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Agri-Food Industry is Thailand’s Opportunity for Economic Recovery

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Agri-Food Industry is Thailand's Opportunity for Economic Recovery

This new wave of coronavirus is a sombre reminder that the pandemic remains the test of the century for Thailand. A country dependent on tourism, Thailand’s many industries have suffered as a result of business restrictions and border closures. Responsible for more than half of the nation’s workforce, the agri-food sector is particularly challenged.

According to a recent report by Oxford Economics, the agri-food industry saw significant unemployment, as well as a 6% contraction in GDP contribution, or a THB 228 billion drop, last year.

This decline underscores the key importance of an agri-food industry that accounts for more than a quarter of the country’s GDP before the pandemic. During the last year, it has also pushed forward Thai exports, and will continue to do so.

According to the Federation of Thai Industries (FTI), the value of Thai food exports is expected to increase by 3-5% this year to 1 trillion baht if the situation of container shortage and high sea freight cost is relieved.

Yet, recovery will be tough. Thailand placed third worst in the report’s Economy Recovery Matrix for the agri-food sector across Asia, with Thailand’s vulnerabilities stemming from its dependence on tourism and travel flows to revive its food industry.

Emerging challenges continue to arise from the ongoing pandemic – further developments on the virus, supply and demand challenges, as well as fiscal risks could potentially disrupt the sector’s recovery. Beyond current efforts, we need to identify the key areas that would boost the agri-food sector, and help the Thai economy pull itself from the depths of the pandemic.

Supporting a food industry in recovery

The Thai government has demonstrated strong support for the agri-food sector through state aid. With Thailand’s reopening plans shadowed by a rising number of cases, the agri-food sector and the government will need to set up the right conditions for industry so that it can truly thrive in the new normal.

Notably, policymakers need to work closely with the agri-food industry should they seek to restore Thailand’s fiscal position as we move ahead from the pandemic. Any new fiscal measure introduced needs to be well-designed, targeted, evidence-based, and efficiently regulated; otherwise, they risk widespread disruption across the sector and subsequently, the wider Thai economy.

We already see this in motion in Thailand, with the government practising greater flexibility and thoughtfulness behind key measures. The Excise Department announced earlier in February its considerations to freeze the step-up hike of the excise levy placed on drinks with a sugar-based sweetener, so as to reduce the financial burdens of business operators.

The new rates rise on a gradual basis over four phases, with the third phase set to begin in October this year. With the impact of COVID-19 in mind, the department has indicated there will be no new excise tax measures this year because it would increase burdens for both businesses and consumers.

To succeed with fiscal measures, governments and policymakers must continue to engage in regular communication with stakeholders to be equipped with sector expertise and support that will enable them to develop effective policies and programmes that can better achieve intended outcomes.

Pursuing the Thailand 4.0 vision

It is also critical to deepen investment in new technologies and skills to strengthen the resilience and efficiency of a labour-intensive food value chain in Thailand. As Thai food and agriculture products increasingly get exported around the world, shifting tastes and priorities will influence consumer demand.

Rising incomes and growing populations also see Southeast Asian consumers demanding more and better-quality food. This focus on new technology and investment towards innovation also speaks to the urgent need for land and labour productivity improvements, helping to strengthen the resilience, efficiency, and environmental sustainability of Thailand’s food supply chain.

Digitalisation and innovation have always been a key part of Thailand’s growth agenda, through its longstanding “Thailand 4.0” vision. The Thai government has great ambitions in turning Thailand into a world-class food production hub. Pursuing a digital revolution – which will see investments in digitalisation and innovation to establish a roadmap for a resilient supply chain – can guarantee greater flexibility, food safety, quality, and increased productivity, allowing the industry to better meet consumers’ demands for higher quality and healthier food products, and in turn drive industry growth.

A key driver would be Thailand’s ability to tap into the latest food trends, such as plant-based foods. According to research from Kiatnakin Phatra, plant-based protein market is expected to be worth $40 billion globally by 2025. Demonstrating strengths in product innovation, some producers have already set their sights on fuelling this growth locally and abroad. Ensuring a landscape that continues to cultivate innovation across the entire value chain will be the key to taking the Thai food industry forward.

Turning crisis into opportunity

It is clear that the pandemic has severely disrupted the agri-food sector. But we need to remember that prior to the pandemic, the industry has demonstrated its critical role in driving our national economy. The industry will continue to face strong headwinds going into 2021 and the damage of the pandemic will depend largely on policy responses over the short, medium, and long term.

Looking ahead, there is the opportunity to enhance the resilience, sustainability, and productivity of the sector via the supporting measures of the government on Bio-Circular-Green Economy strategy, and enable Thailand to emerge stronger from this global crisis.

By Visit Limlurcha, Chairman of the Food Processing Industries Club, Federation of Thai Industries

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