Economic analysis of crop substitution policy in Northern Thailand

Objective of this study is to asses the economic efficiency and the degree of distortion on the output and factor markets of various agricultural production systems. Using Policy Analysis Matrix (PAM) as analytical framework the present study attempts to estimate various concerned indices namely: the Nominal Production Coefficient on Tradable Output (NPC) the Nominal Production Coefficient on Tradable Input (NPI) the Effective Protection Coefficient (EPC) and the Domestic Resource Cost Ratio (DRC) in the production of second rice, soybeans and mungbeans. The chosen regions for study are Kamphaeng Phet, Nakon Sawan, Phichit, Phitsanulok and Uthai Thani provinces along the Chao Phaya Basin. Analytical results of distortion in output and factor markets of second-rice, soybean and mungbean production in the five provinces disclose that, the values of EPC are less than one for rice and mungbeans and greater than one for soybeans. This indicates that the existing policy regime results in disincentive to the production systems of rice and mungbeans while results in incentive to the production system of soybeans. The values of DRC are less than one for rice and greater than one for soybeans and mungbeans in all regions indicating comparative advantage in the production of rice, and comparative disadvantage in the production of soybeans and mungbeans. Therefore in the case of soybeans as an import substitution product, the contry is better-off to import the product rather than produce it domestically. In the case of mungbeans as an export product, economic efficiency can be enhanced by reallocating resources to produce other more profitable commodities. The sentivity analysis on DRC discloses that when yeild (or world price) of second rice decreased by 20 percent the production of soybeans in Kamphaeng Phet, Nakon Sawan, and Uthai Thani provinces would become comparative advantageous in place of rice. By the same token, when yield (or world price) of soybeans increased by 20 percent, production of soybeans in Kamphaeng Phet and Uthai Thani provinces would become comparative advantageous in place of rice. The analytical results indicate that changes in the level of concerned factors (eg., price and yield) would result in changes in the level of comparative advantage (disadvantage) of crop production. Promotion to increase soybean production via increasing yield in stead of protectionist policies would province one way for Thailand to become self sufficient in soybean production without curtailing economic efficiency as regard to resource allocation.