Abstract/Summary

Thailand has become the world’s fourth largest sugar cane producer and second largest exporter. While there have been a number of drivers of this growth, the primary driver has been wide-ranging government support measures. In 2016, Brazil filed a request with the WTO for consultations with Thailand regarding alleged breaches of WTO rules by the subsidy regime applicable to Thai sugar sector. In an effort to avoid being challenged at the WTO, the Thai government has initiated a process of policy reform, as part of a broader industry restructuring, to bring the sector up-to-date with developments in the international sugar market. While the impacts of large-scale policy reform of the Thai sugar regime are likely to be significant, to date there have been very few empirical studies of potential impacts. This thesis attempts to address this research gap by investigating the likely responses of both cane producers and millers to a suite of alternative policy regimes. Three reform scenarios were designed in consultation with policy makers and academics working in the cane sector. Scenario 1 captures the current Thai ‘government proposal’ for policy reform. This scenario removes certain domestic production subsidies but seeks to maintain as much support as is permissible under current WTO rules. Scenario 2, the ‘protectionism’ scenario, maintains all existing internal market producer supports, but otherwise complies with international (WTO) commitments. Scenario 3, the ‘libertarian scenario’ removes all production support and market interventions. These three policy scenarios overlap to some degree, i.e., they include specific policy instruments that were deemed by the majority of stakeholders to be essential for the survival of the Thai cane sector. These policy instruments are labelled as the non-discriminatory group, and include cheap loans, revenue-sharing (between producers and millers) and sugar market allocation systems. A discriminatory group of policy instruments varied between at least two of the scenarios. These policy instruments were domestic sugar price and cane price support measures, direct payment to farmers, and import regulations. A Priori, it was anticipated that the most important driver of producer behaviour under all of the scenarios would be producer price of cane. The cane price is obviously highest under the Protectionism scenario, and lowest under the Libertarian scenario. To test cane producer responses to the policy regimes a survey was carried out through face-to-face interview using a structured questionnaire. Quota sampling was used in sample selection based on a farm size and region stratification. The resulting sample was divided into three balanced sub-groups of approx. 150 farms each on the basis of farm size and one of the three policy scenarios was presented to 50 farms in each of these size sub-groups. As a means to understanding the drivers and barriers to farmers continuing in cane production, the Theory of Planned Behaviour (TPB) was used a conceptual framework along with a large number of socio-economic factors in a two-stage ordered probit regression modelling exercise. The expectancy-value approach was used to determine changes in cane production area and output volumes produced by active producers under each of the three scenarios. The study demonstrated that farmers across all size groups and regions are less likely to continue in cane production under the ‘libertarian’ scenario than the other two scenarios. All three TPB dimensions were found to be significant determinants of intention to continue producing cane for all scenarios, implying that farmer’s intentions are influenced by (a) their attitudes towards the policy regime (beliefs about the impact of policy on their farm), social pressure, and their belief in their own ability to successfully farm cane under the new sugar regimes. However, the dominant determinants of farmers’ intention to remain in cane production were demographic and socio-economic factors. It is somewhat surprising that no demographic and socio-economic variables was found to be significant determinants on intention in all three scenarios. This result may be explained by the fact that as the scale of revenue losses increases, new factors become important in determining intention. The findings from expectancy-value modelling demonstrated that, under conditions of policy reform, Thai cane farmers would make binary choices about future cane production, i.e., to either remain in production, or quit altogether, but rarely contemplate varying their production area. The libertarian scenario is likely to result in the greatest losses in terms of both cane production volume and number of farmers producing cane. Those least likely to quit cane farming were the larger farmers and those most specialized in cane production. Therefore, if the government hopes to sustain cane production volumes, they need to maintain the number of cane producers through policies that encourage efficiency improvement, through either specialization in cane production. However, if the government goal is just to maintain the number of active cane farmers, then partial diversification or provision of off-farm income opportunities become alternative options (to prevent loss of producers from farming) depending on each farm’s agronomic factors. Government will also need to provide more reassurance to farmers that they can offset the removal of direct government supports with indirect supports, in the form of technical training and advisory services, as well as access to low-cost loans. Further reassurance can be offered that there will be a transition period during which direct support will be only gradually withdrawn, to allow for adjustment and the arrival of the more sustainable and long-term benefits resulting from structural enhancements. Effort should also be directed at increasing level of knowledge transfer to farmers through peer-led support groups. The response of cane millers to the three policy scenarios, which included the farmer responses, was assessed be means of a questionnaire-based survey of over 67% of all Thai sugar millers. This survey demonstrated that, overall, the majority of millers prefer the ‘protectionism’ scenario, which they believed would not cause negative impact to their business. The majority millers believed that the ‘libertarian’ scenario would be highly detrimental to their sugar business, as they would be unable to compete with leading rivals. However, about 60% of millers said they would remain in business even under this scenario because of: (i) the need to service existing bank debt; (ii) or by realizing efficiency gains through increased investment. About 10% would close down their business and a few would reduce the scale of sugar production. More than 75% of millers believed that their business could operate very well under the ‘protectionism’ scenario, with many indicating they would increase the scale of production. To investigate the impact of existing levels of competitiveness on the attitudes of millers to the reforms, a company competitiveness index was constructed. As expected, it was the millers achieving the very highest competitiveness rank scores that were most likely to support the ‘libertarian’ scenario, believing they can take market share from rivals. From this it is obvious that if the government wishes to prevent the milling sector from becoming oligopolistic, the ‘libertarian’ scenario should not be promoted. An obvious conclusion arising from this study is that any type of reform of the policy regime is going to drive dramatic change for the majority of Thai cane farmers, but the degree of impact will be uneven. This thesis addresses the gap in empirical research on the Thai sugar industry in the context of policy reforms and therefore will be very useful for informing future Thai sugar policy formulation. Farmers and millers can also use the results from this research to help manage their business strategy if they know which policy is going to be undertaken. As a result, it will be possible to point out the survival options for farmers and millers to policymakers and stakeholders to maintain the competitiveness of the Thai sugar sector and, perhaps remain a major player in the world sugar market, even if there is an enforced change in policy regime.