By Jeremy Luedi for Global Risk Insights
Thailand is facing its worst drought in ten years, as the government seeks to prevent mass crop failures.
The Thai government has implemented various water saving measures in efforts to ensure reservoirs can sustain the country until the end of the dry season in May.
The National Water Board has directed farmers not to use water for irrigation, instead rationing existing water stocks for personal use (drinking, cleaning, bathing). The Thai government has also set aside $96 million to drill an additional 4,300 wells to tap into ground water reservoirs.
Moreover, Thailand is also filling dams to maximum and considering partially diverting the waters of the Yuan and Salween rivers.
These rivers lie on the border with Myanmar, so Thailand’s foreign ministry has been actively negotiating with Burmese authorities on a deal regarding the international waterways.
Thailand faces diminished agricultural yields
The drought threatens the livelihoods of a significant portion of Thais, as some 40 percent of the population continues to work in agriculture, despite the country’s ‘recently industrialized’ status.
While farmers are facing restrictions on crop irrigation this year, last year they were also told to limit water use, and plant alternative, less water intensive crops. The government even set up a multi-million dollar fund to aid drought affected farmers.
Farmers have been complaining that after last year’s trouble, the subsidies they are receiving from the government are too small, barely offsetting rising production costs and the high cost of living.
Due to the drought, rice production has declined 16 percent from 19.8 million tons to 16.5 million, with 9 million set aside for export.
This is a blow to Thailand’s rice industry, which has already lost substantial market share to countries such as Vietnam and India in the last five years.
To add to Thailand’s woes, the rubber industry is facing a series of challenges. Alongside drought conditions, Thailand – as the largest producer of natural rubber – has been hit hard by an oversupply in international rubber markets.
Following a record harvest in 2011, Thailand increased rubber acreage, building on region wide trends that have seen a 45 percent increase in cultivated area among Asia’s top eleven rubber producers since 2004.
This production surplus coincides with a ten percent decrease in demand from China: the world’s largest natural rubber consumer.
Lower demand and overproduction have seen rubber prices drop 70 percent since 2011, at one point trading as low as $1.56 per kilogram in Tokyo.
Similarly, rubber futures in Shanghai have dropped by 22 percent and the export price of Thai rubber by 23 percent.
To aid the country’s rubber industry, Bangkok is spending $471 million to aid small-scale rubber farmers cultivating up to 15 rai (6 acres) of trees. This limit is seen as insufficient by Thai rubber farmers, as up to 80 percent own as much as 25 rai (10 acres).
Consequently, many farmers are felling their rubber trees to utilize the land for other means, with the government pledging an additional $181 million to support alternative employment for rubber farmers.
Drought antagonizes Thailand’s political divisions
While severe drought causes unrest in any country, the nature of Thai politics makes the country especially vulnerable to unrest.
The current prime minister of Thailand is Prayut Chan-ocha, the junta leader that led the 2014 coup against PM Yingluck Shinawatra. Chan-ocha has installed many of his supporters in government and cracked down on dissent, reigniting longstanding antagonism among the rural population towards military elites.
Furthermore, Chan-ocha heads the National Water Board, whose water restrictions have caused much hardship for struggling farmers. Consequently, discontent with the Board’s decisions can be aimed directly at the prime minister.
The major issue underpinning potential unrest is the division between the military and the Shinawatra family. During the 2001 election, the Chuan government’s handling of the 1997 Asian Financial Crisis caused serious debate, with his challenger Thaksin Shinawatra running on a populist platform.
Thaksin won the election due to the rural vote, and the story of Thai politics for the following thirteen years has been the tensions between the Shinawatra family and urbanites, cosmopolitan elites, and elements of the military-monarchy establishment.
Thaksin’s populist platform found ready support among the rural population. Despite styling himself as the voice of everyday Thais, Thaksin and his family have made billions by controlling Shin Corporation, one of Thailand major telecommunications firms.
While Thaksin was able to turn the Thai economy around, he remains loathed by many urbanites due to allegations of corruption. This caused an urban-rural split, leading to increased violence and the 2006 coup which ousted Thaksin. Chan-ocha was one of the leading proponents of the military crackdown against the (mainly rural) pro-Thaksin supporters, the so-called ‘Red Shirts.’
Fast forward to 2011, and Thaksin’s sister, Yingluck Shinawatra adopts a similar populist platform, winning rural support and the election.
Key to this victory was a rice subsidy program which guaranteed rice purchases by the government at 15,000 baht ($450) per ton. This was 4,000 baht ($111) more than previous government subsidies, and a full 50 percent above global market prices.
Yingluck’s plan was to hoard rice and drive up prices (Thailand was the largest rice exporter at the time, controlling a third of the global market), then sell at a profit.
This plan did not work, costing Thailand between $8-20 billion, and ceding market share to other producers.
By 2013 the government was in deficit, and defaulting on payments. The 2014 coup led by Chan-ocha was styled by the military as a ‘rescue,’ but many pointed to Chan-ocha dislike of the Shinawatra family and his view of Yingluck as merely a mouthpiece for the exiled Thaksin.
Political instability likely in first half of 2016
Chan-ocha’s involvement in the two coups against the Shinawatra regimes has severely damaged his image in the eyes of rural agricultural workers.
Many rural Thais continue to support the Shinawatras, and despite the failure of the rice subsidy program harbour goodwill towards it and similar programs as they represented efforts to combat inequality and include the rural population into national politics.
The drought brings all these elements into focus, creating a potential powder keg. Angry farmers nostalgic for the ‘good old days’ can directly blame Chan-ocha for the end of that era.
Add to this historical rural resentment of their political exclusion by the military and its urban support base and instability is very likely. Chan-ocha’s cancellation of the rice subsidy program, while economically prudent, comes across as another insult to rural Thais, as they face two years of drought conditions and lower global commodity prices.
The government in Bangkok is also stuck between a rock and a hard place regarding agricultural aid.
On the one hand it cannot afford the lavish Shinawatra-era subsidies, but realizes that providing less aid will only antagonize rural Thais. As already noted, many Thai farmers are complaining about the meagre assistance from the government.
This is an especially volatile issue, as farmers fell once again left out of national politics, forced to pay the price for national problems.
To add insult to injury Chan-ocha already announced a seven percent increase in the 2016 military budget: an investment in security that itself may just foster greater instability.