TRENDS AND IMPACTS OF FOREIGN INVESTMENT IN DEVELOPING COUNTRY AGRICULTURE

THAILAND
Trends and impacts of foreign investment in
developing country agriculture
FDI and technology transfer
FDI has been widely recognized as an important
channel bringing in capital, new technology and
know-how that can enhance the technological
capability of the host country firms. However,
these benefits – especially the technology
transfer effect of FDI – varied among empirical
case studies. Kohpaiboon (2006) investigated
linkages between FDI and technology spillover
using Thai manufacturing as a case study, some
of which include food products, beverages,
rubber and wood products. He found that gains
from FDI technology spillover are conditioned by
the nature of the trade policy regime, meaning
that to maximize gains from FDI technology
spillover, a liberalizing investment policy has
to go hand-in-hand with liberalizing the trade
policy (Kohpaiboon, 2006). Although his study
did not specifically measure the gains from
FDI technology transfer it has important policy
implications. The implication from his study is
that agricultural trade policy in Thailand has to be
liberalized to induce the type of FDI inflows that
are most likely to introduce technology spillover.
According to Warr (2008), agricultural trade
policy in Thailand is relatively liberal. This implies
the relatively liberal agricultural trade policy has
somewhat induced FDI with technology transfer.
Since the extent of FDI in the Thai agricultural
sector is quite small it is likely that the technology
transfer impact is not large.
In Thailand, technology transfer to
agriculture occurs mostly through non-
FDI channels (Kohpaiboon, 2006). Private
companies, particularly the Charoen Pokphand
(CP) Group, have played an important role in
transferring technology to farmers. 12 However,
Netayarak (2008) found evidence that FDI
projects have brought about new knowledge
and technologies which were diffused very well
to Thai farmers, entrepreneurs and labourers.
In particular, the Thai agro-industries have
benefited greatly from the technology transfer
during the past decades.
12 The Charoen Pokphand (CP) has been instrumental in
the research and development of broiler and shrimp
cultivation, seed technology and a new variety of
freshwater fish (Poapongsakorn, 2006, p.35)
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Moreover, Netayarak (2008) observed
increasing trends of agricultural R&D and
agricultural technology transfer during
1994-2005. Since the majority of FDI are in
the form of joint venture and export-oriented,
R&D funds were financed by parent companies
or subsidiaries abroad (Netayarak, 2008). In
particular, foreign partners played a major role in
choosing processing techniques that suit foreign
demand, notably in processed agricultural product
like chicken, pineapples and tiger prawns. Foreign
companies also brought in seeds and animal
breeds that were adapted with local conditions
and benefited Thai agriculture (Suphannachart
and Warr, 2009).
6. Conclusions and policy
recommendations
The extent of international investment or FDI in
the agricultural sector of Thailand is relatively
small compared with other sectors. The majority
of agricultural FDI is in the food processing sector
and takes the form of joint venture producing
mainly for export markets. The extent of FDI
in primary agriculture is particularly small. This
is perhaps due to a mix of several reasons,
notably the rule of land ownership that prevents
foreigners from owning land; uncertainty in
export markets due to controls and restrictions
on primary agricultural exports; and the
enforcement of the Foreign Business Act that
constrains the participation of foreign investors in
primary agricultural production. There are larger
investment opportunities in food processing and
the agro-industry. Despite the limited extent of
FDI, evidence of both overall FDI inflows and
BOI’s promoted projects suggests that the past
investments have contributed to agricultural
development and the overall economic expansion.
There are many benefits of FDI to the Thai
agricultural sector in terms of output, value
added, export and employment expansions as
well as technological transfer. All these lead to a
more sustainable agricultural development. While
the export-led industrialization policy generates
more benefits to the industrial sector than to the
agricultural sector, IIAs like FTAs and BITs including