Economic Factors Affecting Rice Production in Thailand

 

 

Kwinarajit Sachchamarga

Gary W. Williams*

 

 

TAMRC International Research

Report No.IM-03-04

March 2004

 

 

Abstract

The general objective of this study iss to identify and measure the relative magnitude of effect of the key economic factors affecting Thai rice producer planting decisions using an econometric model of the area planted to rice in Thailand.The results suggest that area planted to rice in Thailand is more responsive to changes in area planted in previous years, the amount of rainfall, and the availability of agricultural labor than to changes in paddy rice prices. An important implication of the study is that policies to reduce rural labor shortages could do more to enhance the production of rice in Thailand than annual adjustments in the level of the guaranteed price of rice received by producers.

 

 

Executive Summary

Relatively little is known about the economic forces that affect rice production in Thailand. As a consequence, production and policy decisions in the Thai rice sector are often inefficient and ineffective.The general objective of this study is to identify the key economic factors affecting Thai rice producer planting decisions and quantitatively measure their relative statistical significance and magnitude of impact on the area planted to rice in Thailand over time.The conclusions of this study provide a benchmark against which the future and perhaps more in-depth studies of Thai rice production can be compared. Additionally, the insight gained from this study may prove useful in improving decision-making by both rice producers and policymakers in Thailand.

 

After reviewing the rather sparse literature on the economic factors affecting rice production in Thailand and some related research relevant to this study, a qualitative analysis of rice production in Thailand is provided as background to the subsequent conceptual and quantitative analysis.Based on the literature review and the review of the characteristics of rice production in Thailand, a conceptual model for the area planted to rice in Thailand is developed which provides the basis for developing the empirical model used for the analysis of rice producer behavior in planting rice. The explanatory variables in the empirical model include lagged area planted, the annual amount of rainfall, paddy rice prices, and the availability of agricultural labor.Many models were tested, most of which used different prices (nominal vs. real, lagged vs. current) to represent producer expectations.

In general, the analytical results suggest that the area planted to rice in Thailand is more responsive to past changes in area planted, the amount of rainfall, and the availability of agricultural labor than to changes in paddy rice prices.The results also indicate that the area planted to rice adjusts relatively slowly from year to year which is consistent with the fact that Thai rice farmers face numerous infrastructure, technology, credit, and other factors that constrain annual rice production decisions. The rice area planted is also found to be marginally more sensitive to current market price than to the price of paddy rice in the period just prior to planting.This result may be a consequence of the guaranteed rice price policy operated by the Thai government.

 

The area planted to rice in Thailand is also found to be positively and significantly related to nominal rice prices but not significantly related to real, deflated prices of rice.In Thailand, rice cultivation is not just food production but a part of the Thai culture.Rice farming is passed on from one generation to the next.Farmers rely on their rice production for household consumption and sell any excess.Even if there were technically viable substitutes available for rice, Thai farmers do not have sufficient knowledge or training to allow them to quickly adjust the composition of crops planted in response to relative price changes.Also, few purchased inputs are used in the Thai rice production.Thus, from the Thai farmersí perspective, there are virtually no substitutes for rice and few variable inputs other than family labor which is consistent with the finding that nominal rather than deflated prices are most relevant in Thai rice producer decisions regarding adjustments in the area planted to rice.

 

Perhaps the most important implication of this study for policymaking is that policies to reduce rural labor shortages could do more to enhance the production of rice in Thailand than annual adjustments in the level of the guaranteed price of rice received by producers. Variability of rainfall is also an important constraint to the growth of rice production suggesting the importance of government investment in irrigation systems to reduce the risk of water shortages that rice producers frequently face.

 

 

 

 

*††††††††††† Graduate Research Assistant and Professor of Agricultural Economics and Director, Texas Agricultural Market Research Center, Department of Agricultural Economics, Texas A&M University, College Station, Texas 77843-2124.