Publication Code: Y92C
by Scott R. Christensen
Thai agriculture has been at a crossroads for about a decade. It cannot rely on the two primary factors that supported its growth in the past, namely surplus land and healthy, stable markets abroad for its commodities. This fact has provoked leading policy makers to rethink Thailand's agricultural development prospects and design new strategies for maintaining comparative advantage over the coming decade. One strategy that has gained great currency among officials is to expand the role of large agribusiness firms in the agricultural sector. A perception has emerged that Thailand is losing its comparative advantage in staple food crops, and that future success in agriculture will depend on private firms to create more value added and innovate technologies in new and more sophisticated commodities. Promotional incentives for large firms are cited as one means to meet these objectives.
The following paper explores the policy implications of this agribusiness promotion strategy. As a pedagogical device, a framework is developed for assessing the appropriate role of agribusiness. The framework is based on evidence garnered from both development theory and concrete experiences in Thailand and other less-developed countries (LDCs).
On the basis of that analysis, the paper offers two sets of arguments regarding the role of agribusiness in new policy initiatives. First, a strategy of blanket promotions for agribusiness overlooks critical differences in the characteristics of individual commodities. A promotional policy must recognize biogenetic and technological differences among crops, livestock, and aquaculture, and also within these categories. The current inclination to classify commodities as "winners" and "losers" distracts from sound analysis of policy issues at hand. Lack of uniformity among commodities should not be construed in terms of some innate comparative advantage or disadvantage. Differences, rather, lie in biological and genetic traits. These traits suggest "appropriate" roles for public and private actors, and these roles will vary from one commodity to the next. Appreciation of this fact yields a more delicate policy choice set than the bold picking of winners and losers suggests.
The paper argues secondly that preoccupation with agribusiness as a "panacea" may distract from glaring deficiencies in the public sector's own performance. At issue is not the comparative advantage of the agricultural sector, but rather the comparative advantage of the state and its institutional capacities to intervene effectively in agriculture. Theory and practice both suggest that the public sector has a role to play, notably in technological and institutional innovations. Though the government cannot plan agriculture, it cannot turn over all development functions to private firms. Instead, the government needs to plan incentives and inducements which are proven to be appropriate for the state to manage. The promotion of agribusiness alone is not enough to correct the policies and bureaucratic weaknesses that presently harness the innovation of incentives. Issues that demand public sector attention include biotechnology research and the reform of existing institutions, such as property rights laws and credit arrangements. Innovations in these areas may require the state to reorganize many of its own practices, not simply rely on agribusiness as a panacea.
The paper unfolds in four remaining parts. Section 2 summarizes trends in Thai agriculture and outlines the substance and assumptions of the commercialization strategy. Section 3, by way of theoretical review, suggests the challenges relevant to the agricultural sector and offers a framework for policy analysis with which to approach the agenda. The fourth section identifies specific policy issues involving agribusiness and scrutinizes the privatization strategy based on past performance and the policy framework advanced in section 3. The conclusion follows.
November 1992