Increasing profit by rice export reduction among union members

Abstract

Over the past decades, OPEC which coordinates petroleum policies among members has agreed to cut supply to raise oil price. With a consensus elasticity of -0.13, oil is an inelastic commodity, a reduction in production results in a huge increase in price. It is noticeable that OPEC can increase oil price because they altogether possess a large amount of global oil supply. It is interesting whether this strategy can be used with rice to increase its price by reducing its supply. Because rice elasticity ranges between -0.51 and -0.13, rice is also an inelastic commodity. Although rice and oil have some differences, a rice export reduction agreement among union members is investigated in this study to see the possibility of price movement of rice and the potential profit generated among countries given various percentages of rice export reductions among members as well as the effect to farmers in Thailand if implemented. This study creates a model for the relationship between rice export quantity reduction and corresponding profits. This model construction includes the integration of regression, demand curve, consumer price index inflation adjustment, elasticity determination, union member selection, autoregressive time-series model, revenue and cost calculation with discounted present value, and substitution price limit. The study mainly focuses on effects to Thailand. It is found from the model that an export reduction of 10% among members would increase an average annual profit of Thailand by 141.72 million USD compared to the current export level. Thailand may experience an additional revenue gain of 6.64% from export only and 11.08% for the total production of rice.