THAIS SEE ECONOMIC BENEFIT FROM CONTRACT FARMING IN BURMA

C O N F I D E N T I A L SECTION 01 OF 02 CHIANG MAI 000175

SIPDIS

E.O. 12958: DECL: 11/20/2018
TAGS: PINR ECON EAGR EAID ECIN EINV ETRD PREL BM TH
SUBJECT: THAIS SEE ECONOMIC BENEFIT FROM CONTRACT FARMING IN BURMA
(C-AL8-02135)

REF: A. STATE 118949 (REQUEST FOR INFORMATION ON FOREIGN INVESTMENT)

B. CHIANG MAI 174 (WITHOUT BURMA, EAST-WEST CORRIDOR)

C. CHIANG MAI 96 (AFTER NARGIS, A BORDER TRADE BOOM)

CHIANG MAI 00000175 001.2 OF 002


CLASSIFIED BY: Kevin Rosier, Consular-Political Officer,
Consulate General, Chiang Mai.
REASON: 1.4 (b),(d)



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Summary and Comment
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1. (C) Thai contract farming is a growing feature of the
Thai-Burmese bilateral economic relationship. The activity
remains concentrated in the border areas, however. Thai
businesspeople who engage in contract farming in Burma are
generally individuals who conduct their business informally with
local Karen village leaders, not with the GOB or major Burmese
companies. The Thai government views contract farming as an
economic policy tool that lowers agricultural prices for Thai
consumers, lessens the migrant pull in Thailand, and stimulates
demand for Thai goods in Burma. However, the RTG at the
national level is not currently engaged in activities to promote
contract farming specifically, it is focused on agricultural
development through vertical integration and greater control
over quality standards, which contract farming helps to achieve.


2. (C) Comment: Although it was the Thaksin administration
(2001-06) that launched contract farming as a national-level
policy, it is at the provincial government level that the
program is managed (and expanding) now. With Tak province as
the primary government body managing contract farming without
much participation from the Thai central government, it is not
likely that contract farming will expand far beyond the
Democratic Karen Buddhist Army (DKBA) and Karen National Union
(KNU) controlled areas across the border. End Summary and
Comment.

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Scale and Scope of Thai Contract Farming in Burma
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3. (SBU) Tak is the leading province engaging in Thai contract
farming in Burma, according to the Tak Chamber of Commerce and
Customs Office. Customs officials said that the official value
of goods produced by Thai contract farms in Burma that were
imported into Thailand via Mae Sot was $1.35 million in 2007.
However, they estimate the actual value is likely over $3
million, or three times as much, citing the unofficial nature of
much of the trade along the Thai-Burma border.


4. (U) Operating contract farms in Burma since 2005, Tak-based
investors employ Burmese farmers in neighboring Karen state to
grow corn, green beans, peanuts, and castor beans for export
into Thailand. In 2007, Thai contract farms in Burma sent
15,400 tons of corn as animal feed and 1,378 tons of green beans
to Thailand, according to the Mae Sot Customs Office.
Currently, Thai contract farming covers nearly 100,000 acres of
land just across the border in Burma. Over half of this land
(53,900 acres) produces corn; and another third (35,400 acres)
produces green beans. The remaining 10% of Thai-contracted farm
land produces castor beans and peanuts.

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Individual Investors Operate Contract Farming
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5. (C) In general, Thai businesspeople who engage in contract
farming are individuals who are already acquainted with Burmese
farming communities in Karen state. The contract is usually a
trust-based relationship without any official contract or legal
paperwork. In general, a Thai contract farm operator will
contact a Karen village leader who will cross the border into
Thailand to collect seeds and fertilizers for distribution to
farmers. The Thai contractor will offer these inputs to the
Burmese farmer on credit; once the crop is sold back to the
contractor, the costs of these inputs is deducted from the
farmer's revenue.


6. (C) Often the Thai contractor will cross into Burma to check
on the status of the farms he has contracted with. After the
harvest, the Karen farmers will sell their product to the Thai
contractor at the agreed-upon price. If the goods are imported
officially and declared to Customs, they are duty-free under an
arrangement with Thai Customs, according to the Mae Sot Customs
Office. (Note: Despite duty-free privileges, Burmese farmers
will often export to Thailand unofficially to avoid the
transportation and bureaucratic costs of traveling to the
Friendship Bridge in Mae Sot and declaring goods with Thai
Customs.)

CHIANG MAI 00000175 002.2 OF 002




7. (C) The RTG and GOB as well as major Thai and Burmese
companies do not play any significant role at present in the
operation of Thai contract farming in Burma, according to the
Tak Chamber of Commerce. In terms of government involvement on
the Burmese side, Tak Chamber of Commerce officials say that
Thai contractors deal directly with the anti-regime KNU and the
pro-regime DKBA in Karen state and have no engagement with the
GOB. They admit, however, that in previous high-level meetings
between the RTG and the GOB, the Burmese commented that Thai
contract farms are currently only of benefit to the minority
groups along the border and that Rangoon would like to see more
contract farming deeper inside Burma.


8. (C) Because Thai contract farming is generally an informal
arrangement between the contractor and farmer directly, major
Burmese firms play no role. On the Thai side, only one Thai
company engages in contract farming, while the rest are
individual businesspeople, according to the Tak Chamber of
Commerce. The Mae Sot Customs Office said that this Thai
company is the Puenpol Suwanphume Company.

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Contract Farming as Potential Economic Policy Tool for Thailand
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9. (SBU) The Tak Chamber of Commerce says that contract farming
as a policy has significant benefits for Thailand beyond the
opportunity to import cheaper agricultural goods. First,
contract farming is a way to counter Burmese immigration into
Thailand by creating job opportunities within Burma. Second,
Thai businesses that produce agricultural inputs (seeds,
fertilizer, and farming machinery) benefit by selling or leasing
these products to the Burmese farmers. Third, higher incomes in
Burma stimulate demand for other goods produced in Thailand --
which are often outlawed in Burma or which have import
restrictions -- such as certain consumer goods and construction
materials.


10. (C) Despite these benefits, the RTG in Bangkok does not
actively promote contract farming in Burma. However, Thailand
and Burma signed a Memorandum of Understanding on contract
farming in 2005, which they are in the process of revising.
Generally, the RTG views the practice as consistent with the
promotion of agricultural development through vertical
integration and greater quality control. The Bureau of Trade
and Investment at the Ministry of Commerce told Embassy Bangkok
that while the national policy goal of contract farming is to
promote agricultural development in mainland Southeast Asia (see
para 11),it is not aware of any major contract farm deals
between Thailand and Burma at this time. It also mentioned no
ongoing activities in which it is engaged to push the practice
as a tool for economic growth.


11. (U) Background Note: The RTG under the former Thaksin
administration laid the groundwork for contract farming as a
national-level policy in 2003. At that time, Thailand, Burma,
Laos, Cambodia, and Vietnam signed onto the
Ayeyawady-Chaophraya-Mekong Economic Cooperation Strategy
(ACMECS),which included contract farming as part of the
agreement on trade and agricultural development among the
signatories and allowed for duty-free privileges on traded goods
from contract farms.


12. (U) This cable was coordinated with Embassies Bangkok and
Rangoon.
MORROW