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 might be as much as 10 percent below average this monsoon season, while the onset of the El Nino weather pattern could lower precipitation even further over the next two years, Thai government officials said.
Thailand is facing widespread drought conditions from early next year, authorities have said.
Photo: Bloomberg
The dire outlook has prompted Thai authorities to ask farmers to restrict rice planting to a single crop to conserve water, while 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 gets pricier on reduced harvests and more expensive animal feed.
Thai 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 this year, the nation’s rainfall has been 28 percent below the same period last year, official data showed.
El Nino 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 Ninos have resulted in a marked impact on global inflation and hit GDP in nations from Brazil to India and Australia.
Thailand is seeking to nurture a rebound in economic growth that is already facing headwinds from a slowdown in China, the nation’s largest trading partner, and a prolonged drought might scupper efforts to keep inflation under check. Thailand has already grappled with record heat this year.
“El Nino will pose a bigger worry on growth than inflation,” Nomura Holdings Inc analyst Euben Paracuelles said. “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 Nino turns severe, it could shave 0.2 percentage points off of GDP 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 percent this year, accelerating from 2.6 percent last year.
Power demand in Thailand hit a record in April when some regions saw all-time high temperatures, forcing companies and households to increase the use of air-conditioners to escape the sweltering heat.
The bigger, global impact from below-average rainfall in Thailand would be the hit to crops such as sugar and rubber, and could even threaten the nation’s position as the world’s second-biggest supplier of rice. Shipments tumbled one-third in 2019, the first year of the previous El Nino.
Sugar cane is a sturdy crop, but the nation’s millers have forecast a decline in output. That would cut the supply to the world market and further fuel a rally in refined sugar prices that are hovering at about a decade-high.
Thailand’s lack of long-term mitigation efforts to deal with floods and droughts would likely aggravate the impact of extreme weather on the nation, the World Bank said.
“The frequency of floods and droughts, and the high human and economic cost associated with them, make climate change adaptation and water management important in Thailand,” World Bank country manager for Thailand Fabrizio Zarcone said. “A more robust framework prioritizing risk mitigation planning, investing in water resources infrastructure, and managing land and water use is needed.”
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