Thailand’s agricultural economy: Old but gold for investors

According to the Bank of Thailand, the El Niño phenomenon would cause economic shock to local farmers as it affects crop production. Although projections point to declining output due to the extreme weather conditions, the Thai government wants to intervene to soften the blow. In fact, Prime Minister Srettha Thavisin hopes to cultivate Thailand’s agricultural sector towards becoming a global leader in food security though the Thailand Vision 2030 initiative.

Cultivating agriculture

The Asian Development Bank recently forecasted that Thailand’s agricultural output will grow by 2 per cent this year and gradually rise to 2.2 per cent by 2024. According to Thailand’s Trade Policy and Strategy Office, the first quarter of 2024 saw exports of agricultural and agro-industrial products increase by 0.3 per cent, while export volumes of rice, canned and processed seafood, and milk and dairy products also grew during the period. Despite some declines in other agricultural exports, the Thai government is taking measures to improve this situation with new free trade agreement (FTAs). Last year, Thailand’s agriculture exports totalled USD 19.56 billion, benefiting from FTAs in boosting the country’s agricultural exports across the ASEAN.

Although agriculture contributes less than 10 per cent of Thailand’s GDP, its economic importance is seen to fulfil the basic needs of the domestic market, creating a ripple effect of support towards tourism, food, and export trading industries. Chanthanon Wannakhajorn, secretary-general of the Office of Agricultural Economics, stated that Thailand remains a trade leader within the ASEAN with agricultural exports valued at THB 53.39 billion (USD 1.5 billion) during the first three months of 2023.

Graph 1 illustrates that while Thailand has seen a sharp drop in employment in the agriculture sector – a phenomenon when countries grow richer – its GDP contribution remains significant. In an attempt to sustain this, the Thai government launched the Young Smart Farmer program to develop the agribusiness capabilities of young farmers. In particular, the program encourages young farmers and entrepreneurs to expand their operations and generate more high-value harvests. In line with the Thailand Vision 2030, the government targets to help Thai farmers triple their income within four years. Not only that, the government also promotes smart agriculture initiatives by collaborating with university experts to advance agrotechnology.

Opportunities ahead

The Thailand Board of Investment (BOI) reported that the agricultural and food processing industry dominated the list of approved projects in 2023, totalling 296 projects worth USD 2 billion. It also forecasts that the value of plant-based food in Thailand’s market will reach USD 1.5 billion, providing new opportunity as more people explore meat-free options for their diet. According to a Thai consumer survey last year, the majority stated that they are interested in switching to consuming plant-based protein like soybean, wheat, pea, mushroom, or mycoprotein (fungal protein) as a replacement for meat. In the future, Thailand plans to explore these opportunities in plant-based protein to produce good-quality food at a price that consumers can afford not only in Thailand, but also in export markets.

To meet this new demand, the development of new industries and integration of existing agriculture businesses would assist in the upgrading of conventional food production methods using digital technology to connect the agriculture supply chain while also accommodating the production of meat alternatives.

In 2021, Thailand introduced the Bio-Circular-Green Economy (BCG) model which focuses on four strategic areas: agriculture and food; wellness and medicine; energy, materials, and biochemicals; and tourism and creatives. As the demand for food is expected to increase by 70 per cent globally, the implementation of the BCG model in agriculture and food will lead to high volumes of food production, making Thailand a worthy contender in meeting this additional demand.

Graph 2 shows that shares under the Agro sub-index of the Stock Exchange of Thailand (SET) had a mixed performance. While the SET posted a 13.31 per cent drop as of August, stocks under the agribusiness sub-index thrived with a 17.69 per cent increase. Meanwhile, stocks under the food sub-index performed is still flat, although recovering from dips seen in the first quarter. However, this does not diminish the growth potential of this sector. Recently, Saudi Arabia’s food security company, Saudi Agricultural and Livestock Investment Company showed interest in investing towards Thailand’s agricultural industries especially in rice production, poultry and fish processing, animal feed-making, and sugar milling.

In the first quarter of 2024, foreign investments towards Thailand’s agricultural and food industries amounted only to THB 13.3 billion (USD 360 million). Despite receiving relatively low investments compared to other projects, additional funding for the agriculture sector still creates new economic opportunities and benefits in the long run that contribute to sectoral development.

Another potential source of growth for Thailand’s agriculture sector is the expanding halal market in ASEAN. While the Muslim community is a minority in Thailand (where Buddhists comprise the largest religious group), 20 per cent of exported food products is certified halal and 60 per cent of those exports are sent to Muslim-dominated Indonesia, Malaysia, and Brunei. According to Thavisin, there are plans to transform Thailand as the halal hub in Southeast Asia by 2028 with a 1.8 per cent contribution to GDP, approximately worth THB 55 billion (USD 1.5 billion).

Foreign investors can operate with full ownership of Thai companies provided they are endorsed by the BOI and their operations are deemed important for the development of Thailand, such as those into agriculture, food, and biotechnology. Additionally, there are also incentives like exemptions from corporate income tax for eight years and permission to own land. These tax and non-tax perks, coupled with pockets of growth seen in the plant-based food and halal markets, open new business opportunities for foreign companies in Thailand.