The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, 749

11 Combine Harvester Industry in the Central Region of Thailand Rice Combine Harvester Industry in the Central Region of Thailand Saroj Aungsumalin and Nugool Kornyuenyong Rice Combine Harvester Industry in the Central Region of Thailand Saroj Aungsumalin1 and Nugool Kornyuenyong1

Abstract

The study had the following objectives: first, to study the present conditions of rice combine harvester industry, second, to study the present policies and measures affecting the industry; and third, to provide recommendations to improve the industry. The study was conducted in the central part of Thailand during 2015-16. Secondary data were collected from various government offices and universities. Primary data were collected from combine harvester factories, and others stakeholders. Findings were described with percentage, and average statistics. The rice combine harvester factories could be divided into two groups, big and small. Domestic markets were the principal target and export markets were insignificant. The “product innovation” was based on the copy and development method and their investment in R&D were minimal. High precision tools and computer-aided programs were used mainly by big factories. All managerial decisions were done mainly on the basis of the owners’ experiences. Some policies and measures were directly or indirectly beneficial, and some were binding. None of the surveyed firms used the facilities. Fiscal and monetary measures could be used to increase the performance of the industry. They should help increase both demand for and supply. For example, export tax credit should be a measure to stimulate export demand. Investment tax credit should be introduced to encourage firms to invest in new or sophisticated equipment. Professional qualification standards should be introduced to help raise the workmanship. All expenses for various trainings should be tax deductible. A sufficient amount of budget should be continually allocated to involving offices and universities to do researches and development. Key words: Rice combine harvester, rice combine harvester industry, central region, Thailand JEL classification: Economic Development, Innovation, Technological Change, and Growth

1 Special advisor, Department of Cooperatives, Faculty of Economics, Kasetsart University, Bangkok, Thailand

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 750

Introduction

The study had the following objectives: first, to study the present conditions of rice combine harvester industry; second, to study the present regulations and measures affecting the operation of the rice combine harvester industry, and third, to provide recommendations to improve the industry. The study was conducted in the central part of Thailand between May, 2015 and April, 2016. Secondary data were collected from various government offices and universities. Primary data were collected from various target groups as follows: big combine harvester factories, small combine harvester factories, custom hiring operators, custom hiring brokers, a leasing company, and combine harvester exhibitions. Descriptive statistics were used in data analysis. Findings were described with frequency, percentage, and average. This report has six parts. Apart from the introduction in the first part, a brief explanation of the development of rice combine harvester in Thailand is given in the second part while the present situation of the Thai rice combine harvester industry is explained in the third part. In the fourth, fifth and sixth parts, problems, government policies and measures, and recommendations are discussed.

Brief Development of Rice Combine Harvester in Thailand

Mr. Deberiddhi Devakul and officials at the Agricultural Engineering Section, Rice Department, Ministry of and Cooperatives comprised the first group of forerunners who seriously conducted research and developed rice harvesting machines in Thailand during 1954-1963. However, due to many reasons, the developed machines were not accepted among farmers. Later, there were attempts to import rice harvesting machines from western countries. The introduction of these machines to the farmers were not successful either as they were too big and too heavy to use in Thailand’s rice fields. Nevertheless, the study to build or modify rice harvesting machines has never stopped. In 1978, the Agricultural Engineering Section developed a new prototype based on the front-mounted from Japan. It was introduced to farmers in 1979. Since it was small and practical, a demand for it greatly increased. Many manufacturers made a request to use and develop the prototype. During that period, Chinese , and Kubota reaper and cutter binders were imported and introduced to Thai farmers. The first lot of the Chinese reapers was proved to be more effective, and by the end of 1980, few thousand units were imported and sold. Six manufacturers1 started imitating, developing and producing the machines. In 1981, some machines were also imported from the U.S. Although, the adoption rate was very high, many farmers, especially in the central plain, were not happy as these rice harvesting machines were too heavy and unable to work in the rice fields, which were wet and soft. In addition, they were not suitable for harvesting the popular rice varieties, which had high stems. When

1 Small workshop or garage

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 751 harvested by the machines, the rice fell to the floor. Imported machines had very high prices too. In 1982-1983, local manufacturers in Ayutthaya developed a prototype of rice combine harvester by attaching a modified Chinese reaper to a locally produced axial flow rice thresher. Each manufacturer produced only one unit and took the machine out for testing. With their machines, they earned money by providing custom hiring services to farmers. The combine harvesters were rapidly and widely adopted although they were not up to the acceptable technical standard. They were inefficient and frequently broken during operation. In 1985, there were around 30 small manufacturers. Mass production of rice combine harvesters started in 1987 when a pioneer small firm joined a business group to establish a factory. At the same time, the rice thresher manufacturers, whose business was affected by farmers’ adoption of the combine harvesters, changed their product lines to produce this type of newly developed machine. Therefore, at present, Thailand can produce by itself the rice combine harvesters suitable for the local conditions and can export them to other countries. It is one hundred percent Thai innovation.

The Present Situation of Thai Rice Combine Harvester Industry

Rice combine harvester firms in Thailand could be classified into two groups. The first one comprised big registered firms and the other one consisted of small unregistered firms. The big firms were registered as limited companies. There were only five of them, i.e., Kasetphattana Industry Co. Ltd., Thai Combine Co. Ltd., Sakpattana Karnkaset Co, Ltd., Thai Seng Co. Ltd., and Siam Kubota Co. Ltd. They had high capital investment, hired a lot of workers, produced many products, and sold their products in both domestic and overseas markets. Small firms were unregistered entrepreneurs or single proprietors. They were not found to be a partnership or limited company. These entrepreneurs developed themselves from workers in original rice combine harvester firms, big and small. Some were children who had helped their parents and, later, separated to set up their own businesses. Formerly or currently, many entrepreneurs also offered rice custom hiring services. There was no official statistics of how many small rice combine harvester firms there were in the central plain or in the country. A rough estimation indicated that there were more than 300 firms. Examples of small rice combine harvester firms were Woraphot Garage, Kinnaree Garage, Parn Chareon garage and Thai Chareon Garage.

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Marketing

The type of marketing approach that these firms used was a mix of product-driven and sales-driven ones. The firms focused on their products and competed with others’ products. They tried to make their products stand out or create an image that their products were better than others. Therefore, when the firms offered a newly developed product, they used the product-driven marketing approach. However, when the market was close to a saturation point or when other producers were catching up by offering similar or new products, the firms changed to use the sale-driven marketing approach. They competed with other producers by prices and sale promotions. It was estimated that the country’s total demand for rice combine harvesters was 23,000 units. At present, there were around 13,000-14,000 rice combine harvesters in the market. It can be concluded that the market was not yet oversupplied. Demand shortages were basically due to lacking purchasing power. With regards to production capacity, it was estimated that, excluding the production of Siam Kubota Co., the total production capacity of all firms, big and small, was around 2,200 units per year. Out of the 2,200 units, 1,000 of them were produced to meet replacement demands. A new demand was estimated to be as high as 1,200 units per year. Moreover, in less than 10 years, all firms could produce rice combine harvesters to fulfill the estimated potential demand of 10,000 units. Important export markets were in the neighboring countries. Yet, compared to the domestic demand, the exported number was insignificant. Rice combine harvesters were exported to Myanmar, Cambodia, the Philippines, Sri Lanka, and Bangladesh. Myanmar was the biggest export market, followed by Cambodia. Distant export markets were in Mali, Ghana, and Surinam. Recently, there was development of a new market for used rice combine harvesters. Customers and importers went to buy used harvesters at the firms and exported them to their own countries by themselves.

Product Positioning

The producers tried to create images of their products in terms of design, efficiency, operating costs, innovativeness, harvesting capacity, maneuverability, quality and reliability. For example, a big firm tried to create product images with the following slogans: “Maneuverability, Profitability, Simplicity, Reliability”; and “Speed, Strength, Prosperity”.

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Marketing Mix

The composition of marketing mix consists of product, price, promotion and place. 1. Product The firms offered generic products that included caterpillar bases, cutter/harvesters with 2.6-3.5 meter width, grain storage tanks, and grain unloading tubes. The machines could be operated by one driver and one assistant/oiler. Using diesel engines, they were durable, reliable, and capable of functioning in muddy clay, solid dried and sandy soil. They could work on both big and small rice fields. Apart from the rice combine harvesters, the firms manufactured other products as well. The most popular one was pudding paddy that used the same type of base as rice combine harvesters. (Kubota does not produce this kind of tractor.) Some other products included, for instance, sprayer tractors, /green bean harvesters, maize/green-bean harvesting sets, threshing machines, walking tractors, small driving tractors. Every firm also sold used rice combine harvesters. These machines were in great demand because of their discounted prices, which were much lower than the prices of new combine harvesters. Furthermore, every firm did not sell only farm machineries but also provided rice custom hiring services to farmers too. 2. Price Depending on size, options and features, prices of the rice combine harvesters ranged between 1.4 and 2.7 million baht.1 However, the prices of Kubota rice combine harvesters ranged between 0.9 and 1.5 million baht because they were smaller than those produced by the Thai companies. 3. Promotion Customers with purchasing power were few and scattered thinly all over the region. They comprised a special group of potential buyers who decided to purchase combine harvesters at some unspecifiable periods of time. Therefore, there was no advertising campaign in the national mass media. Another reason was that advertising in the national mass media was costly. There was an indirect, clever channel though. One big firm provided financial support to a boxing camp. On the shorts of each boxer, there was the name of the company. Therefore, whenever there were matches, the company was advertised too. Farmers who watched these boxing matches tended to think of the company first when they had to make decisions to buy combine harvesters. Public relations campaigns were widely used by the firms to introduce their products, especially in the era of advanced communication technology. Many firms had their own a website and Facebook Page. Potential buyers and interested people could get detailed information of any products easily, quickly, and cheaply. You Tube was another channel that

1 U.S. 1$ is approximately 35 Baht

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 754 was used increasingly in recent years, especially among small firms that had very limited public relations budgets. Participation in exhibitions at national and local levels was another method to get in touch with potential customers. Big firms always joined the exhibitions whereas small firms cooperated to organize their own exhibitions, “Thai Rice Combine Harvester Exhibition”, in some provinces such as Pichit, Khampangphet, and Ayutthaya. With regards to sales promotion, every firm had its own activities. After-sales services were another effective sales promotion tool. It helped create good attitude among customers and reinforce future purchase. Small firms tended to have an advantage over big firms as they were closer to their customers. Siam Kubota Co.’s sales promotion was the most active among other firms. It participated in nearly all national and local exhibitions and developed very close relationship with government offices, universities, technical colleges, and agricultural colleges. They supported study tours and trainings of these organizations. The company gave a very high priority to the promotion activities. It sent out sales persons and mechanics to visit its customers regularly. Yet, the added costs were high, which led to higher prices of products and spare parts. 4. Place Each firm had its own selling territories. That is, each firm’s market targets were concentrated in certain areas defined by specific needs of customers and physical conditions of rice fields. For example, Siam Kubota Co.’s market targets were in the upper northeastern region while Kaset Phattana Co. focused their sales in the upper part of central region and the lower part of northeastern region. Meanwhile, Sak Phattana Co.’s selling territory was in the lower part of central region. Buyers in the south preferred combine harvesters produced by Thai Seng Yont Co. Target areas of small firms were in the lower part of central region. However, combine harvesters of all firms could be found in every region. 5. Marketing Channel Big firms had different marketing channels. Siam Kubota Co. sold their products through dealers. There were altogether more than 130 dealers scattered all over the country. However, more than 60% of them were in the northeastern region. The company operated its own service centers independent from dealers, with the exception of some big dealers. Sales targets were set for each dealer. The company also set up a leasing company to help finance the purchase of its products. The other big firms had different marketing channels. Kaset Phattana Co. sold its products through its branches and dealers. Sak Phattana Co. sold them through spare part and maintenance centers, and service centers. Small firms did not have any dealer or service center. They sold their products directly to their customers. Regarding export to Myanmar, the importers there bought combine harvesters in the forms of OEM (Original Equipment Manufacturer). However, the exporting company still kept

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 755 its brand, logo, and other Thai words on the products. Export to Cambodia was done through a sole agent in the country. Export of small firms to the neighboring countries had a different channel. Buyers would come to buy at the firms and sent the products back to their countries by themselves. The firms did not get involved in any custom procedures at all. Export of used combine harvesters to Myanmar and Cambodia had another channel. There were auction markets in some provinces such as Pichit, Phitsanuloke, Khampangphet, and Chainat. Buyers from Myanmar and Cambodia would come to these auction markets and export the machines they bought back to their countries. (Nearly all of the used combine harvesters were Kubota.)

Finance

The average size of total investment of small firms was 30 million baht. The investment in fixed assets was 55% of the amount, and the rest was invested in current assets. The investment in inventories comprised 90% of the investment in current assets. The firms made only cash sales and no accounts receivable was found during the survey period. The size of total investment of big firms was from 200 to 400 million baht. The investment in fixed assets was around 25 -50% of total investment. Almost all of the investment was made in land, buildings, and equipment. The primary source of funds for big and small firms’ initial investments was the owners’ own savings. Among the small firms, in the beginning, their savings came from rice cultivation. Later on, the most important source of savings was profits from their custom hiring services, especially during the period when there were a rice price support program and a rice mortgage scheme. The business of custom hiring was very good, and the owners of rice combine harvesters gained a lot of revenue and profits. After some period when these owners kept good records and won trust from banks, a new source of investment funds was loans from the banks. They could be overdrafts and/or long-term loans. Lender institutions were the Bank for Agriculture and Agricultural Cooperatives (BAAC), and local commercial banks in the areas. With regards to the big firms, the savings spent in the initial investments were a little different. They did not come from rice cultivation. Mostly, they came from trading and transportation activities. Some of them made their savings from their production and selling of agricultural machineries such as rice threshing machines, walking tractors, and small driving tractors. The big firms had another source of funds, i.e. interest incomes, by extending loans and/or trade credits to customers. The firms, then, enjoyed the interest margins. In addition to the above sources, all of the big and small firms could ask for trade credits from input suppliers. Yet, the interest charges were relatively high. Retained earnings were also an important source of funds. These big and small firms could have retained earnings from other business lines such as rice cultivation, land rent, rice custom hiring services, and other agricultural machinery products.

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Sales of the small firms could be between 12.5 and 100 million baht a year (from the sales of 5 to 40 units of rice combine harvesters at 2.5 million baht per unit. Costs of goods sold were deducted from around 85% of the sale income, and selling and administrative expenses from 12%. The rest was a net profit (or loss). In this case, it was only 3%. Sales of the big firms were between 300 and 450 million baht. Their costs of goods sold were roughly the same as small firms. Yet, the range was wider, i.e., between 82 and 91% of the sale income. Their gross profits were around 40 and 50 million baht. The difference from small firms was the expenses on selling and administration. It cost around 10% of the sale income. The study found that the net profit of the big firms were between 10 and16 million baht. (Some firms operated at a loss.) Given all the figures, an average rate of return on assets of all the firms (excluding those that had losses) was not high. The small firms had around 5%, while those of the big firms were between 2.5 and 8.5%. An average rate of return on equity of the small firms was 14% and that of the big firms was between 9 and 16%.

Production

Location

The big and small firms had different decisions on choosing the location of their firms. The small firms were located at the owners’ houses, close to rice fields and far from main roads. They were accessible through small and narrow dirt roads, which made transportation difficult. In addition, the locations had minimal infrastructures. These small firms were concentrated in the following areas: , , Bang Lane district, Nakhon Prathom province, Lad Lum Koew district, Ayutthaya province. These areas were connected and were ones of the areas of the origin of rice combine harvesters firms in Thailand. Many business owners used to work and live in the areas. Then, they left and set up their own businesses. The big firms chose to be located along main national highways and had very big pieces of land. It was very easy for workers, customers, and input suppliers to travel to the firms. The transportation was cheap and fast. It was very easy and cheap to install basic infrastructures such as electricity, tap water, telecommunication services, sewage system, and garbage collection system.

Production Capacity

Production capacity of the small firms was not high. The maximum was around 50 units a year. Production flexibility or an ability to increase their production during an upturn of the business cycle was low with the exception of some bigger small firms that used high technology in their production. On the opposite side, the big firms could manage their production to take advantage of the economies of scale. They could adjust their production quickly in response to changing business environments. For example, they could reduce their production level from

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 757

1,000 units to 500 units a year instantly, given that their production capacity was more than 1,000 units. Furthermore, the big firms produced many products so that they could adjust their production lines too.

Production Plan

The small firms did not have any definite production plan. Their combine harvesters were made to order. However, during slack time periods, in order to utilize unused labor, the firms would order their workers to continue producing a combine harvester. Yet, all small firms normally limited the number of production to not more than one unit as the production costs were very high. In other words, the inventory of finished product was limited at one unit. The big firms, on the other hand, had two production systems, made-to-order and produce-to-stock systems. The decision to determine the production level for the latter system was based on many factors, i.e., experiences of the owners, dealers, and service centers, a number of combine harvesters in inventory, and an estimation of the competitors’ production levels. Then, a potential demand was estimated and used as a target production volume.

Plant Layout

Plant layouts of the big firms were designed by engineers and architects from the beginning of their construction. The designs were based on academic principles. On the contrary, designs of plant layouts of small firms were based solely on the owners’ decisions, not based on any academic principles. Yet, the designs were more flexible and could be adjusted to suit conditions in particular times.

Vertical Integration

The study did not find any vertical integration among the rice combine harvester firms. Yet, there was a vertical coordination. The degree of coordination was higher among the small firms. There were not many parts that were economically difficult for them to produce by themselves so that they had to rely on external suppliers. On the contrary, the big firms produced parts by themselves. Yet, there was a tendency to subcontract other firms to produce parts for them.

Job Design

Tasks of workers in the small firms were more general. Workers could have a broader range of skills and could do many more kinds of jobs. For example, they could be mechanics, welders, electricians, painters, etc. Many workers helped each other to finish a job. In the big firms, workers were more specialized. They did specific jobs and did not work across functions or departments. The division of labor was more visible. Efficiency was higher, but flexibility was lower.

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Supply Chain

Aggregate Production Plan

There was a big different between the two types of rice combine harvester firms. Normally, the small firms offered three types of goods and services. They cultivated rice, offered rice custom hiring services, and produced rice combine harvesters. Aggregate production plans, therefore, had to synchronize the production of those goods and services. The big firms focused their attention on the production of agricultural machineries. As mentioned above, besides rice combine harvesters, they also produced walking tractors, maize combine harvesters, maize harvester sets, pudding tractors, sprayers (tractor and back-mounted), threshers, threshing machines, etc. Therefore, it was necessary for them to have aggregate production plans and production plans for individual products. Demands and production of some products had seasonality while others did not. As the rice combine harvester firms produced many products and services, they did have clear production schedules for the production of each product.

Input Purchase

Among the small firms, as each order was not that large, the firms could not utilize a quantity discount offered. In addition, delivery costs were higher since the firms were located in distant places and difficult to travel. The big firms had their own procurement sections. Input prices were normally cheaper. That might be because of quantity discounts and/or cheaper delivery costs. Furthermore, if the firms had good cash positions, they could pay cash prices, which were cheaper than using trade credits. These practices gave the big firms relatively better positions when compared to the small firms.

Input Sources

Parts of combine harvesters could be bought in certain areas. For example, general spare parts could be found at Lat Bua Luang district market in Ayutthaya province. Mang Pong Co. (Scorpio Co.) in Kra Tum Ban district, , produced and sold tracks and rollers, while importing new and used hydraulic pump sets (including rubber tubes). Or combine harvester firms could buy directly from importing companies. The parts were imported from China, Korea, Japan, U.S.A., and Czech Republic. The biggest place to find second hand was at Laksi area in Bangkok. The firms tried to introduce new engine to customers because they were more efficient and durable. Yet customers preferred used ones as they were less expensive and easier to find spare parts. Steel sheets could be bought from stores in Bang Lane district, Nakhon Pathom province and Samut Prakarn province. There was a factory that produced some other spare parts in Sai Noi district, Nonthaburi province.

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Inventory Management

The small firms’ inventory management of finished products was very easy. They kept only one or two units of combine harvesters in their warehouses, which did not require big space. Yet, these small firms had some problems or difficulties managing their spare part inventories because it was not systematic. Since there were many parts, there were only few people who knew, for example, which parts should be used with which model, where they were, what their original prices were, how many were left in store, whether parts be reordered or not, etc. The big firms’ inventory management, both of finished products and spare parts, was more systematic. They did not have as many models of cars or trucks as the small firms and the number of parts was much smaller. Furthermore, the big firms tried to standardize their parts. Many of them could be used on different models. That made it easier to manage the spare part inventories.

Distribution

The firms normally used 10-wheel trucks to deliver combine harvesters to their customers. If there were many of them, the firms would use big trucks and trailers. Regarding delivery of spare parts, a decision to use what kind of vehicles depends on, for example, a number of pieces, size and weight of spare parts, and more importantly, delivery costs. Cost minimization was the major concern. Regarding export of rice combine harvesters to other countries, everything was finished behind the factory gate. The firms tried to avoid or would not get involved in custom procedures or transportation of the combine harvesters.

Organizational Structure and Personnel

The study did not find any formal organizational structure within the small firms. However, the big firms had clear organizational structures that consisted of several departments such as sales, production, accounting and finance, marketing, purchasing and personnel. They had a line and staff, or function format. Regarding leadership, both of the big and small firms had an authoritarian style of leadership. The owners were the ones who made all decisions. Even though, sometimes, their wives, children, brothers or sisters helped running the businesses, final or important decisions were made by the owners. With regard to personnel management, the small firms hired between six to thirty workers, who were local residents living not too far from the firms. The survey did not find any foreign workers. Old workers had a primary level of education, while workers of younger generations had secondary, vocational and university education. None of them got a master’s degree. Yet, many children of some owners had a bachelor’s or master’s level of education. Most of the workers were hired on a daily or piece-rate basis. There were few permanent workers. Wage rates were from 300 to 600 baht per day. All workers were required to have

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 760 social insurance. The firms encouraged workers to have accident insurance, but they had to pay for their own premiums. Many firms provided free lunches. If not, workers would receive an additional 30 baht a day to buy lunch. Workers would receive their wages every two weeks and bonuses at the end of the year. There was another system of payment for foremen as they would get 12,000 baht for every unit of combine harvester produced. The big firms hired between 100 and 300 workers. General characteristics of workers and hiring practices were similar to those of the small firms. However, there was a noticeable difference in level of education. The big firms could hire some permanent workers who were graduated with master’s degrees in engineering and business administration. Furthermore, some of their children who helped run the businesses had a bachelor’s or master’s level of education too. Both of the big and small firms helped support the vocational education by accepting student trainees to work and learn from their skilled workers.

Problems of Rice Combine Harvester Industry

Firstly, demand was unstable. A main reason was that the demand for rice combine harvesters was a derived demand. When the demand for rice custom hiring changed, due to whatever reasons, the demand for rice combine harvesters was affected. Secondly, it is a problem of long-term domestic demand prospect. Since a number of rice cultivation areas, both rain-fed and irrigated, of the country was stable, the demand for rice combine harvesters had a maximum limit. Given the production capacity of the existing big and small firms (excluding Siam Kubota Co.), they could be able to satisfy all new demand in 10 years. Other part of the demand was replacement demand, which was around a half of the total demand. A long-term demand prospect, therefore, relied on an ability to export to other countries. Thirdly, it is a problem of industrial promotion policy of the government. Siam Kubota Co., received support from the Board of Investment (BOI). It had many privileges that the domestic companies could not enjoy, which created unfair competition. Siam Kubota Co. had strong technology and advanced production system, good marketing, promotional campaigns and after-sales services, stronger financial position, and access to government offices and educational institutions. It had its own leasing company. Furthermore, they used Thai innovations without having to paying any costs. Even though Kubota Rice Combine Harvesters could not work in muddy soil condition, it took a lot of market share from the Thai companies, especially in the upper northeastern region. Fourthly, it is a problem from the supply side. Rice combine harvesters were innovated, developed, and produced by the Thai companies. Parts were quite different among the firms or even within one firm. They were changed year by year and model by model. There was no standard, especially among the small firms. The situation among the big firms was better. When spare parts were changed, some modifications of the machines might be needed. That affected the efficiency of the harvesters.

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Fifthly, the development was based on the copy-and-development basis. They had many trials and errors, and wasted time and money. The research and development of rice combine harvesters received very little attention and support from the government. (Yet, it might be good for the firms to stand on their own feet.) Sixthly, management of the firms, in whatever aspect, was based primarily on experiences. Academic principles were rarely applied. Lastly, the exportation of rice combine harvesters to other countries currently had many obstacles. For example, users in other countries had low purchasing power, lacked knowledge and skill to use and maintain the machines. The demand was low so that it was not worthwhile opening an office or sending skilled workers to help. In addition, the machines’ size and weight made it difficult and costly to transport.

Government Policies and Measures

The scope of this section is to explain about policies and measures implemented from 2013 until the present that supported and/or restricted the operation of rice combine harvester firms.

Policies and Measures that Provide Direct Benefits

They comprised urgent fiscal and monetary policies to help SMEs. The cabinet approved the following policies and measures: Monetary policy They were, firstly, policies and measures to provide low-interest credits to support SMEs’ working capital. It aimed to mitigate financial burdens and increase liquidity to the SMEs to survive through the tough business cycle. Secondly, there were policies and measures to help guarantee loans for the SMEs. The government implemented through the Portfolio Guarantee Scheme (PGS-5) of the Thai Credit Guarantee Corporation. This would make it easier for the SMEs to receive more credits from financial institutions. Thirdly, support was given through a startup program. The government would jointly invest in equity capital of high potential SMEs. Fiscal policy They were, firstly, policies and measures to reduce a profit tax for the SMEs, which was meant to reduce tax burdens for SMEs as well as to increase their competitiveness relative to bigger companies. Secondly, tax measures for new startup SMEs. This was to exempt from a profit tax the new startup SMEs that were registered between October 1, 2015 and December 31, 2016. The exemption would last 5 consecutive years. Thirdly, fiscal measures were provided to increase a level of competitiveness. The government would keep the profit tax permanently at 20% to ensure certainty for businesses. Fourthly, a venture capital measure was implemented. This aimed to reduce a profit tax for business and an income tax of individuals

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 762 who made venture capital investment in high-technology firms, specified by the Ministry of Sciences and Technology.

Policies and Measures that Provide Indirect Benefits

They would (supposedly) increase cash on the hand of farmers and increase purchasing power in the markets. One of them was, firstly, a measure to raise well-being of low-income people and stimulate small investment projects. It comprised three sub-projects. Regarding the first sub-project, measures were offered to increase well-being at the village level. It would provide (cheap) a credit of one million baht to the Level-A and -B village funds. Yet, the credit could not be used to refinance outstanding loans. The second sub-project offered measures to increase well-being at the sub-district level. They aimed to help low-income people as well as those who were affected by bad economic conditions and low farm product prices. The third sub-project provided measures to stimulate small project investments all over the country. All government units should support small and medium local enterprises to generate employment in the areas. Secondly, there were measures to help farmers and stabilize paddy prices. They comprised three sub-measures. The first one was to reduce interest rates for rice farmers in the 2015/16 crop years. The second one was to provide credits to farmers’ organizations to store paddy and increase value added. The third measure was to delay sales of main crop paddy of the 2015/16 crop years. BAAC would provide loans to farmers and agricultural cooperatives to store only fragrant and glutinous paddy and use them as collateral. Thirdly, there were measures to help farmers by reducing their tax burdens. The measures comprised, first, a project to help solve the indebtedness through BAAC; second, a main crop paddy insurance project; and, third, a measure to clear farmers’ outstanding debts through the MOAC. Present industrial promotion policies and measures It seemed these should be most beneficial to the rice combine harvester industry. Yet, the firms were not able to benefit from the policies and measures as they were not located in the special economic zones. Neither were they among the target industries.

Policies and Measures that Restricted Rather than Promoted.

Regulations of Local Administrative Organizations There were laws and regulations to control health hazards generated by businesses in their jurisdiction. The rice combine harvester industry was one of the industries on the control list. The firms had to ask for official permissions from the Organizations and had to conform to many laws such as town and city planning laws, building control laws, factory laws, and labor protection laws. Notices of Central Committee on Prices of Goods and Services They were notices of the Central Committee on Prices of Goods and Services (CCPGS), Department of Internal Trade, Ministry of Commerce, to control consumers’ prices. The one

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 763 involved in this study was related to the guidance price for rice custom hiring services. For example, in the 2014/15 crop years, the committee set a guidance price at 450 baht per rai for rice custom service in 16 provinces in the central region. If the operators set their prices higher than the guidance price with no justifiable reasons, they would be fined or face a jail time of no more than 7 years, or both. Another notice involved submission to the Ministry of Commerce of reports on production costs, prices, and detailed specifications of rice combine harvesters and tractors. The notice was announced in 2014. They aimed to set fair prices for consumers. Third, the notice was announced on January 22, 2015 that included rice combine harvesters and tractors as controlled goods and services.

Measures to Mitigate Impacts of the New Minimum Wage Rate and Increase Production Capacity of SMEs

These measures were the most comprehensive. They included measures to increase liquidity and improve productivity. There were altogether 16 measures. Many of them were still implementing in the present government. Those related to the rice combine harvester industry were as follows. First, they were measures to increase liquidity by increasing credit line and reducing costs of credits. They comprised 1) loans to promote employment and increase liquidity; 2) productivity improvement loans; 3) a portfolio guarantee scheme (stage 5), and 4) a portfolio guarantee scheme for new entrepreneurs and startups. Second, there were measures to reduce costs of entrepreneurs through tax measures and financial support. These comprised 1) measures to reduce social security contributions; 2) measures to reduce profit taxes; 3) measures to make tax-deductible those additional expenses due to the new minimum wage law; 4) measures to make tax-deductible those expenses to improve labor productivity; 5) investment tax credit measures; 6) measures related to depreciation of new machines; and 7) reduction of withholding tax. Third, there were measures to increase labor productivity, which comprised 1) provision of 0.1% interest rate loans to improve productivity of workers; and 2) measures to offer mobility labor clinics to help train workers at the factory site.

Utilization of Government Measures

The study found that 100% of the sampled firms did not benefit from any of these measures at all. There were many reasons. First, due to information asymmetry, these firms did not learn about these SMEs measures. This could reflect a problem of public relations weakness. Second, there was only one firm which indicated that there were many red tapes when they had tried to obtain a loan from the Government Savings Bank. It was easier to obtain one from BAAC or other commercial banks in the areas. Third, these firms had limited accessibilities as they had used all of their collaterals. Additional gains were marginal. Fourth, commercial banks did not pay sufficient attention to the government supported funds as they already had a lot of deposits as a resource with higher return.

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Recommendations

The following recommendations are meant to lead to competitiveness of the rice combine harvester industry to efficiently and effectively satisfy demands of customers, farmers and consumers. A basic idea used in development of the recommendations is to expand both supply of and demand for rice combine harvesters. To expand only the demand side, prices will rise and customers will face difficulties; or prices of custom hiring services will rise and farmers will have to pay more. To expand only the supply side, prices will fall. Customers will be happy and prices of custom hiring services might fall. However, many marginal rice combine harvester firms will go out of business. Therefore, the optimum solution is to expand both of the demand and supply sides.

Recommendations to Increase Demand

The demand for rice combine harvesters can be divided into domestic and export demands. The domestic demand can be classified further into new and replacement demands. Given the present economic conditions, the new demand barely exists. The El Nino phenomenon has occurred for two years consecutively. Rainfall is much lower than the normal level, and irrigation water is insufficient. Rice-planted areas decreases, especially those of the second rice cultivation in the irrigated areas. In addition, rice prices are lower. Farmers have less cash revenues, and their purchasing power decreases. Since the situation looks bleak, rice custom hiring operators delay their investment in new combine harvesters. Regarding the replacement demand, even though custom hiring operators have to replace their old machines, they need to delay their investment as long as they can. Therefore, the demand prospect is not so good. Yet, the study on impacts of the government measures above suggested that the existing monetary measures were sufficient, and there was no need for new measures to help the operators. As the replacement demand is around half of the total demands, the rice combine harvester firms have to reduce their production and try harder to keep their businesses afloat during this tough business cycle. With regard to the export demand, at present, an exported number is very small. Yet, this kind of demand becomes more and more important. As mentioned above, it was estimated that the shortage of supply of new rice combine harvesters in the domestic markets was around 10,000 units. And, given the present production capacity of all firms, excluding Siam Kubota, Co., the shortage can be fulfilled within 5 years, or not more than 10 years. There is an urgent need to expand the export markets seriously, especially in the neighboring rice growing countries such as Myanmar and Cambodia. Measures to help increase the export demand are as follows: Fiscal policies

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 Export tax credits: When a firm exports one unit of rice combine harvester, the firm should be able to deduct from its tax liability, for example, 10 – 12% of the exported value, or 3 – 5% above the value added tax. In addition, their expenses to train personnel in the importing countries to use and maintain the machine should be treated as expenses and less profit taxes should be imposed. Monetary policies  Provision of some financial support to the firms to organize exhibitions and demonstrate how to operate rice combine harvesters in other countries  Provision of some financial support to translate manuals into native languages  Offering scholarships for teachers, students, government officials, and farmer leaders in the importing countries to study or attend trainings at Agriculture and Technology Colleges, Central Institute of Vocational Agriculture Education in Thailand so that they could learn how to operate and maintain rice combine harvesters.

Recommendations to Increase Supply

There are two ways to increase the supply of rice combine harvesters. The first one is to improve production technology (hardware) and the second one is to increase human capacities (software).

The Improvement of Production Technology

As mentioned above that nearly all of the rice combine harvester firms, except the big ones, used traditional tools and equipment in their production. The technology is simple. Very few of them are able to use or invest in advanced equipment such as Computer Numerical Control (CNC)1, metal laser cutting machines, and CAD/CAM2. There are many explanations. Firstly, the firms do not have enough long-term investment capital. Secondly, the sales volume is too small. The firms cannot capitalize on the economies of scale. Thirdly, the firms do not have sufficient technological skills. When they were employees, there were no advanced machines at the firms where they learned the trade. However, these new advanced machines are necessary to improve the quality of craftsmanship and products. They can help the firms produce more standardized parts, better products, reduce waste, reduce trials and errors, and increase labor productivity, etc. There

1 It is the use of computer to control tools such as lathes, mills, routers and grinders. 2 CAD/CAM (computer-aided design and computer-aided manufacturing) refers to the computer software that is used to both design and manufacture products.

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 766 should be some measures to encourage and give financial support for them to acquire these technologies. Fiscal policy The government should provide an investment tax credit to firms that invest in new advanced machines. The firms that do not make the investment will not get the benefit. Monetary policies There can be many monetary measures. For example, a special window should be opened for firms that would like to invest in advanced machines. The firms should be able to borrow at a lower interest rate. Or, they may borrow at a normal lending rate, but the government helps guarantee the loans. These measures have already been implemented to help SMEs under certain conditions. However, monetary measures are more slippery. It is difficult to trace how the firms use the borrowed funds. The fiscal measures are easier to supervise. Furthermore, to implement these measures effectively, there is another necessary condition. The government should put a lot of effort to communicate with the target groups about the measures. As mentioned above, the finding of the survey showed that none of the firms had ever heard about the support or knew about the channels to get the support.

Improvement of Human Capacity (Software)

Improvement of human capacity is as important as the improvement of production technology. It can be divided into two groups. The first group is improvement of worker skills, and the second group is improvement of entrepreneurs or the owners’ managerial skills. The improvement of worker skills is presently done in the forms of on-the-job training/learning. A new worker or apprentice will be assigned to work with or to be an assistant to a skilled worker. There is no limitation on the training time period. It will go on until the instructor is satisfied with his trainee’s work. This is a good system and matched perfectly with the need of entrepreneurs. However, the improvement can be assisted by an introduction of “professional qualification standards” to test skills of workers. Workers who pass the test should be given certificates. The standards should be used as a basis for setting salaries or wage rates. Another important way to improve workers’ skills is to offer instructions or trainings on how to use advanced equipment and tools mentioned above. Because the equipment is expensive, no firm allows workers to use it for a training purpose. The government should be the one to organize and provide such instructions and trainings. They can be organized at universities or technical colleges with some financial support from the government. The improvement of owners/entrepreneurs should emphasize their capabilities in all managerial aspects such as marketing, finance, production, supply chain, and human resource. At present, managerial decisions are based primarily on experiences. Thus, growth of the firms will reach a certain level and then stop. There are very few firms that can pass the hurdle. All

The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 767 of them have to hire university-educated persons from outside to help run their businesses. Some firms’ owners have children who got a master’s degree in engineering, business administration, or other fields. They can assist their parents in working and decision making. Therefore, an injection of academic management principles is necessary. Next question is how to implement it as the firms scatter over the country, and they normally are very busy running their businesses. Appropriate measures to support the education and training of entrepreneurs and workers were fiscal measures. The government should allow the firms to deduct taxes from the expenses on education, training, and professional qualification testing.

Research and Development

Research and development is one of the most important factors to increase (or shift the supply curve to the right). They can focus on an increase of production, better quality, higher efficiency, and lower costs of production. Research on rice combine harvesters has been done continuously over the last 20-30 years. Involved institutions are, for example, the Agricultural Engineering Section, Ministry of Agriculture and Cooperatives; Agricultural Engineering Society of Thailand; Kasetsart University; and Khon Kaen University. Research budgets come mainly from the government. Contributions from rice combine harvester companies are minimal, and only few of them are able to provide research grants. Some firms conduct their own research and all findings are kept for themselves. All firms use the “Copy and Development (C&D)” strategy. They study other firms’ products, adopt good features, and develop their own products. However, this method of product development requires many trials and errors. Yet, it is a cheaper way to do. There is a lot of research to do, if Thailand would like to be in the fore front of the world rice combine harvester producers and compete with those big and well-established companies from technologically advanced countries. For example, at present, each combine harvester has more than 30 belts. The design is not based on any standards or laboratory tests. It is based solely on experiences. It is very easy for users to change as they see fit. It is difficult to maintain high production efficiency. There is a need to conduct serious research in this aspect. Furthermore, some parts are bigger and heavier than optimum. As a result, the combine harvesters are heavier and costly for customers. In addition to the research on production aspects, there is another important area of research. They should focus on managerial aspects. Entrepreneurs need a lot of support in this matter. The government should provide support for the research and development. There should be a fiscal policy to allocate sufficient annual budgets to the above agencies to enable them to conduct research continually.

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Education and Training

The most practical and cheapest way is to send vocational students to work and receive training in various rice combine harvester companies. They should be those studying agricultural machinery at various colleges under the Central Institute of Vocational Agricultural Education. Another measure to be implemented is development of professional qualification standards of all related fields. Professional qualification testing centers should be set up at local agriculture and technology colleges. The government should provide sufficient budgets to for them to acquire necessary facilities and train examiners.

References

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