Demand and supply analysis of rice production in Thailand : with reference to government policies on prices

Vita.As in other developing countries, where rice is produced as the only staple food of the population, Thai rice production is significantly dependent upon physical factors such as rainfall and irrigation facilities, rather than economic factors. The instability of production and demand for Thai rice caused the government to adopt policies that insure sufficient supplies for domestic consumption at favorable prices. These policy tools include a rice export premium and rice reserve requirement. This intervention of the Thai government in the rice economy has been widely criticized during the last decade as to whether the policy tools are properly used in regulating exports. This study tries to answer the problem by constructing an econometric model of supply, demand and price relationships. The model allows a) the estimation of domestic and export quantity-price relationships, b) the estimation of the effect of changes in price on the quantities of rice produced, c.) the estimation of the price relationships between market levels, d) the projection of supply and demand in the future, and e) the evaluations of government policies on prices. A production model was estimated separately by ordinary least squares. The model for demand and price relationships was estimated by using three-stage least squares. Reduced form coefficients were derived and used in applying the model to several situations. Supply and demand were predicted for the base year in 1979. The model allows the evaluation of government policy by varying the value of the rice premium. The study showed low production response to elimination of the rice premium due to the low response to changes in the farm price. Elimination of the rice premium resulted in higher internal prices and lower export prices which implied a decrease in domestic utilization and an increase in exports. The farmers, exporters, and foreign consumers are among those who benefit from the elimination, but Thai consumers suffer higher domestic prices, and the government loses a source of revenue.