Severe drought to cut Thailand's farm earnings, may hurt GDP

BANGKOK (REUTERS) - Severe drought in Thailand is expected to reduce production of commodities such as rice and rubber, the agriculture minister said on Tuesday, cutting export earnings at a time when economic growth is under pressure from a political crisis.

The lingering crisis has led to the installation of a caretaker government, hurt consumer confidence and damaged tourism, leading the Bank of Thailand to trim its forecast for 2014 economic growth to 2.7 per cent.

"We don't know for sure how big the (production) falls will be, but we expect to have an official forecast later in June. It depends on how long the dry season lasts," Agriculture Minister Yukol Limleamthong told Reuters.

Thailand is the world's biggest rubber exporter, the second-biggest sugar exporter and the third-biggest rice exporter. The commodities generate around US$11.5 billion (S$14 billion) annually, according to Commerce Ministry data.

Yukol said the government has warned farmers about the impact of reduced water supplies due to the drought.

The agriculture sector grew by 0.5 per cent in the first quarter of 2014, down from 2.3 per cent in final quarter of last year.

Growth in the sector, which accounts for about 8 percent of Thailand's gross domestic product, was expected to slip further in the second quarter due to the drought, according to Office of Agricultural Economics data, he said.

"We are monitoring the situation closely. At this stage we expect to see a substantial fall in rice output as we have asked farmers not to grow an off-season crop due to a lack of water supply," Yukol said.

Rice output could fall by 5 million tonnes of paddy or around 3 million tonnes on a milled basis if farmers stop growing off-season rice crop.

Rubber production was also expected to fall sharply during April and May as the dry season cut rubber latex and forced farmers to stop tapping.

"That would not cut an annual rubber supply significantly as it happens every year, but would cut earnings on rubber export sharply in the second quarter and it will affect GDP," said Anan Lila, head of the Office of Agriculture Economics.

Rubber production normally halves from around 250,000 tonnes a month during the dry season. Traders said falls in rubber exports would be in line with falls in production.

For sugar, the Office of Cane and Sugar Board (OCSB) has maintained its forecast for 2014/15 cane production of more than 110 million tonnes.

However, traders and industry officials said they were concerned that severe dry weather could cut sugar content in the cane and reduce sugar supply.