Improving rural farm income in Thailand

The reduction in inequality, however, has not been as rapid. While the fall in poverty was accompanied by a decline in inequality, it has remained high. With an income Gini of 43.3 % in 2019, Thailand had the highest income inequality level in East Asia. Regional inequality in Thailand is also high.

Poverty in rural areas has remained prevalent despite the significant contribution of the rural sector to both the national economy as well as employment. In 2020, the rural economy employed close to 21 million people, comprising nearly 55 % of total employment. The farm sector employs around one-third of Thailand’s labour force and plays an important part in the country’s exports as a key supplier of agricultural products to the world market. Yet nearly 80 % of the poor live in rural areas and are mostly concentrated in agriculture. Over the past decade, farm income has persistently decreased, offsetting progress in reducing poverty and regional inequality.

A World Bank report, the Thailand Rural Income Diagnostic— Challenges and Opportunities for Rural Farmers, examines the main opportunities and challenges to improving both productivity and incomes of rural farmers. It identifies three opportunities that could boost rural farm income in the coming years.

The first opportunity relates to increasing agricultural productivity by improving access to irrigation water. With less than half of farm households being able to access water resources, dependence on rainfed agriculture is high, increasing exposure to climate risks and limiting opportunities for higher income.

The second opportunity lies in increasing crop diversification and the adoption of high value crops in irrigated areas. Rice production has played a dominant role in the Thai economy as well as the world's export market, employing 3.5 out of 8 million farm households while generating export revenues of close to US $3.7 billion, making Thailand the second largest rice exporter in the world. However, Thailand's rice yields have been low relative to other global rice producers over the past decade.

Despite its relatively low profitability, rice production has continued to dominate the use of limited irrigated land, with the planting of paddy rice accounting for two-thirds of total irrigated areas. While improving rice productivity is critical, particularly in areas that have a comparative advantage for growing rice, there remains a considerable opportunity to raise farm incomes through crop diversification and crop rotation.

The third opportunity involves improving access to markets. Improving rural connectivity provides the opportunity to reduce transport and logistics costs in addition to enabling farmers to move up the agricultural value chain to agro-processing and distribution.

How can Thailand seize these opportunities to raise rural incomes? The report suggests four policy options:

Enhancing agricultural productivity by expanding access to irrigation and promoting the adoption of water-efficient irrigation methods, promoting risk mitigation strategies to cope with increasing weather volatility, facilitating access to finance, and strengthening agricultural R&D to raise competitiveness in export markets and to adapt to climate change.

Improving access to markets by expanding rural infrastructure to strengthen the connection between farmers and markets, as well as promoting the development of e-commerce to create new opportunities to raise incomes through improved matching of farmers with buyers, reduced transaction costs and reduced barriers to move up the value chain.

Addressing factors that create inefficiencies in the use of land and water resources. These measures focus on policies to further strengthen farmers’ incentives to invest in higher quality inputs, modern machinery as well as other productivity-enhancing tools and utilize water resources more efficiently to improve crop yields and farm productivity. One example would be the review of policies that weaken tenure security. Strengthening tenure security and facilitating long-term leases of farmland could incentivize longer-term investments in farmland and widen access to credit.

Finally, strengthening farmers’ skills in adoption of productivity-enhancing technologies. While it is not a panacea, the application of digital technology for farming opens up several possibilities to raise agricultural productivity. For example, it provides a platform for the sharing economy which allows smallholder farmers to use modern equipment that would otherwise incur large upfront costs. It also provides a platform for e-commerce which broadens access to markets and can be used as a platform for farmer extension services and for early warning systems. To help unlock the potential of digital farming technology, promoting farmers’ digital literacy is a critical first step.

Thailand has the potential to support faster and sustained income growth of rural households. Seizing these opportunities to help rural households improve farm productivity has the potential to create an outsized impact in supporting the country's poverty alleviation efforts, contributing to economic growth and shared prosperity.