Government Policy and Implementations

Contract farming had been practiced in some forms before the 6th National Economic and Social Development Plan (1987–1991). Processed food, e.g. canned fish, pineapples and tomato products, was initially targeted for export markets. Exported canned vegetables in the 1970s mostly carried foreign brand names and contract broiler production started in the early 1980s. Prior to this period, sugar cane and tobacco were produced under contract arrangements. The latter was contracted by the state enterprise.

The 6th Plan included guidelines for the development of agro-industries with a goal of promoting value-added exports. To meet the goal, the government augmented guidelines with the so-called “Four-Sector Co-operation Plan to develop agriculture and agro-industry” (4-sector plan). Under this plan, agro-industrial firms, farmers, financial institutions (Bank for Agriculture and Agricultural Cooperatives [BAAC]) and government agencies worked together to improve production systems to reduce price risk and market uncertainty while farmers improved their technical knowledge and raised production efficiency and the quality of raw materials. in addition to general extension services, the government invested 250 million Baht in BAAC (then, 25 Baht = US$1). The capital gain was used as interest compensation for participating farmers (3.5 % p.a.) and to encourage more farmer participants and to reduce production costs.

During 1987–1993, 12 large projects proposed by 20 private firms were approved, but two did not operate (eucalyptus and integrated hog production) and three ceased production after one year (asparagus, ramie and bamboo for paper pulp) (Office of Agricultural Economics 1993). Nonetheless, Naritoom (2000) reported successful asparagus groups that had contracted with three companies since 1989. The seven remaining projects continued operations after 1993: castor bean, basmati rice, sunflower, wheat, barley, hybrid corn, sorghum, and cashew nuts (Wiboonpongse et al. 1998).

The Office of Agricultural Economics (1991) concluded that the results of the 4-sector Plan were unsatisfactory since some of those projects relied heavily on government support (e.g. provision of free seed for sunflower growers). Plan failure was attributed to lack of management flexibility in light of unforeseen circumstances such as drought, which resulted low quality and unmarketable produce. Secondly, farmers needed time to adapt to new crops, which usually involves new technology. When new crops did not provide desirable yields and returns, farmers were discouraged and shifted back to their old crops. Thirdly, the extension service was also blamed for this failure (Ministry of Agriculture and Cooperatives 1994). The commodities chosen involved more input and higher risk, and technical support and delivery systems could not cover all the project areas.

Most private contract farming schemes failed in the early 1990s (Baumann 2000). Evaluation of the 4-sector Plan suggested that contract farming was not for every farmer but an alternative to those who could accept new practices or needed credit. Furthermore, government agencies should not be directly involved between farmers and firms, and contracted businesses should grow without continual government support (National Economic and Social Development Board 1995 in Wiboonpongse et al. 1998).

By the end of the Sixth plan in 1991, the NESDB recommended that contract agreements be more effective and beneficial to all parties concerned (Singh 2004). The Subcommittee of the 4-sector Plan came up with several measures in response to issues regarding fairness and risk reduction to assure cooperation between the government agencies and firms. Measures focused on coordination and risk sharing, such as a “project fund” to provide compensation for production and marketing risk, or, “group farming” and “cost sharing” among farmers and firms. The last alternative was considered a novel measure and was not implemented.

To raise the probability of success, the subcommittee in 1995 (the 7th plan) consented to support agro-industrial projects (under the 4-sector Plan) that could reduce production and marketing risks and identify potential target areas and farmers. The proposals were approved based on the highest benefit terms provided to participating farmers by the firms. The subcommittee also improved the 4-sector Plan and indicated two target commodity groups: (i) produce with high-export potential e.g. high quality rice, fruits, flowers, fresh water and coastal fish, and (ii) industrial crops (e.g., vegetables, sunflower, maize, and fastgrowing trees). To assure fairness, the government in 1999 took charge of regulating contract compliance using a standard agreement for companies and farmers issued by the Department of Internal Trade (Singh 2004), which is in effect today.

Though there is no explicit mention of contract farming in the 9th National Plan (2002–2006), government agencies continued to implement it. In 2004, to alleviate a trade issue between the People's Republic of China (PRC) and Thailand, the government compensated farmers if they reduced garlic crops and switched to other crops under contract farming. In addition, the private sector has been encouraged to extend contract schemes to neighboring countries under a sub-regional economic cooperation agreement called “Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy” (ACMECS). The scheme enables firms to reduce the seasonality of raw material procurement (Thai Chamber of Commerce 2006).

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