Agricultural machinery: Thailand a hub for Southeast Asia

The progressively ageing of rural population together with low production levels is creating the conditions for the progressive replacement of the workforce with machines and for an increasing demand for agricultural machinery. The interest of manufacturers is also linked to the possibility of exploiting this country as a logistics base for the entire Southeast Asia

Thailand, a vital and diversified agricultural system. With about 24 million cultivated hectares, equal to less than half of the overall surface, Thailand is the “garden” of Southeast Asia. Not only for the role played by the agricultural sector in the economic system (with agriculture representing 10.2% of GDP), but most of all for the great variety of cultivations. In fact, while, on the one hand, rice continues to be the most widespread cultivation in terms of production and export, on the other hand an increasing role is being played by fruit farming and long-term cultivations. First of all rubber-woods and oil palms, of which Thailand is respectively the first and the third producer worldwide; and then sugar cane (fourth producer worldwide), cassava (second producer worldwide) and maize, mainly intended to be used as livestock feed. Last but not least, pineapple and coconut production. This all means that Thai agriculture, that represents the main income source for 34% of the population, has a large growth potential. However, the production performance of the sector is affected both by the ever-changing climate and environmental conditions (the 2015 drought caused a collapse of rice production, because 75% of rice fields were not equipped with automatic irrigation systems) and by the complexity of the political situation (the country is currently governed by a military junta) and the granting of subsidies by the Thai government. This is the outlook provided by the report titled “Agricultural Machinery Market in Thailand” commissioned by the Italian Trade Agency on behalf of the economic and trade department of the Italian Embassy.

Ageing of rural population

The report shows that a decisive factor affecting Thai agriculture is the ageing of rural population as well as the level of education achieved by workers. In fact, the primary sector currently employs just less than 13 million Thais (34% of the population), with a high average age – 58 years – with the two-thirds of farmers (71%) distributed in the age group between 45 and 70. Land cultivation is neither a job for young people (with only 5% in the group between 15 and 34), nor for people with a good level of education, if we consider that only one out of five farmers has a high school diploma or a degree. The fact that Thai agricultural system is not an attractive perspective for young and educated people is mainly due to the low profitability of a sector in which the majority of workers has a relatively poor income. Therefore, in the second economy of Southeast Asia exists a problem of productivity and impoverishment of the rural population. In order to re-launch this sector and to fill this gap, the focus is on crop diversification (at the expense of rice), and on extensive mechanization.

 

Agricultural machinery: the primacy of tractors

The use of tractors boomed between 2008 and 2015, with a sharp rise in the number of registrations, increased from 134,000 to 487,000 units, in both quantitative and qualitative terms. The development of agricultural mechanization (as stated in the report, referring to the 2013 general agricultural census data), has determined a deep change in the composition of the fleet of machinery, with a progressive replacement of general-purpose tractors with tractors (increased by 6.1% from 2003 to 2013). A significant change did not involve the number of general-purpose tractors (-0.4% per year, from 2003 to 2013), but the number of their users (-4.4% per year, in the period considered). Combine harvesters (+4.4% a year), seeders (+17.9%) and equipment for phytosanitary treatments have increased. Despite the 2015 setback to the market, caused by one of the worst drought of the last decade, in the near future the sector should recover. Leading roles will be played by investments in technologies, replacement of workforce with machines and outsourcing, that is currently widespread in the country and involves about 2 million workers. According to the report’s outlook, the demand for tractors should reach 47,500 units per year, with 3,400 combine harvesters. The sector of machines for soil processing is also increasing even if this is a relatively weak segment, with a preponderance of local manufacturers. The optimistic outlook on the performance of the sector is also due to the fact that Thailand, thanks to its infrastructures and strong propensity for business is eligible for becoming an operational and logistics base for the other markets of Southeast Asia.

 

As far as technology is concerned, Thailand aims at foreign countries

In the country there are currently ninety agricultural machinery and equipment manufacturers with the full liner Siam Kubota that, holding a market share of almost 70%, is enjoying a monopoly position. Local manufacturers are mainly specialized in low power tractors as well as in low-tech machines and equipment. Thai mechanical industry is not capable of satisfying the demand for innovative machines and so the market is forced to look somewhere else. As far as imports are concerned, China was Thailand’s first trading partner in 2015, with a market share of 39%, followed by Malaysia with 16.6%; Italy instead, reached the seventh position with 3.02%. Priority is given to medium and large sized tractors, with over 50 horsepower, water pumps, nebulizers and weeders. Good opportunities for the sector of sugar cane, maize, soybean and cassava harvesters, also because in the next years (according to the report drawn up by ICE Agency) should occur an increasing diversification of agricultural productions, with new crops gaining a significant ground compared to rice (that requires machines produced mainly by local manufacturers). In short, the agro-industrial sector of Thailand is characterized by high levels of competition, even though – highlights ICE Agency – it is very difficult to register brand preferences, because farmers usually obtain the machinery even through rental contracts or the granting of public subsidies and this makes the price factor less relevant compared to the access to financial support.