Market Competition

Thai agricultural marketing systems generally are competitive. In contract farming, a quasimonopoly has been necessary for success. Japanese cucumber contract farming in the early 1990s appeared to be a monopsony when it had a small and specific market. There was only one company making contracts with farmers, and the nature of contracts and close supervision was similar to other crops new to farmers where the final market required exacting specifications. Presently, the crop has become more common despite the strict specifications and quality is maintained by the few companies exporting to Japan.

In high demand crops like potatoes and other vegetables, contracted markets are highly competitive. In 1990, there were only two potato processing companies contracting farmers in Northern Thailand, but five years later, there were seven potato processing firms and the competition for contract farmers became intense. Information was disseminated in the areas and the prices offered by firms were not significantly different. Farmers were not loyal to any specific company and did not hesitate to switch companies when offered a better deal (Ornberg 1998).

After 20 years of potato production, the supply deal changed. This is due to farmers' accumulated production and market experience and innovation, which enhanced their bargaining power. On the other hand, increased demand for potato chips put pressure on firms to secure raw materials, and it became easy to obtain potatoes at lower cost with less quality risk when farmers became skillful in production. Our visits to companies in 2004 revealed that competition for farmers among firms processing the same or different products became fierce in the 1990s before the economic crisis broke out in Asia.

Contract farming has expanded from Chiang Mai to other provinces in the North. Commodities include poultry and hogs, Japanese rice, basmati rice, organic rice, vegetable seed, corn seed, and various fresh vegetables for frozen and pickled products. The commodities are contracted by large and medium firms owned by multinational companies, and joint ventures or by domestic companies. After the 1997 economic crisis, smaller firms left the industry, but competition continued among fewer but larger firms. Now there are at least 3–4 companies competing for the same crops. As disclosed by one company, firms need to exercise different tactics to keep their farmers.

Companies either use price strategy or quality strategy. This implies high market force to obtain labor, suitable land and desirable production environments among industrial firms. For crops that need to be processed within 24 hours (oil palm, eggplant and sweet corn), distance to factories is limited to transport under 12 hours, thus competition is even stronger. While companies compete for farmers, they also mention that farmers seek contracts, and current farmers desire to expand their contracts.

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