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REVITALIZING THE LAW AND DEVELOPMENT MOVEMENT
A Case Study on Land Law In Thailand

IV. PRODUCTIVITY AND TITLE

Demonstrating a correlation between the prevalence of secure ownership and the commercialization of agriculture is the focus of this section. In the next section, we shall focus on causal interaction; how security of ownership helps to foster and support commercialization. The data used here are from Thailand Yearbooks. Unfortunately, the only type of "ownership right" compiled in the Yearbooks is "Land Title." Thus, to the extent that a "Certificate of Use" is also valid security for commercial or institutional loans, the data here may be misleading. Moreover, although the data are presented in the agricultural section of the Yearbooks, the figures on total rai titled may include "Land Titles" issued in urban areas. Thus, any conclusions reached here are extremely tentative.

Although the Yearbooks do not provide any clear information on what types and sizes of land holdings were issued titles or any information on "ownership" rights besides titles, they do provide evidence that the average size of plots was larger in earlier years. For example, by 1955 a total of 844,345 "Land Titles" had been issued. The area covered by the titled land was 12,528,516 rai. Thus, the average size of a plot was 14.8 rai (2.4 hectares).⁽²¹⁾ The large average size of the plots indicates that, at least for early years, most of the plots were probably used for agricultural purposes rather than for urban dwellings. Yet by the sixties, and continuing into the eighties, the average plot size was between 2.0 (1965) and 3.4 (1971) rai.⁽²²⁾ The earlier issuance of "Land Title" deeds for larger plots indicates that large farms were the first to go through the process of surveying and registration leading to the issuance of a "Land Title" deed.

The data collected by the Thai government do not lend themselves to a direct analysis of which lands were more productive. Nonetheless, calculations made by us seem to indicate that a higher percentage of land was titled in those Regions that had greater productivity per rai. Based on figures in the 1983 Yearbook, we think that the productivity (yield per rai) of land planted with rice is related to the proportion of total lands titled in a given region. Obviously, both the level of aggregation of the data and the universal unreliability of government statistics present serious problems.

Table 1 shows that the Central Region is by far the most productive in Thailand. This region corresponds to the area which first received "Land Titles" in the country.⁽²³⁾ The least productive is the Northeast.

Table 1: Yield per rai in Kilos of Rice by Region

Source: Thailand Yearbook 1985-86, p. 175.

Table 2 shows the number of rai that is titled by region. Once again the range is defined by the Central Region, with the most rai titled, and the North-East, with the least. Table 2 also shows that for the Central, Eastern and Western regions, three of the top four in productivity per rai for rice, are also the top 3 in total lands titled.⁽²⁴⁾ While our conclusions are tentative, the data seem to support our thesis that an interrelationship exists between commercialization, represented here by higher yields per rai, and the total amount of titled land in a region.

Table 2: Total Number of rai Titled and Planted by Region

Source: Thailand Yearbook 1985-86, p. 203.

* Note: May include rural and urban land.
** Note: All figures were calculated by dividing total rice production by yield per rai; thus the column represents the total number of rai harvested with rice.

V. COMMERCIALIZATION, OWNERSHIP RIGHTS AND ACCESS TO CREDIT

In this section we shall describe the enormous credit advantages that a farmer holding land with secure ownership rights has over another farmer with less secure rights. We also will explore the specific reasons why these advantages exist.

Imagine two farmers. Both hold identical plots of land and are equal in all relevant ways, e.g. socio-economic status, accumulated household wealth, etc. except that Farmer A holds his land either with a "Land Title" or a "Certificate of Use" and Farmer B has either no document for his land, an STK certificate, or any of the other documents that do not give the holder an officially recognized right to alienate his land.⁽²⁵⁾

Farming is typically characterized by several months of negative cash flow, followed by a short period of marketing during the harvest.⁽²⁶⁾ As a result, at the beginning of the growing season Farmers A and B need a loan to cover the costs of inputs such as seeds, fertilizers and tools. The greater the capital investment that each farmer can make now, the higher his output per rai and, thus, the agricultural surplus he will produce and be able to market.⁽²⁷⁾

Both Farmers A and B live in the same community. Yet, since they are aware that the local money lender charges higher interest rates, both farmers attempt to get a loan from a nearby commercial bank or the government's Bank for Agriculture and Agricultural Cooperatives (BAAC).⁽²⁸⁾ Although it is possible that Farmer B will get a loan from one of these institutional sources, it will be, at most, a short-term unsecured loan and he will not receive as much principal.⁽²⁹⁾ On the other hand, Farmer A will receive a loan by pledging his land as security.

Why will Farmer A receive a loan from an institutional lender whereas Farmer B probably will not? Lenders base their decision to loan funds to borrowers on the basis of the risk inherent in the loan. Two basic catagories of loans are possible, either secured or unsecured. A unsecured loan is given on the basis of the general credit worthiness of the borrower. Farmer B is less credit worthy than Farmer A, all other factors being equal, because he has less implicit collateral due to the lower value of his land. Farmer B is thus less likely to receive a unsecured loan than Farmer A from institutional sources and if he does, it will be for a smaller amount.⁽³⁰⁾

Part 12

Endnotes:

(21) Thailand Yearbook (1954-55) at 185. This average was typical for the preceding years. In 1954, the average plot was 15.1 rai and, in, 1953 15.3 rai. (All figures rounded to nearest tenth).

(22) Calculations based on data from the Thailand Yearbook 1985-86 at 202.

(23) See supra, p. 44.

(24) The exception that the Northern Region presents is somewhat puzzling. The area's productivity success may be due to natural factors such as good rains and rich soils.

(25) See supra, pp. 44-46, for a discussion of whether a "Certificate of Use" is valid security for commercial loans in Thailand.

(26) G. Feder, supra note 7, at 44.

(27) At some specific level of investment, the marginal utility of the added input will be less than its cost. At this point, the farmer, assuming he acts rationally, will not purchase the input.

(28) Data presented in G. Feder, supra note 7, at 56, indicate that the mean interest rate for traditional credit mechanisms for untitled farmers varies in the four Districts where the field work was done from 42.5% to 56.8% per annum. For farmers with secure title, interest rates varied for traditional credit mechanisms from 38.5% to 54.0% per annum. Conversely, the mean interest rate for all loans from commercial or institutional sources was 13.8% to 17.1%. For a borrower such differences between interest rates are highly significant.

(29) In the Feder study, commercial banks rarely made any loans to untitled farmers. BAAC and some cooperatives make loans to untitled farmers but the average amount of these loan is considerably less than for titled farmers and are for shorter periods of time. The average amount of loan per rai owned varies by district from 324 baht to 114 baht for untitled farmers. Titled farmers receive considerable more per rai of land. The average varies from 319 baht per rai to 776 baht (26 baht is equal to one dollar). Id. at 54-56.

(30) In G. Feder, id. at 57, the authors state that "...while untitled borrowers without loan security obtained an average of only 262 baht per rai from institutional sources, titled borrowers without loan security obtained almost twice that amount, 515 baht per rai. These findings suggest that even when land is not formally offered as collateral, titled land is more valuable as implicit collateral, allowing farmers to obtain more institutional credit than untitled farmers can obtain."