Impact of Rice Policies on Thai Rice Industry

Abstract

From the review of literature on the study of the structure of the the value chain of the Thai rice industry , rice polices and the tools used to analyse rice policies. There are four crucial results . Firstly, the system of the Thai rice industry is studied. The system starts with the farmers who sell paddy to both large and small millers, and the millers mill and sell the rice to both exporters and domestic traders. Secondly, the rice price is determined by the world rice market. In addition, the rice price is determined by the population, world income, and world per capita income. Thirdly, the two main rice policies in Thailand involve rice pledging and rice price guarantee, which are more complicated than the policies in other countries. Fourthly, amongst the three main tools for the analysis of rice policies; econometrics, the computable general equilibrium model, and linear programming, linear programming is the most appropriate for this study because it can deal with complicated policies and it can also identify scarce resources and their shadow prices. In addition, linear programming can also be adapted for goal programming. This study constructs and develops a Thai rice industry model by applying linear programming with data from many sources, including the Office of Agricultural Economics, the Bank of Agriculture and Cooperatives and the Fiscal Policy Research Institute, the Department of Rice, the Ministry of Interior, the Department of Industrial Work, the Thai Rice Millers Association and the Thai Rice Exporters Association. There are seven cases applied in this study; the normal case, the pledging case, the price guarantee case, the pledging case with corruption, the price guarantee case with corruption, goal programming with equal priorities and goal programming with unequal priorities. The study revealed three main results. Firstly, normal land and irrigated land area are the scarce resources. However, in practice, it is difficult to expand the normal land area. There are two recommendations; changes from other cash crops to rice or to expand the irrigated land area by irrigating non-irrigated land areas. The shadow price of irrigated land that is developed on normal land is 4,111 Baht per rai per year for irrigated land. Secondly, farmers do not optimize their decisions, so their income is less than it could be. Therefore, farm optimization is necessary. Thirdly, the pledging policy yields higher total profit than the price guarantee and normal cases. However, the higher profit comes from a system that gives a chance to small millers who have a lower broken rice rate to purchase more paddy from the farmers who cannot wait for the money from the program. In the corruption case, the study found that when both price guarantee and pledging policies spend the same amount of budget, pledging, which is corrupted by smuggling rice from neighbouring countries caused a huge amount of smuggled rice to enter the market, which exceeded the milled and wasted quantity. Therefore, the pledging with corruption case is the worst. The last two cases represent goal programming with equal priorities and goal programming with unequal priorities. These two cases are appropriate for the case of cooperative decision-making in the industry. The study found that cooperatives, by deciding together, yield a higher total profit than individually decided cases. Moreover, the study also found that the player that should be prioritized first is the farmer, followed by the small millers, the domestic traders, the exporters and the large millers.