Drought Seen Hurting Thai Farm Output as El Nino Risk Climbs

Apr 11, 2014 4:42 am ET

(Adds GDP growth outlook in final paragraph.)

April 11 (Bloomberg) -- Rice, sugar and rubber output in Thailand is at risk because of prolonged drought, according to the government forecaster, which warned that the dry conditions may be aggravated by the development of an El Nino this year.

The dry weather has already spread to 38 of 77 provinces since September, Anan Lila, secretary-general of the Office of Agricultural Economics, said in an interview today. The minor rice crop that’s now being harvested may drop 12 percent to 10.74 million metric tons, said Anan.

The warning from Anan highlights the risks to agricultural output across Asia from drier-than-usual weather even before the possible onset later this year of an El Nino event, which can affect weather worldwide and parch Southeast Asia. Forecasters in Australia and the United states boosted their forecasts for the chances of an El Nino this week. Thailand ranks among the world’s top two exporters for rice, sugar and rubber.

“If drought persists until the start of the planting season in May, it will delay rice plantings, possibly curbing output,” Anan said in Bangkok. Should an El Nino develop, that could cut rainfall, worsening the drought and hurting the farm sector, he said.

A prolonged drought in Thailand would lower the quality of sugar cane, cutting the crop’s sugar content, while also reducing the volume of rubber latex, said Anan. It would cut production from oil palms, he said.

Revised Forecasts

Dry weather devastated 329,978 rai (52,797 hectares) of rice land, equivalent to production of 195,301 tons, data from the office show. Damage to other crops is being assessed and revised output forecasts should be released in June, he said.

The chances that an El Nino will develop are growing, the U.S. Climate Prediction Center said yesterday, boosting the odds to 65 percent from 52 percent. The probability is seen as over 70 percent, Australia’s Bureau of Meteorology said on April 8.

El Ninos, triggered by a warming of the tropical Pacific Ocean, can roil agricultural markets as farmers contend with drought or too much rain. In Southeast Asia, the events can curb rainfall. The last El Nino occurred in 2009 to 2010.

World food prices surged in March to the highest level in 10 months, according to the Rome-based United Nations’ Food & Agriculture Organization. The agency’s 55-item gauge is at its highest level since May after dry weather across the globe lifted the cost of everything from beef to wheat.

Record Reserves

While the dry weather may hurt output of rice in Thailand, the country is holding record stockpiles after a state-buying program from farmers. The reserves will increase to 14.1 million tons this year from 12.8 million tons in 2013, according to the U.S. Department of Agriculture.

“Production declines may boost prices, but the upside is limited because of ample supplies in domestic and world markets,” said Anan. The FAO yesterday raised its estimate of global rice output for 2013, highlighting a world surplus.

Agricultural accounts for 8.3 percent of gross domestic product in Southeast’s Asia’s largest economy after Indonesia, according to the central bank. GDP may expand 3 percent this year amid a political crisis, 1.5 percentage points lower than seen six months ago, the World Bank said this week.