Thailand Industry Outlook 2021-2023

2021-2023 THAILAND INDUSTRY OUTLOOK​

 

The Thailand Industry Outlook report evaluates the attractiveness of selected Thai industries to support credit evaluation for the bank’s clients over the next 3 years  (2021-2023). The report considers a range of factors that will affect each industry over this timeframe. These include the broad competitive environment (e.g. trends in trade and the global economy, structural changes occurring at global level, and economic outlook for Thailand), as well as sector-specific variables (e.g. industry structure, Thai industrial competitiveness, and ongoing regulatory changes). We look at the players’ ability to cope with uncertainties, generate revenues, and service debt.

Macroeconomic environments

Global economy in 2021-2023: Different pandemic recovery and growth trajectories for major economies
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• Over the next three years, the global economy is projected to grow by an annual average of 4.4%. It will recover from the recession in 2020, the worst setback to growth in several decades. Economic activities would continue to rebound gradually, led by manufacturing and exports. With the rollout of vaccination programs this year, lockdowns would be relaxed in many countries possibly by 2Q21, and governments would continue to offer wide-ranging fiscal and monetary support for their respective economies. Growth will also be supported by the development of several COVID-19 vaccines, which are expected to enter mass production in the first half of 2021, followed by mass immunization programs that will accelerate in the latter half of the year. Meanwhile, the election of Mr. Biden as the next American president suggests the US is unlikely to introduce more trade barriers, and with this, at least one obstruction to a recovery in global trade has been removed, and the world economy should return to growth mode.
• Over the next 3 years, the US economy is projected to return to average growth of 2.8% per year, following an estimated 4.3% contraction in 2020. This will be helped by a recovery in domestic demand fed by stronger consumption and investment, which have in turn benefited from government response to the COVID-19 pandemic and efforts to alleviate the impacts on businesses and workers. The US labor market is recovering from earlier lows, with unemployment rate improving to 6.9% in October from 14.7% in April, and unemployment claims falling to 7.3 million at end-October from 25 million at the start of May. This has helped to boost consumer spending; in April, spending was only 82% of pre-pandemic level, but by October this had recovered to 98%. Beyond this, Biden is likely to push through a major fiscal support package to stimulate the economy further and overhaul the US’ trade policy to provide a further fillip to businesses and exports. Meanwhile, the Federal Reserve is indicating it will maintain an accommodative monetary policy through to 2023 and is fully committed to intervening in corporate debt markets. As a result, financial conditions have recently returned to pre-COVID-19 levels considerably faster than the recovery from previous economic crises.
• In the Eurozone, recovery is expected to accelerate with growth reaching 3.5% per year, though this follows a much deeper recession that knocked 8.3% off the bloc’s GDP in 2020. The rebound will be powered by growth in manufacturing and stronger exports to the bloc’s main trade partners, especially the US which is now expected to follow a less confrontational trade policy for its traditional allies. Domestic demand will also benefit from stimulus measures worth EUR1.82trn, comprising: (i) long-term spending by the EU over 2021-2027 worth EUR1.07trn; (ii) EUR750bn from the EU Recovery Fund; and (iii) the temporary Support to mitigate Unemployment Risks in an Emergency (SURE) program, which injected another EUR87.4bn into the region. For its part, the European Central Bank (ECB) is also looking to further relax monetary policy by introducing negative policy rates and/or expanding the Pandemic Emergency (asset) Purchase Programme (PEPP) which has access to EUR1.35trn funds currently.
• In Japan, recovery will be relatively anemic with growth at 1.7% annually, following a 5.3% GDP contraction during the 2020 recession. Growth will be supported by several factors. (i) Exports would expand in line with the recovery in the world economy and global trade. (ii) Household consumption would improve supported by a strong labor market (unemployment rate was just 3% in September), though rising household savings point to a fragile recovery. (iii) Business confidence is strengthening, particularly in the travel and tourism industries (e.g. restaurants) which are the prime beneficiaries of the government’s ‘Go To Travel’ stimulus package. (iv) Investment in digital services will expand over the long-term in response to anticipated labor shortage; this is one of the government’s key initiatives. Along with this, public-sector investment has also been boosted by the postponed 2020 Olympics. (v) Other stimulus measures, including those aimed at alleviating the effects of the pandemic, are supported by a JPY549bn supplementary budget. And like other central banks, the Bank of Japan will likely maintain an accommodative monetary policy in the foreseeable future.
• ​China is outperforming other major economies and can look forward to average growth of 6.6% per year over the next three years, accelerating from an estimated 1.9% growth in 2020. The country is now reaping the benefits of its rapid and comprehensive measures to control the COVID-19 outbreak. It is recovering faster than most other countries, to the point where even industries that had been severely impacted by the pandemic, such as restaurants and domestic airlines, have returned to pre-pandemic heights. In the coming period, household consumption is expected to be an important driver of the Chinese economy. In fact, this is part of China’s 14th Five Year Plan (2021-2025), which also lays the framework for the structural reform of the economy. This will be achieved through the development of technology and innovation, increasing the efficiency with which factors of production are allocated, protecting the environment, and shifting the center of gravity within the economy from a dependence on export markets to domestic consumption. Also, China’s favor in the scramble to recover is the healthy state of its labor market, coupled with being a frontrunner in the race to develop a COVID-19 vaccine. Its success has enabled the country to roll-out a mass immunization program ahead of other countries. The net effect of all these factors will be a sustainable recovery through the next few years. Although investment is weakening, it is also becoming more balanced with investment in manufacturing rising in line with stronger exports and higher profits, and over a broader timeframe, the government’s long-term plans to raise manufacturing standards and push ahead with technological innovation. This is happening alongside slowing investment in real estate (reflected in falling land prices) and a slack in government spending on infrastructure which has been an important stimulus for the economy but is now becoming less necessary.

 

• The global economy is undergoing structural shifts as it transitions from a dependency on manufacturing to becoming increasingly centered on services. So between 2008 and 2017, the share of world GDP attributed to services rose from 62.0% to 65.1%. Although, in advanced economies such as the US, the UK and France, services generate about 75% of GDP, led by ‘modern services’ such as IT, software design and finance. In Thailand, the service sector’s share of GDP has grown from 55.8% in 2008 to 63.2% in 2019. But in the Thai economy, traditional services such as tourism, trade, and hotels & restaurants dominate, and only 14% of national GDP comes from modern services which are largely confined to finance and telecommunications. However, in the next period, this will change.  Technological progress will raise importance of modern services within the economy because these will add value to goods and services. For example, design and consultancy services to best utilize technology such as artificial intelligence and big data to boost sales and design new products that better meet consumer needs. Thus, if Thailand wishes to keep up with prevailing trends that are transforming businesses worldwide and secure sustainable, long-term development, it will be essential for the country to meet and overcome the challenges involved in transforming the economy into one that is based on the provision of these modern services.
• At the same time, the global trading environment is more tense and trade barriers are becoming increasingly common. Indeed, the World Trade Organization (WTO) reported that in just one year (October 2018-October 2019), WTO member states have employed 102 measures to control trade worth USD750bn. This is the most barriers reported in 7 years and a 27% increase on the year earlier. To control imports, imposing import tariffs was the most common move followed by import bans, stricter import procedures, and imposing other fees. Exports were most often controlled by imposing export charges, specifying pre-conditions for export and requiring the issue of export licenses, and capping export volumes. The products most affected by these restrictions are minerals, fuel products, machinery, electrical equipment and parts, and precious metals.

The tendency to erect trade barriers is both a threat and an opportunity for Thailand, especially given escalating tensions between the US and China since 2018. Both these countries are important export destinations for Thailand. The US-China trade war has exerted downward pressure on Thai exports, but at the same time, Thailand is presented with an opportunity to benefit from trade diversion to develop its own export sector by replacing exports in the bi-lateral US-China trade vacuum. Thus, in the first 10 months of 2020 (January-October), the value of Thai exports bound for the US rose to 14.8% of total exports from 12.7% in 2019, while exports to China climbed to 12.8% from 11.8%. In addition, Thailand may also benefit from investment diversion as US and Chinese investors seek to circumvent trade barriers by offshoring production facilities. In fact, in 2018 and 2019, applications for investment incentives to the Board of Investment from US and Chinese companies comprised 57% and 52% of total submissions (by value), respectively. However, this path is not without obstacles and Thailand needs to develop comparative advantages to become a more attractive investment destination than its neighbors, such as Malaysia, Indonesia and Vietnam which unlike Thailand, already have free-trade agreements with Europe as part of their strategies to attract more foreign direct investment.

• Modern technology is rapidly reconfiguring the industrial sector and is creating a major structural transformation. In addition to rising competition, global megatrends will change productivity levels, pushing industry into the Fourth Industrial Revolution. But beyond this, the COVID-19 crisis has revealed weaknesses in prevailing business models, and companies are now rushing to strengthen supply chains and make them more resilient. The major technologies that will determine how industry is transformed over the next 3 years will include the following.
  • 5G technology: 5G broadband can offer over 100 times the bandwidth of 4G networks, and 5G systems will support the revolution in manufacturing processes by controlling machinery-functional systems. They can collect and analyze big data resources to automatically adjust raw material and finished goods inventory. Examples of assembly lines that are built around 5G technology include Ericsson’s and Vodafone’s electric microcar production lines in Germany and Bosch’s electrical appliances production facilities in Britain.
  • The Internet of Things (IoT): IoT devices are already playing a greater role collecting data from sensors embedded in a wide variety of commonly-found devices, including surgically-implanted heart monitors, smart fridges that monitor expiry dates of food, biochip transponders that check the state of livestock, and sensors in greenhouses to maintain optimum growth conditions. These devices will accelerate competition between suppliers to develop devices that gather and transmit data, and the use of these devices will change fundamental supply chains for manufacturers of parts and equipment in almost all industries, especially medical devices, electrical appliances, and auto assembly.
  • Drone: The development of drones (pilotless, remote-controlled flying vehicles) has been closely connected to the development of related technologies including sensors, satellite systems, the IoT and AI. This has allowed drones to be used as labor- or time-saving devices in applications such as surveying land, preliminary visual inspection of an area, and spraying pesticide and applying fertilizer.
  • Edge computing: This has evolved as a way of getting around the limitations of cloud computing-based big data analytics, and involves creating real-time links between data on changing consumer demand with production lines or other business operations, allowing systems to respond to customer data without having to pass through a cloud-based data center. Such systems, which emphasize speed, are most often used in applications where organizations need to respond swiftly to changing consumer behavior, in both the industrial and services sectors (e.g., healthcare providers, recreation services, and logistics).
  • Artificial intelligence (AI): Industrial applications for AI are increasing. And when used alongside other new technologies, including cloud computing and the IoT, it is increasingly facilitating big data analytics, such as supporting recording and diagnostic systems in hospitals and healthcare facilities, assisting in call-center services, and employed in manufacturing and services industries that are affected by labor shortage. In addition, the deployment of ‘cobots’, where human staff work with robots and automated systems, is also increasing. For example, robots and drones working with farmers in field-based applications. Research by PwC reveals the majority (60-70%) of leading global corporations have developed AI applications for use in their assembly lines. Siemens now uses AI for its engineering quality control tests and to schedule maintenance of machinery. PwC predicts that by 2030, AI will be generating USD15.7trn worth of added-value in the global industrial sector. A survey of the investment plans of leading global companies carried out by Emerton Data (a data science consultancy) reveal 85% of respondents plan to use AI in their production processes.
  • Blockchain: The use of distributed ledger technologies in place of centralized systems allows for the sharing of information among users on a network, but because data is password-protected, data-security is maintained. This would facilitate peer-to-peer business transactions, especially those involving digital currencies or assets, as well as the secure storage of large, sensitive datasets, such as medical genome maps, biometric data, or tracking and tracing sources of agricultural products to create systematic information, which will lower costs across the supply chain.
  • Quantum computing: The development of computers that exploit the peculiarities of the quantum world, in place of the binary digital computers used currently, will increase both the speed and potential of AI. Quantum computing is now entering the stage where commercial applications are feasible. The market for smart devices that are built on quantum technology is forecast to be worth USD8bn by 2022 (Business insights & lifestyle guides, hivelife.com), mostly involving smart equipment such as driverless vehicles and robotics.
  • 3D printing: The use of 3D printing allows for the rapid, low-cost design and production of goods controlled by digital technology. This can be used to better meet rising demand from middle-income consumers for customized products. This will play an increasing role in transforming industrial supply chains and allowing for the reuse and recycling of materials through ‘recycle bots’ in industries including fashion, parts for use in auto assembly and aeronautics, electronic equipment, tools, equipment and spares, and even printing tissue cultures.
  • Cultured meat/plant-based meat: It is now possible to manufacture meat products from cow, chicken, pig and tuna stem cells. Meanwhile, meat-like products produced from plant-based ingredients are increasingly similar to meat in terms of taste and texture. These products have advantages over traditional meats, including smaller environmental impact, quality, absence of hormone and antibiotic residues, a healthier nutrient profile, less negative health impact than consuming conventional meats, and is a sustainable food supply in the event of food shortages resulting from outbreak of diseases in livestock or natural disasters. The products can also help to meet changing consumer patterns arising from an aging society and rising interest in personal health and wellness.

 

• Global value chains are being transformed by the after-effects of the COVID-19 pandemic. The pandemic had brought industrial supply chains almost to a halt in the first few months, but this has since incentivized corporations to identify some of the complexity in their supply chains and reduce the distance that separates them from their suppliers. This is being achieved by spreading production over several countries in the same region, and locate them near sources of supply. This process is leading to the creation of shorter, more diversified and more regionalized supply chains. In light of this, Krungsri Research projects that in five years, parts of Thai industry will be more deeply embedded in global value chains. Industries that will benefit from greater linkages to supply chains would be in downstream positions where Thailand has competitive advantages, including the production of food & beverage production, and computer & electronic products. However, upstream industries, especially agriculture and mineral extraction, risk seeing a weaker participation in global value chains. 

Business Environment

Structural problems are capping the competitiveness of Thai industry

The WEF’s 2019 Global Competitiveness Index reveals Thailand’s score for overall competitiveness improved to 68.1 from 67.5 in 2018, but the improvement lags behind that of other countries. Thailand’s rating out of 141 nations slipped from 38th to 40th. Thailand’s overall competitiveness improved because of macroeconomic stability, the economy is balanced, the financial sector is strong, and the population has almost universal access     to high-quality healthcare. But Thailand needs to develop its regulatory environment, reduce bureaucracy, encourage the development of lifelong learning skills so the workforce can continuously up- and reskill, and encourage  competition  through  diversification of production and distribution,   and reduce risk of markets  becoming monopolies.

Other areas where Thailand needs to reform urgently include developing a comprehensive infrastructure and network of rail and seaport services, assuring labor rights, building skills in innovation and technology (including developing, and then finding applications for innovations, and raising awareness of the importance of cybersecurity), and increasing the level of research & development. With regard to the latter, Thailand scored only 33.6 out of 100, trailing behind regional competitors such as China (79.5), India (57.1) and Malaysia (44.0), partly because expenditure on research & development accounts for only 0.8% of Thai GDP. Thailand also faces ongoing labor shortage.  Although the country imports robotics systems for industrial applications to cut costs and raise standards, Thailand remains a ‘technology user’. Hence, it falls behind countries such as Japan, the US and China, which are a ‘technology investor’ and continuously invest in the development of robotics and other technologies to use themselves. Because of this, Thailand is only able to deploy robotic systems in certain industries, such as auto assembly, electronics, machinery and metals, plastics and food processing. Hence, the Thai export sector is still largely dependent on finding markets for products that are assembled with low levels of technology. Unfortunately, effecting the kind of structural reforms necessary to overcome these obstacles and to fully-transform Thai industry along the lines of the 4th Industrial Revolution will be a long process. The factors outlined above will weigh on the export sector, reduce competitiveness and escalate the risk of the country losing market share.

 

 

Regulatory reforms and the impact on industry
Stability

• There have been measures and changes in the real estate market (enforced since 2020) to reduce speculative pressure, improve efficiency of land allocation, and reduce uncertainty over the future value of mortgage collaterals.
  • Greater regulation of mortgage loans with the introduction of new loan-to-value (LTV) rules. (i) For first homes valued at less than THB10mn, banks can offer 100% LTV ratio, with possibility to increase to 110% with a ‘top-up’. (ii) For first homes valued at over THB10mn, borrowers must make minimum 10% down payment. (iii) For second and subsequent homes, if there is a loan still outstanding on the first property or if the property is valued at over THB10mn, the maximum mortgage (loan for the property plus any ‘top-up’) will be relative to the collateral value, as specified in the regulations. These rules came into force in April 2019, with changes to the rules affecting first homes effective January 2020.  
  • The Land and Building Tax Act was effective in January 2020. This could increase real estate developers’ tax burden if they have a large backlog of unsold stock, especially unsold condominiums held for longer than 3 years because they will now attract a land tax.
• Government has reformed financial regulations to protect consumers, reduce the impact of the COVID-19 crisis, and to prepare the industry for greater competition.
  • Increasing consumer protection. This is achieved by: (i) changing how interest is calculated and rules for fee collection when loans are paid-off early; (ii) changing interest charge for defaults by SME and individual borrowers, and splitting them into a series of payments (with effect from January 8, 2020); and (iii) extending regulation to cover services provided by specialized financial institutions (SFIs), asset management companies (AMCs), and nano-finance operations (with effect from September 4, 2020).
  • Policies to reduce the impact of the COVID-19 crisis. These include aid to SME and individual debtors, a debt consolidation program for individual borrowers, a preventative debt restructuring program (January 1, 2020-December 31, 2021), and reducing statutory contributions by Thai banks to the Financial Institutions Development Fund (FIDF) from 0.46% to 0.23% of deposits for two years, starting April 2020.
  • Authorities are also preparing the financial system for anticipated changes. They introduced new regulations to govern personal digital loans and the use of alternative data to support applications for the same (from September 15, 2020), drafting the Payment Systems Roadmap (2019-2021) which pushes for the use of digital systems as the primary payment channel, and enforcing new rules on peer-to-peer lending platforms (from July 2020).

Health

• The imposition of a sugar tax on non-alcoholic drinks with rates calibrated to sugar content should help to increase consumer awareness about the health impact of excessive sugar consumption. The tax rates are being ratcheted up in 4 stages: September 16, 2017-September 30, 2019, October 1, 2019-September 30, 2021, October 1, 2021-September 30, 2023, and October 1, 2023 onwards. In response to the steadily rising excise duties, prices may rise, demand may weaken, and manufacturers may start to produce low-sugar or health drinks.

Energy and the environment

• Reform of the energy sector is directed by the revised 2018 Power Development Plan for 2020-2037. The plan places a strong emphasis on alternative energy and supports the development of generating facilities powered by biomass, bio-gas and waste. The plan also opens the market for energy to competition in the supply of rooftop solar energy, help balance supply from alternative sources, and promotes investment in energy storage. Given this, investments in these energy sources will increase from 2021 onwards.
• Reform of energy sector regulations
  • The LNG market has been liberalized. In the past, only a small number of operators were allowed to enter the market. Now, private-sector players are permitted to supply and transport LNG. As such, domestic prices for natural gas may fall.
  • The crude reserves that refiners and traders are required to maintain have been lowered to 4% of total volume distributed, from the earlier requirement of 6% reserve ratio. This policy will run from May 1, 2020-June 30, 2021. After that, it will rise to 5%. This will reduce stockholding costs for operators.
  • Extending expiry of subsidies for E20 and E85 gasohol and B10 and B20 diesel from 2022 to 2024. This will help to ease the COVID-19 impact on ethanol and palm oil producers. The pandemic has reduced in demand for transport fuel.
  • Pushing back plans to address air pollution, especially PM2.5 particles. Authorities had pushed back plans to tighten regulations on exhaust emissions, and moving to Euro 5 and then Euro 6 standards. There will be introduced in 2024 and 2025, instead of 2021 and 2022, because the stricter standards will raise production costs for manufacturers as they will need to develop new engines and exhaust systems.
  • Introducing new energy-efficient building regulations. The Building Energy Code (BEC) will cover the design and construction of new buildings in 9 categories: hospitals, schools and universities, offices, condominiums, conference centers, theaters and cinemas, hotels, service centers, and department stores and shopping centers. From 2021, the code will apply to new buildings with a footprint of 10,000 sq.m. or more. From 2022, this will be extended to those over 5,000 sq.m., and from 2023 to those larger than 2,000 sq.m. This will increase costs for design and construction materials for new buildings, and for retrofitting older buildings.

Trade

• Successful conclusion of negotiations for the Regional Comprehensive Economic Partnership (RCEP)*/ agreement on November 14, 2020. This will be followed by ratification by the signatories in the second half of 2021, and enforcement. The agreement is aimed at reducing duties on 99% of the goods traded between member states. This is expected to increase trade between Thailand and RCEP signatories (prior to the agreement, it comprised 55.8% of the total value of Thai exports). For Thailand, this will present a clear opportunity for manufacturers of autos and auto parts, plastic nurdles and plastic products, chemicals, rubber and rubber products, and electronics and parts for electronic appliances, as well as the fishing industry. The RCEP may also benefit Thailand by encouraging investors from non-ASEAN countries to invest in production facilities or business centers in Thailand, as well as trigger the growth of supporting industries.
• Since January 1, 2021, the UK has reduced or suspended tariffs on imports from countries with which the UK does not have a free-trade agreement and which have not been granted GSP status. (i) For goods that were subject to tariffs of up to 2.5%, imports are now tariff-free. This covers imports of gemstones and jewelry, air conditioners, and automatic data processing equipment. (ii) Goods for which tariffs were set at no more than 20% will see tariffs cut to a maximum of 2.5%, covering auto parts and equipment and glasses. (iii) Where tariffs were 20-50%, they are now reduced to no more than 5%, which will affect imports of processed fish products and vehicles weighing up to 5 tonnes. (v) Tariffs of over 50% (e.g. for tobacco products) will be cut to a maximum of 10%. These changes are naturally expected to benefit exports of Thai goods in these product categories.
• Since April 25, 2020, the US has rescinded GSP status for imports of Thai ceramics in 473 product categories, including tiles, sanitaryware, insulators, souvenirs and decorations, tableware and crockery. This will increase the cost of exports to the US, which with a 10% share (in 2019) is Thailand’s second most important export market for ceramic products. Japan accounts for 40% market share, making it Thailand’s largest market.
• Revision to the ASEAN Trade in Services Agreement (ATISA) is intended to fully liberalize trade in services from 2021. Compared to the 128 categories of services covered by the earlier ASEAN Framework Agreement on Services (AFAS), the ATISA extends trade liberalization to 155 areas. Under the agreement, signatory nations - without exception – must automatically grant foreign businesses most favored nation status. This could increase investment in Thailand’s services sector.
• The Trade Competition Commission is preparing to announce guidelines for operators of digital food delivery services. They are aimed at ensuring that delivery businesses operate fairly and there is free competition. The announcement is pending publication in the Royal Gazette, which means enforcement will start in 2021.

Other measures

• The annual THB40/room fee levied on hotels is suspended from July 1, 2020-June 30, 2022. This would reduce the financial burden on hotels because they have been badly hit by the pandemic.
• The Thai Industrial Standards Institute will include retread tires a controlled item, which will affect tires used in large vehicles, including passenger vehicles with more than 9 seats, trucks and articulated vehicles. It is hoped that this will improve the quality of retreads, making them safer and reduce accident rate. The regulations will be enforced in 2021.
• Review or repeal duplicate/outdated laws and regulations (the ‘guillotine’ process). This includes regulations governing visas and work permits for non-Thais. If successful, this will help businesses in industries troubled by labor shortage.

Krungsri Research believes the measures described above represent both an opportunity and a challenge to the Thai economy. But the changing global economic and social context means modernizing the country’s regulatory framework is an undertaking that cannot be avoided. Indeed, if successfully pursued, this process will help to lay the foundation for a business environment that will support long-term, sustainable, commercial and industrial growth.

AGRICULTURE​

Rice

Situation in 2020

• Paddy outputs dropped 25.0% YoY in 9M20 following the worst drought in 40 years. The Rice Price Index surged 8.6% YoY led by higher prices for white and glutinous rice that were driven by (i) insufficient output to meet domestic demand, especially glutinous rice, and (ii) some exporters stopped sending shipments overseas as they stockpiled food in response to the pandemic. Overall, the income index for rice farmers fell 19.0% YoY, largely due to lower yields.
• Exports crashed 31.9% YoY to 4.0 mn tonnes in 9M20, bringing in USD2.70bn proceeds (-15.3% YoY). This was partly supported by much higher prices for Thai rice (e.g. Hom Mali, Glutinous and White) relative to rice from Vietnam, India and Pakistan. China, an major market for Thailand, also cut imports to run down domestic stock.

• In 4Q20, (when 80% of paddy has been harvested), output should rebound due to (i) higher rainfall, and (ii) high prices, expansion in cultivated area, and more plantings. For full-year 2020, paddy output is projected to rise by 6.5% to 30 mn tonnes. But exports will drop 25.0% to 5.69 mn tonnes because of weaker price competitiveness. Although prices of Thai rice have dropped since, they remain higher than rice from other countries because exporters had bought stock when prices were elevated.

Outlook for 2021-2023

• Annual output is expected to rise by 1.0-3.0% to 30-32 mn tonnes of paddy or 20-21 mn tonnes of milled rice. This would be driven by more favorable weather, which will boost yields especially for in-season rice (in 2021-2022, La Niña condition should help farmers). Farmers will also likely expand planted area and/or increase number of plantings because (i) although prices are falling, they remain above production costs, and (ii) they are incentivized by government measures to expand operations, including income guarantee, crop insurance, help with planting schedules, and soft loans to slow the release of new harvest.

• Players will continue to face challenges, including domestic and international price competition and high cost of Thai rice, though the impact will vary across different segments of the industry.
  • Exporters: Exports will return to growth as competitiveness improves when domestic prices fall and current stock is sold off. But exporters will need to shoulder the costs of purchases made in 2019-2020 when Thai rice was more expensive.
  • Millers: Businesses face higher risks because they will have to contend with uncertain weather and large excess supply. Large/integrated operations which can control costs will have an advantage, while SMEs may face problems with liquidity or securing paddy supply.
  • Silos: Revenue will remain depressed due to large excess capacity. Operators will need to cut prices and seek alternative markets.

Rubber

Situation in 2020

• In 9M20, natural rubber output slipped 2.4% YoY due to outbreak of leaf fall disease and a shortage of migrant labor. Hence, output of upstream rubber products (ribbed smoked sheet, block rubber and concentrated latex) also shrank, albeit also due to weak demand. Exports (80% of output) fell 21.4% YoY to 1.9 mn tonnes with lower volumes to most markets. The COVID-19 crisis has dampened demand from downstream industries. Thus, exports of RSS and TSR tumbled 25.9% and 37.4% YoY, respectively. However, exports of latex rose 3.3% YoY mainly due to stronger demand from surgical gloves producers in Malaysia. Export prices slid 6.5% YoY, in tandem with lower crude prices, causing export proceeds to plummet 26.4% YoY to USD2.4bn However, government support helped to keep domestic demand similar to 2019.

• Rubber tapping activity has been affected by heavy rains, which means output will continue to slide in 4Q20. Hence, 2020 output is projected to drop 1.5% to 4.7 mn tonnes. Exports will remain depressed in 4Q20, and for 2020, it will shrink 16.0-17.0% following a 10.7% drop in 2019, due to weak demand and competition from the CLMV countries. Export prices will fall by 3.0-4.0% on lower crude prices (along with lower prices for oil-based synthetic rubber, a substitute good). As such, overall export value would drop by 19.0-20.0% to USD3.3bn However, domestic demand will rise by 1.0-2.0% thanks to higher government consumption and stronger 2H20 purchases by downstream industries as the economy recovered.

Outlook for 2021-2023

• Output will rise by 3.0-4.0% annually, led by: (i) earlier expansion in planted area; (ii) better climate; (iii) serious outbreak of leaf fall disease in other producing countries will benefit Thai rubber producers and raise prices; and (iv) incentives offered to farmers to expand plantations, such as income guarantee scheme.
• Domestic demand will rise by 4.0-5.0% per year premised on the economic recovery, progress in government infrastructure projects, growth of downstream industries (especially tire and latex gloves), and government support for the industry. Exports will also return to growth, rising by 3.0-4.0% annually driven by stronger demand from downstream industries, again led by manufacturers of tires and surgical gloves. Thailand will also benefit from smaller output in other rubber-producing countries. In Indonesia and Malaysia, this will be due to outbreak of leaf fall disease and labor shortage, and in Vietnam it will be due to severe storms. However, the outlook will vary across product groups.
  • RSS and TSR: Exports will rise by only 1.0-3.0% and 1.0-2.0%, respectively, due to competition from traditional producers (Indonesia, Malaysia and Vietnam) and from new entrants to the market (Cambodia, Lao PDR and Myanmar).
  • Latex: Exports will grow by 5.0-7.0% p.a. on stronger demand from producers of latex gloves and other latex-based medical products, especially in Malaysia, the most important market.