Economy.

No political conflict would enhance FDI.

middle income trap and roles of agriculture in avoiding mit

Economy & Finance