Impending drought poses significant threat to Thai export sector

The Thai economy braces for another challenge as impending drought threatens its critical export sector, following last month’s extensive flooding. Despite an improvement in exports in August, marking a recovery from an 11 month decline, the impending drought could significantly impact food manufacturing and shipments.

The Federation of Thai Industries (FTI) highlighted concerns over the potential repercussions of water shortages on exports, purchasing power, GDP growth, and food security. The local agricultural sector, reliant on water supplies, could see reduced harvests, impacting food manufacturers and exporters dependent on farm produce.

Kriengkrai Thiennukul, FTI’s chairman, emphasised the importance of the government’s preparedness and strategic response to mitigate the drought’s impact.

“Thailand is a major food exporter globally. Its rice and sugar cane are among the famous agricultural products.”

Among crops likely to be affected by the drought is sugar cane. FTI anticipates a reduction in sugar cane output in the new crop year 2023 to 2024 to 80 tonnes, a fall from the initial projection of 100 to 105 tonnes. This reduced yield could influence not only farmer earnings but also the country’s sugar production.

The Agriculture and Cooperatives Ministry has reported that approximately 16.5 million rai of farmland across Thailand will experience lower rainfall due to the El Niño phenomenon this year.

Deteriorating Water Levels

Water levels at Lam Takhong Dam in Nakhon Ratchasima dropped to the lowest in a decade in August, impacting an area of 277,000 rai across 10 villages.

The Royal Irrigation Department anticipates the nation’s 35 major reservoirs to hold about 22.8 billion cubic metres of water by the end of this year’s rainy season in November, almost 13 billion cubic metres less than last year.

FTI expects the Thai agricultural sector to experience reduced rainfall for at least three years, from this year to 2025.

The 2021 Global Climate Risk Index ranks Thailand as No.9 among 180 nations regarding direct economic losses from weather-related impact between 2000 and 2019. If unchecked, the drought could cause economic damage worth 53 billion baht, warns Kriengkrai.

The export sector has been sluggish, while the tourism industry is yet to fully recover. According to the Commerce Ministry, exports increased for the first time in 11 months in August, supported by improved global manufacturing sector signals, positive consumer spending, and an expanding service sector among trading partners.

The Joint Standing Committee on Commerce, Industry and Banking announced in early September a downgrade in its export growth forecast to a contraction of -2% to -0.5% this year. The committee also revised its GDP growth prediction for this year from 3% to 3.5% to 2.5% to 3%.

Drought Mitigation Strategy

However, if Thailand can mitigate the severe impact of drought and avoid other farming yield obstacles, then food exports, a key driver of GDP, could increase by 2.1% year on year to 1.5 trillion baht in value, according to the National Food Institute.

The 2022 Global Report on Food Crises reveals that nearly 193 million people in 53 countries face food insecurity. An additional 40 million people were affected last year as food prices rose, heavily impacting low-income earners.

Climate change, a growing global population, reducing agricultural land, epidemics, and geopolitical conflicts have all intensified food insecurity reported Bangkok Post.

In the manufacturing sector, the government must expedite measures to mitigate the impact of the impending drought, particularly in the Eastern Economic Corridor (EEC), states Somchai Wangwattanapanich, vice-chairman of the FTI and chairman of the Water and Environment Institute for Sustainability under the FTI.

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