Trade Liberalization and RTAs vs. Food Sovereignty

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1 Trade Liberalization and RTAs vs. Food Sovereignty Garlic Farmers in Thailand sarinna areethamsirikul, development policy officer (kepa-mekong) 1 Summary Garlic is a fundamental part of Thai cooking - and a significant livelihood for Thai farmers. But China produces cheaper, milder garlic with a bigger head. China produces 80% of the world's garlic, and Chinese garlic can easily flood the Thai market, threatening the incomes of Thai garlic farmers and the country's garlic self-sufficiency. Thai trade analysts have worried that the 2003 ASEAN-China Free Trade Agreement (ACFTA) is the reason for the Chinese garlic tide - but Kepa Mekong's research indicates that it is actually China's WTO accession and the WTO Agreement on Agriculture that provides the institutional framework for the imports. The Thai government is trying to control garlic imports by putting it on the 'protected' list of the ACFTA and charging high tariffs on imported garlic; by encouraging Thai farmers to grow alternative crops, and by finding them markets. Nonetheless, many garlic farmers in north Thailand face difficulties in changing their farming behaviour. Kepa conducted a field study in Chai Prakan and Fang Districts in Chiang Mai Province, in the North of Thailand. Chiang Mai is the biggest producer of garlic in Thailand and these districts are the two biggest garlic producers in Chiang Mai. Farmers in both districts have been growing garlic for more than 30 years. Regarding the issue of food sovereignty, 2 this article suggests that due to the forces of trade liberalization and RTAs garlic farmers have limited right to grow their own food and crops in order to serve their domestic market. Consumers may not have a greater variety of agricultural products and prices to choose from, as we often assume in a free trade scenario. 1 Special Thanks to Kingkorn Narintarakul, member of FTA Watch, and the Northern Peasant Alliance in Thailand. The study was written in July 2011 as part of the Kepa Policy Network's series of case studies on regional trade agreements. The series includes case studies from Tanzania, Mozambique and Nicaragua. 2 Under the Declaration of Nyéléni, food sovereignty is defined as the right of peoples to healthy and culturally appropriate food produced through ecologically sound and sustainable methods, and their right to define their own food and agriculture systems. Food Sovereignty also promotes transparent trade that guarantees just incomes to all peoples as well as the rights of consumers to control their food and nutrition. It ensures that the rights to use and manage lands, territories, waters, seeds, livestock and biodiversity are in the hands of those who produce food. Peasants are empowered and the national market is prioritized under the food sovereignty concept. 1

2 1. Introduction Garlic may not be a primary agricultural product like rice, potato, or maize. A shortage of garlic cannot lead to starvation. However, garlic is significant to food sovereignty in terms of cultural, economic, and social values. Garlic simply enhances the taste, smell, and uniqueness of food. Food cultures in several countries use garlic as an indispensible ingredient for cooking. The significance of garlic is reflected in trade agreements. Garlic is categorized as a highly sensitive product of Thailand under the ASEAN-China Free Trade Area (ACFTA) and one of the 23 agricultural products that Thailand has protected under the WTO agreement - the same as rice and palm oil. The ASEAN-China Free Trade Agreement (ACFTA) was successfully enforced on the 1 October 2003 through an initial program called early harvest, which immediately reduced import tariffs on fruits and vegetables to zero percent. Garlic farmers were quickly identified as one of the hardest hit agro-producers. 2. Chinese Garlic and the ACFTA: speculation, garlic millionaires and price rollercoasters China is the world largest garlic producer and exporter. Chinese farmers produced 6.2 million tonnes of garlic in 1999 and increased to 18.4 million tonnes in 2008, accounted for 63.5% and 80.9% of total world production respectively. Chinese garlic has dominated 50% of garlic consumption in the United States and more than 40% in Thailand. An influx of Chinese garlic in Thailand has created a disaster for Thai garlic farmers, especially in 2008 when Chinese garlic was overproduced. The price of fresh garlic was down from 22 cents (the average price between 1998 and 2001) to 14 cents per kilogram (kg) in However, the world price fluctuates steeply and changes of 20% up or down are common. After China reduced its production, the price of fresh garlic soared to around 50 cents per kg in In addition, since 2009 garlic has become a speculative commodity in China, contributing to a higher price of garlic in China and the rest of the world. The wholesale prices skyrocketed 605% to US$1,200 per tonne in Garlic trading in Jinxiang Province has its new nickname the Wall Street of Garlic which creates new faces of local millionaires. It is certain that the price of garlic in Thailand depends on the domestic production in China as a giant producer who can easily influence the world price. Several farmers could not compete with cheaper garlic from China and lost their investment in garlic farming. Individuals and manufacturers have changed their consumption behaviors to prefer cheaper garlic from China. Compared to Chinese garlic, Thai garlic has a smaller head, but stronger potency. In Thailand, a common understanding is that the ACFTA is a major factor to create this trade catastrophe. However, we found that the ACFTA is actually a catalyst for trade 3 Ju Chuanjiang and Zhao Ruixue and Li Xiang, Garlic Beats Gold as China s Hot New Asset, China Daily. 30 November 2009, acquired at 2

3 liberalization, but the China s accession to the WTO instead is a major-driven factor for the overflow of Chinese garlic. After China was granted a WTO membership on 1 December 2001, Beijing has benefited from full access to other WTO members markets. Thailand and other countries had to open their domestic markets to accept Chinese products including agricultural ones. Based on the WTO Agreement on Agriculture (AoA), Thailand listed garlic as one of the 23 sensitive agricultural products 4 that are subject to tariff rate quota (TRQ) measurement. There are two types: (1) out-quota tariff rate, and (2) in-quota tariff rate. The first tariff is an in-quota tariff rate. Under the WTO agreement, the in-quota tariff rate for garlic in Thailand is 27%, with a quota of 65 tonnes. The out-quota tariff rate on garlic committed by Thailand is 57%. This is the rate that importers have to pay when they import garlic into the country after the quota of 65 tonnes has been filled. However, it has been agreed in the ACFTA that the tariff on garlic will decrease to 50% in Chinese garlic can receive a zero% in-quota tariff rate under the early harvest program of the ASEAN-China FTA. However, only the Public Warehouse Organization (PWO) authorized by the Ministry of Commerce (MOC) can make an in-quota order when there is a shortage of garlic in the domestic market. According to the phone interview with a PWO official, he stated that the PWO had never imported garlic after the implementation of the ACFTA. Thus, the early harvest program of the ASEAN-China FTA has given privilege only for in-quota garlic, not yet touched on out-quota garlic. Still individual garlic importers have to pay 57% out-quota tariff rate under the WTO agreement. Hence, the ACFTA does not eliminate the tariffs on garlic at this moment. However, it is likely to facilitate the flows of Chinese exports through a fast and easy customs processing that is accelerated by an unquestioning and enthusiastic sentiment for trade liberalization in the region. Regardless of the high tariff rate and a more potent taste and smell of Thai garlic, Chinese garlic has penetrated the market which negatively affects domestic garlic farmers. Other factors which have strikingly contributed to this phenomenon are an enormous amount of garlic smuggling across borders and a tariff loophole at the customs. This year analysis by the Office of Commercial Affairs in Chiang Mai has estimated that more 300,000 tonnes of illegal garlic were smuggled through the customs in Chiang Mai while only 10,000 tonnes were legally imported Trade Remedies: what the Thai government is doing to control the garlic situation The Thai government has provided two types of trade remedies for the local garlic producers. In the short-term, garlic farmers received financial compensation from the 4 23 agricultural products are concentrated milk, non-concentrated milk, potatoes, onions, garlic, coconut, copra, coffee, tea, pepper, maize, rice, soybeans, onion seeds, soybean oil, palm oil, coconut oil, sugar, instant coffee, soybeans cake, tobacco leaves, raw silk, and dried longan. 5 Trade and Investment Service Center. Garlic Analysis. Office of Commerce Affairs Chiang Mai, updated 25 March [In Thai] 3

4 Ministry of Agriculture and Cooperatives (MOAC). The Ministry of Commerce (MOC) helped in finding market outlets for the farmers. Agricultural products including garlic are always vulnerable to changes in climate and environment. The price of garlic is normally fluctuating which could be very low this year and very high next year. In 1999, the MOAC started to launch a land reduction program that cuts garlic production, in hoping to stimulate a higher producer price. This program was enlarged in 2004 after the overflow of Chinese garlic began to destroy the domestic price. The government paid garlic farmers around 1,500 baht (or US$36) to 2,500 baht (or US$61) as an incentive to give up on growing garlic. In addition, the MOAC also continued giving loans and at the same time intervening in the garlic price in the domestic market. In 2006 the structural adjustment program targeted to reduce 13,600 hectares of garlic farming land and encouraged garlic farmers to grow three alternative crops: (1) bell pepper, (2) potato, and (3) rubber. Due to lacks of information and technical support, the program failed and the fund was withdrawn on 31 July In the long-term, the MOAC has continued to encourage farmers to reduce garlic farming land. The MOC has supported manufacturers to use Thai garlic in food industries and diversify garlic products, while controlling the problem of garlic smuggling along Thai borders. 4. Alternatives and Obstacles for garlic farmers: potato, rubber or co-ops? The garlic planted area plummeted from 23,950 hectares in 2001 to 10,957 hectares in 2010, or 50% reduction within 10 years, illustrated in Figure 1. The total production was down from more than 120,000 tonnes in 2001 to around 70,000 tonnes in Garlic farmers have adapted and expanded their cultivating skills in other kinds of crops such as bell pepper, chili, orange, onion, potato, hay (for feeding cattle), sweetcorn, rubber and several other vegetables. Figure 1: Garlic Farming Area in Thailand. Source: Office of Agricultural Economics. Note: 1 rai = 0.16 hectares. 4

5 4.1. Compensation and Assistance Some farmers revealed that they did not receive a full amount of compensation from the land reduction program. Some were confused and said that they did not even know about this program. Some admitted that they received compensation but decided not to switch to other crops because they did not know how to grow different crops and to get assistance. One farmer said that I did not participate in potato contract farming as the government promoted because his land could not grow potato. I had no choice but to continue growing garlic. However, several garlic farmers have grown potato as an alternative crop in Chiang Mai Cost to Switch Crops The MOAC and the MOC have encouraged farmers to participate in contract farming such as potato and corn in order to guarantee price and secure outlets. However, very limited areas are chosen by manufacturers to grow contracting crops. For farmers who are not insured under the contract farming, they have to cultivate at their own risk and sometimes need to sell yields at a very low price. We cannot store potato for several months like garlic. Whatever price is offered, we have to sell, complained by one farmer who has grown garlic for more than 30 years. Some garlic farmers decided to completely stop growing garlic and shift to rubber planting in hoping to earn more and face less fluctuating market prices. The current price of latex is around US$5 per kg, which is much higher and more stable than the prices of garlic, onion and corn. This is certainly a huge incentive for garlic farmers to change their cultivation. But there are some worries about switching to rubber plantation. First, northern farmers do not have skills on rubber plantation and rubber tapping. Second, some smallscale farmers want to invest in rubber plantation but do not have land. They tend to grow the trees on hillsides. This can cause fatal landslides because rubber trees do not have deep roots that take stop soil erosion. Third, new rubber planters are easy victims of carbon credit fraudulence. Fourth, farmers have to change their way of life and social relationships with the communities because rubber tappers need to work during the night. Without proper training and technical advice from the Office of the Rubber Replanting Aid Fund (ORRAF), farmers have faced high risks of failure in their long-term investment in rubber planting Limited Access to Seeds and Markets Some farmers have a hard time to choose an alternative crop. Some turned to grow onions. An onion co-op is the only seed seller in Chai Prakan and Fang. Co-op members can purchase seeds at US$117 per pound. Then, the members resell them to non-members at a high-ceilinged price of US$500 per pound. There is only one onion wholesaler in Chai Prakan and Fang which monopolizes local markets, sets up the prices of fertilizer, yield, storage and transportation, and controls the co-op s decisions. This year the contract prices set by the wholesaler are US$0.1 per kg for 5

6 small-sized onions and US$0.15 per kg for medium-sized onions. In fact, the farmers can get twice as much if they sell outside of the contract. Why do farmers still make contracts with the wholesaler? One former garlic farmer explained it this way, We don t have capital to invest to begin with. The wholesaler gives us seeds, fertilizers, and insecticides in advance. Then he subtracts those expenses from the total revenue that comes from the crops we sell at the contract prices. We can t set our own prices. We don t have bargaining power to negotiate with the brokers High Debt Small-scale garlic farmers who do not own land often represent the poorest of the poor. It is because they have to pay an extra cost of renting land. It costs around US$150 per rai (or 0.16 Hectare) per year which is around a quarter or more of the total costs. Many poor farmers do not have a choice but to make a green sale. It means that they agree to sell garlic at a certain price before the harvest season starts. Usually the green price is lower than the market price. I decided to make a green contract at US$0.43 per kg even though the market price is now US$0.57 per kg. I needed money right away to pay debt, household expenses, and tuition fees for my kids, a female garlic farmer expressed. The green sale is a common option for garlic farmers who are short on money. The poorest of the poor often lack access to sufficient information and assistance from the government when a crisis comes. Several interviewed small-scale farmers did not receive assistance, compared to the members of co-ops. My debt is accumulated each year. I now owe the co-op US$7,300. I want the government to help creating a fair game so I can compete, the former garlic farmer who switched to grow onions added. In contrast, Fang garlic co-op has strengthened its bargaining power in markets. They now have several direct business deals with retailers and manufactures without selling through local middlemen. This initiative came from the MOC s help Consumer Benefits? In general the theory is that higher competition creates higher diversification of products which will benefit consumers. This statement is not always true considering agricultural products. The primary purpose of free trade may be to improve competitiveness in quality and price, and provide more choices for consumers. However, the domination of imported vegetables from one giant producer may not liberalize, but monopolize the market. People systematically are forced to consume garlic, carrots, broccoli and green beans from China because it is rare to find these vegetables from other origins in markets. FTA Watch KEPA- Mekong s partner observed that Thai garlic is currently hard to find in markets and very expensive, similar to Thai carrots, broccoli, and green beans. FTA Watch further suggests 6

7 that this situation may increase a higher risk to food safety and security if the country solely relies on a single source of agricultural productions - China. 5. Conclusion: vulnerability risk An overflow of Chinese garlic imports has made farmers adapt. In the past ten years, garlic farmers widened their cultivating skills to grow a range of crops in order to escape from competing with agricultural products from China. Nevertheless, farmers have faced difficulties in entering new markets. Lack of knowledge, technical support, and access to resources such as seeds, fertilizer, storage and transportation are major barriers for farmers to adjust themselves into a new environment, especially for the poorest of the poor. These barriers have contributed to chronic debt and could trap farmers in a vicious cycle of poverty. In short, this case study suggests that trade liberalization and RTAs can create vulnerability for domestic farmers whose revenue largely depends on a giant producer abroad. It causes backlashes in terms of food choices, food safety, and food sovereignty for producers and consumers. 7

8 Annex: Map of Chai Prakan and Fang Districts in Chiang Mai Province, Thailand Source: Adjusted from the Thailand Tourism Authority Map by the author 8

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