Global Supplies of Sugar, Rice at Risk From Looming Thai Drought
Thailand is preparing contingency plans to deal with a potential drought that could last years and squeeze global supplies of sugar and rice.
Rainfall across the nation may be as much as 10% below average this monsoon season, and the onset of the El Niño weather pattern could lower precipitation even further over the next two years, according to government officials. Thailand is facing widespread drought conditions from early 2024, authorities have warned.
The dire outlook has prompted Thai authorities to ask farmers to restrict rice planting to a single crop to conserve water, and sugar producers see output falling for the first time in three years. A drought is certain to fuel inflation in the Southeast Asian nation as the cost of vegetables, fresh food and meat get pricier on reduced harvests and more expensive animal feed.
Prime Minister Prayuth Chan-Ocha has asked state-run power utility Electricity Generating Authority and the Office of Natural Water Resources to help draw up contingency plans to conserve water. So far in 2023, the nation’s rainfall has been 28% below the same period last year, according to official data.
El Niño can lead to drier conditions in parts of Asia and Africa, and heavy rains in South America, damaging a wide range of crops globally. Previous El Niños have resulted in a marked impact on global inflation and hit gross domestic product in nations from Brazil to India and Australia.
Thailand is seeking to nurture a rebound in economic growth that’s already facing headwinds from a slowdown in China, the nation’s largest trade partner, and a prolonged drought may scupper efforts to keep inflation under check. Thailand has already grappled with record heat this year.
“El Niño will pose a bigger worry on growth than inflation,” said Euben Paracuelles, an analyst at Nomura Holdings Inc. “Thailand is a large food exporter, with only half of total output consumed domestically. So the buffers could help limit the near-term inflation impact, alongside government price controls and subsidies.”
If El Niño turns severe, it could shave off 0.2 percentage point of gross domestic product this year because drought conditions could coincide with seasonal production in the second half, especially for rice, Paracuelles said. The central bank forecasts Thailand to clock GDP growth of 3.6% this year, accelerating from 2.6% in 2022.
