The So-Called "Middle Man"

[Chunky1]

I have seen this written about on TV in vague terms and was hoping to get a better understanding of what is going on and what if people have written on here is actually accurate. The general idea is that Thai farmers do not have a free market to which they can sell their harvests and are forced to sell it instead to a "middle man" at a price substantially below fair market value and then the middle man sells it for the bulk share of the profit. Any idea?

[mario299]

We sold our bags of rice (approximately 80 kilos/bag) in the Prasat/Surin area for 12.8 baht/kilo last month, which was the going rate for dry, hand harvested rice. This is a free market in my opinion, as we could have searched around for a better price (probably wouldn't find) or kept the rice for a few months hoping the price would increase as scarcity could raise the price. As to who sets this price, I assume the free market is dictated by the bulk buyers that sell it to processors that then sell it to markets, who sell it to consumers. We have not yet tried to sell directly to BigC or Tesco, as we are just farmers selling our harvest. What is your question, actually. ? Are you asking if there is a cartel that controls pricing? Probably, but I don't have any specific names for you. Good luck in your search, though, I've heard rumors of 12 Thai-Chinese families that control everything about rice in Thailand.

mario299

[Chunky1]

"Are you asking if there is a cartel that controls pricing?"

Yes, that is essentially what I have read here and there on Thai Visa and other places but I do not know if there is any truth to it.

"I've heard rumors of 12 Thai-Chinese families that control everything about rice in Thailand."

Yeah, that is the type of thing I am talking about.

Edited January 1, 2011 by Chunky1

[isanbirder]

Farmers are free in the sense that they can sell their rice where they like. But the millers operate a cartel... or at least all offer much the same price, so the farmer has little choice. If the farmer can afford it, he can hold on to his crop, hoping the price will rise. This rice is unmilled; if you mill it yourself, you can get a higher price. Sell it to big wholesalers? I would say, no chance at all. They will already have their buying contracts with the millers and packers long before the harvest is in.

[Thongkorn]

Farmers are free in the sense that they can sell their rice where they like. But the millers operate a cartel... or at least all offer much the same price, so the farmer has little choice. If the farmer can afford it, he can hold on to his crop, hoping the price will rise. This rice is unmilled; if you mill it yourself, you can get a higher price. Sell it to big wholesalers? I would say, no chance at all. They will already have their buying contracts with the millers and packers long before the harvest is in.

The same thing happens in the UK with wheat , but they are called wheat Barons.

[Chunky1]

So do these rice millers prevent others from entering the market?

[p_brownstone]

Farmers are free in the sense that they can sell their rice where they like. But the millers operate a cartel... or at least all offer much the same price, so the farmer has little choice. If the farmer can afford it, he can hold on to his crop, hoping the price will rise. This rice is unmilled; if you mill it yourself, you can get a higher price. Sell it to big wholesalers? I would say, no chance at all. They will already have their buying contracts with the millers and packers long before the harvest is in.

Small Thai Farmers are rarely "free in the sense that they can sell their rice where they like" .

Many do not even own the land they farm, it is rented; and even if the farmer still has title he rarely has Capital to hire someone with a tractor to plough his field, to buy seed, to pay people to transplant the seedlings, buy fertiliser, pesticide etc. etc. and then at the end of the season pay people to harvest the crop and after that pay to have it milled and transported to Market.

How do they pay all these expenses, plus their daily living costs, and survive the rest of the year?

They borrow from the local "Towkae" - with the promise to repay the loan when their next crop comes to Market.

So small rice Farmers receive a lump sum income 1, 2 or at most 3 times a year when they can sell their last crop - which they are obliged to sell through the Towkae.

It's a totally closed system - the farmer probably Rents the Land from the Towkae, but at a minimum he has to contract the Towkaes' tractor and operator to plough his field, has to buy seed and fertiliser on credit from the Towkae and then needs the Towkaes' Mill to mill the crop and get it to market.

By the time the crop is harvested and ready for sale the farmer is deep in debt for his expenses over the previous growing season, so he has to accept whatever price the Towkae offers him for his crop, if he tries to circumvent the "system" and sell outside his area the Towkaes in those other areas will simply refuse to deal with him and he may well find his crop unsellable and rotting in the field.

Oh, and forget about the “12 Families” controlling the rice market – they are at the very top of the pyramid, buy in bulk from their established Up-country network, and have absolutely no interest in, or conscience about, what happens further down the chain.

Patrick

[Heng]

So do these rice millers prevent others from entering the market?

Most folks (here just like anywhere else) seem to self select themselves out of competition.

[Heng]

Many do not even own the land they farm, it is rented; and even if the farmer still has title he rarely has Capital to hire someone with a tractor to plough his field, to buy seed, to pay people to transplant the seedlings, buy fertiliser, pesticide etc. etc. and then at the end of the season pay people to harvest the crop and after that pay to have it milled and transported to Market.

How do they pay all these expenses, plus their daily living costs, and survive the rest of the year?

I've known a couple of relatively successful construction company owners and an auto body shop owner who had their start in similar roots. Took them 20-30+ years to build their businesses but they did it. Not exactly magnates but apparently they didn't buy into the idea 'that you just had to go into debt every year' just to sell rice.

[old wanderer]

I have an Uncle outside of Surin. He farms about 100 rai, but "loans" money to many local farmers. At harvest the rice comes to his large storage facility where he dries it on cement floors, the stacks it with a front end loader in several large metal building where he holds it for later in the season to sell at higher prices.

For loan repayment he either agrees to a percentage of the crop, or so many baht plus interest, but always has first chance to buy the entire crop at what ever the current rate is.

While it is not the Mafia, it certainly does not allow the farmer much choice in when or how much he will get for his labor.

[IsaanAussie]

Chunky,

Your topic is an interesting one and raises a valid point. Just how typical are the circumstances that most of us see around us?

I have seen this written about on TV in vague terms and was hoping to get a better understanding of what is going on and what if people have written on here is actually accurate. The general idea is that Thai farmers do not have a free market to which they can sell their harvests and are forced to sell it instead to a "middle man" at a price substantially below fair market value and then the middle man sells it for the bulk share of the profit. Any idea?

I see two over-riding issues:

First, the average farmer near me has a small holding and is being marginalised by progress and consumerism. He is often only semi literate and has not travelled far beyond his local boundaries. He is aging and his children have moved to the city and a new, less strenuous and more exciting life. Ten years ago he may have had a fridge and a TV but the mobile phone and pickup truck were not even on the wish list. He probably still cooks on a charcoal brazier most times. So with much reduced labour available and no change in crop output he is facing a grim future. His costs continue to rise and his income remains much the same.

Second, Thailand has become a centre of value added manufacture to the world. The importance of rice exports has greatly diminished amid growing international competition. Thailand has grown out of the developing nation status and the subsistance farmer has been left behind.

Scandals and corruption may have been rampant here ten years ago but now, agriculture is a business, a multi national business and there is diminishing room for the traditional farmer. There are still free markets that would benefit these people but they do not have the knowledge to access them. For example, if a village collectively milled their crop and sold it directly to a rice merchant in Bangkok then the cost of transport would be covered and they would get paid for the value added component. No large corporate will buy 5 tonne of paddy from a local farmer.

So in my opinion, it is not the lack of choice or of middlemen profiteering. If the local rice merchant didnt aggregate shipments then the small farmer would not have a market. It is simply the only option open and is not sustainable, sad but not sinister. Progress my friends, that's all...

Isaan Aussie

[fruity]

Chunky,

Your topic is an interesting one and raises a valid point. Just how typical are the circumstances that most of us see around us?

I have seen this written about on TV in vague terms and was hoping to get a better understanding of what is going on and what if people have written on here is actually accurate. The general idea is that Thai farmers do not have a free market to which they can sell their harvests and are forced to sell it instead to a "middle man" at a price substantially below fair market value and then the middle man sells it for the bulk share of the profit. Any idea?

I see two over-riding issues:

First, the average farmer near me has a small holding and is being marginalised by progress and consumerism. He is often only semi literate and has not travelled far beyond his local boundaries. He is aging and his children have moved to the city and a new, less strenuous and more exciting life. Ten years ago he may have had a fridge and a TV but the mobile phone and pickup truck were not even on the wish list. He probably still cooks on a charcoal brazier most times. So with much reduced labour available and no change in crop output he is facing a grim future. His costs continue to rise and his income remains much the same.

Second, Thailand has become a centre of value added manufacture to the world. The importance of rice exports has greatly diminished amid growing international competition. Thailand has grown out of the developing nation status and the subsistance farmer has been left behind.

Scandals and corruption may have been rampant here ten years ago but now, agriculture is a business, a multi national business and there is diminishing room for the traditional farmer. There are still free markets that would benefit these people but they do not have the knowledge to access them. For example, if a village collectively milled their crop and sold it directly to a rice merchant in Bangkok then the cost of transport would be covered and they would get paid for the value added component. No large corporate will buy 5 tonne of paddy from a local farmer.

So in my opinion, it is not the lack of choice or of middlemen profiteering. If the local rice merchant didnt aggregate shipments then the small farmer would not have a market. It is simply the only option open and is not sustainable, sad but not sinister. Progress my friends, that's all...

Isaan Aussie

Agreed I.A.

Things in my neck of the woods are very similar to those in yours. I am constantly reminded of 'how things used to be in the UK' many years ago. It was always said that the UK was 20 years behind the States; having often ventured into Southern Ireland it 'used to be' evident they were 20 years behind the UK( However, not anymore). Since living in the NE of Thailand, I can see so many similarities between the UK of my youth & before, especially so in an agricultural-sense & have often said that they are fifty years behind.

I remember when I first came to live in Buriram; there wasn't a tractor for miles around; now there are literally dozens; gone are the days of walking behind the iron-horse / tak-tak, similarly, the boys with the threshing machines literally 'had it off' at harvest time. NO MORE! The number of combines competing for business locally here is unbelieveable. Progress indeed, however, as always, the small farmer will always no matter where he is will have to content himself with living " on the crumbs from the rich mans table". Thats the way it's always worked, inspite of the so-called progress!

[Heng]

I don't think the Chunkster will be around much for a farming forum discussion. Good call putting this here instead of in the biz forum.

[tim armstrong]

Yes sad but so true of agriculture in many countries. In Oz the wool industry used to have a world monopoly on fine wools. But middlemen, banks and large multinationals have killed it, while woolgrowers still seem only vaguely interested in marketing, and have spent most of the past 100years arguing with each other rather than cooperating. Meanwhile other fabrics have taken over through cheaper production and better marketing. I see so many parallels in thailand to farmers in Oz during the 1960s. The invasion of the orange Kubota and the debt for every small farmer is the beginning. Oh whinge! whinge! But Happy New Year anyway.

[slapout]

As noted by several posts, Thailand farmers are where other countries farmers were decades ago. Yes the middlemen, have the locals at their mercy in several ways. Loaning funds, seed, fertilizer, etc to the farmer who in return must deliver his crop to that individual and take the price offered. They do some real slight of hand on moisture dockage, foreign material, (weeds, soil. milling lose, etc) to knock net weight down for payment.

Farmer world wide are a independent lot and to get a working coop requires an agreement and investment by the majority of the farmers. I have heard of a few here in Thailand, but they appear about as common as hens teeth. Coops work as has been shown in the grain belts of the US. But, they had/have a infrastructure of rail and trucking/highways to market the product, bring in chemical, fertilizer, seed, etc for resale to the farmers. The profit at years end for the coop was returned to the members, depending on the quantity they sold/purchases.

Most small farming towns have coops and surprising enough many have a independent facility which offers the same services and directly competes for the business. Thailand has neither the rail system of the road system to support a operation like I am familiar with. This coupled with the small farmer having virtually no transport for a 10 to 20 mile trip with product, leaves the middle man firmly entrenched in the system, with little fear of real competition.

[tim armstrong]

Its interesting and encouraging to see the Thai Credit Union movement expanding in rural areas, but I'm not sure how far they can/do influence management and marketing arrangements. Maybe they'll end up becoming a bank like others have elsewhere. But as Slapout says farmers are an 'independent lot'

But it's attitudes that have to change. My FIL (retired farmer and now full time chicken boxer) has endless circular arguments with a neighbour who is a teacher, about the FACT that farming is more important than education.

[Chunky1]

Good replies. Too bad these farmers have made so many poor decisions because I think the cost and value of food is going to skyrocket in the future once the world finally sorts through this unsustainable fiat debt-based monetary system where bankers who don't produce anything make billions creating wealth out of thin air and farmers who actually feed the world make peanuts.

[IsaanAussie]

Good replies. Too bad these farmers have made so many poor decisions because I think the cost and value of food is going to skyrocket in the future once the world finally sorts through this unsustainable fiat debt-based monetary system where bankers who don't produce anything make billions creating wealth out of thin air and farmers who actually feed the world make peanuts.

Chunky,

Don't we all wish! To quote Billy Connelly, "Yull gat yors Jimmy!"

I agree, food is the last of the commodities to really get the opportunistic corporate profit motive behind it. Unfortunately the subject of "having to eat" is common to all and hence to politically sensitive globally. IMHO it will remain the lot of the farmer to suck it up in the risk versus reward stakes. For me, it is the feeling of satisfaction I get from my meagre efforts that is the top priority and to hell with the paper-shufflers and their schemes and deals. I grow things for sale, the bankers sell money, it's that simple. Business is business and my risk will stay just that.

I for one am fighting back. I am planting peanuts and will make my own peanut butter.

Isaan Aussie