AN ECONOMIC ANALYSIS OF THAILAND'S RICE TRADE

This study is an analysis of Thailand's rice export sector with reference to three major issues: government trade policy, trade performance, and the structure of trade preferences. In analyzing the rice trade policy, particularly the rice premium, both theoretical and empirical analyses were undertaken in order to measure and evaluate the policy's effects on exports and domestic prices. A dynamic simultaneous equation econometric model for Thailand's rice economy was formulated and estimated for the period from 1959 to 1976. The study then measured the relative competitiveness of Thai rice exports in the world markets during the period from 1952 to 1976 by quantitatively decomposing the export growth into the four separate components of market, growth, competitiveness, and interaction effects. And, finally, to detemine the trade preference structure of major rice exporters and importers, a probablistic trade flow model was employed. The theoretical findings of this study indicated that the government trade policy reduced rice export volumes and lowered domestic rice prices below the no intervention equilibrium levels. Concerning the effectiveness of the rice premium policy in stabilizing domestic rice prices, the analytical results suggested that the policy would be relatively effective only if the export demand for Thai rice was highly elastic with respect to the export price. Since this price elasticity was estimated to be only 1.07, the premium policy was not very effective in insulating the domestic rice market from external price fluctuations. In terms of dynamic multipliers, the study showed that an increase in the export premium of one unit (one baht per metric ton) would result in a rise in the export price of about 3.7 cents and a fall in the export volumes of about 155 metric tons. The analysis also indicated that for any one thousand metric ton increase in U.S. concessional rice sales, the export price of Thai rice would fall by 9 cents per metric ton. In both cases, the effect on paddy production was insignificant in the short-run due to a time lag in the farmer's production response. To examine some premium policy alternatives, two policy simulation experiments (a no export premium experiment and a no premium increase experiment) were performed. The results of both experiments suggested that while farmers would benefit from high paddy prices in early years, they might suffer from lower prices in some future years because of the accumulated production expansion effect. For the second issue, the study found that the major causes of the serious decline in Thailand's rice exports over the period from 1952 to 1976 were the following: (1)the heavy concentration of these exports in slow growth or declining markets, and (2)the inability of these exports to penetrate the high growth markets in order to compensate for the market losses in the stagnant markets. This was confirmed by the trade preference structure that was extracted from a probabilistic model of rice trade flows, which showed that Thai rice received high preference in the slow growth Far East markets